Q3 2020 CareTrust REIT Inc Earnings Call
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Thank you and welcome to Caretrust REIT third quarter 2020 earnings call participants should be aware that this call is being recorded and listeners are advised that any forward looking statements made on today's call are based on management's current expectations assumptions and beliefs about caretrusts business and the environment in which it operates these days.
That may include projections regarding future financial performance dividends acquisitions investments returns financings and other matters and may or may not reference other matters affecting the company's business, where the business is at its tenants, including factors that are beyond their control such as natural disasters pandemics such as <unk>.
19 and governmental actions.
Companies see today and its business generally are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein.
Listeners should not place undue reliance on forward looking statements and are encouraged to review Caretrusts FTC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC regulation G.
Except as required by law churches Street, and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
During the call the company will reference non-GAAP metrics, such as EBITDA as it, though and I think maybe more fad and normalized EBITDA at this though and a baby when.
When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of its business, but caution that they should not be relied upon to the exclusion of GAAP reports.
Your truck yesterday filed its form 10-Q, and accompanying press release and its quarterly financial supplement each of which can be accessed on the investor Relations section of Caretrusts website at Www Dot Caretrust REIT Dot com.
A replay of this call will also be available on the website for limited.
Management on the call. This morning include Bill Wagner, Chief Financial Officer, Deep essentially Chief operating Officer, Mark Lamb, Chief Investment Officer, and Air Gillis, Vice President of portfolio management and investments.
I will now turn the call over to Greg Stapley, Caretrust reeds, chairman and CEO.
Thanks, Lori and good morning, or good afternoon wherever you are everyone.
Q3 went pretty much according to script solid rent collections improved testing capabilities declining mortality rates, improving skilled mix offset continued weakness in census.
Anecdotally day to day operations see much more stable than they were initially and we believe that seniors housing and skilled nursing industry is a far more prepared to handle the third wave than they were six months ago.
Engaging their near term prospects, we've dug into the operational analysis of our portfolio at a more granular level than ever.
I understand it for Jack how are tenants are likely to appear in the coming months under a variety of possible scenarios.
We are pleased to be reporting and we gave you some new data points to help you understand this in our supplemental yesterday.
The DHS provider relief funds appear to be providing or skilled nursing operators with enough runway to continue operating comfortably for the next few quarters, well vaccines do therapeutics and other mitigating major rollout.
Weve expanded and enhanced or lease coverage reporting in order to show you exactly how these operators did in Q2, which was the first full quarter of pandemic impact, both with and without providing relief funds and we continue to track both metrics on a month by month basis.
No there are a lot of ways to calculate the impact of the relief funds and financial performance, an operator held in different operators are doing it very differently.
Our methodology for estimating the amount of relief funds to show in the with relief funds coverage number is very conservative we spread all receipts to date Ratably over the 15 month period from last April to next June Thirtyth.
We use that period because June 30, 2021 is when providers hit the use it or lose it point under current HHS regulations.
Those regulations incidentally have been pretty fluid to date, the number the deadlines announced by the government in connection with stimulus programs have been pushed out sometimes repeatedly.
President with over 30 billion and Cures Act funding still allocated we expect but we're not projecting are counting on we expect some additional relief funding as well as possibly some additional time to use the funds has the pandemic plays out.
But we will stick with our conservative measurement methodology until the announced ground rules change.
So bottom line, we see several more quarters are fairly predictable and manageable operating performance, especially if the promise vaccines are effective been rolled out quickly.
And we also see a path to a soft landing for most operators, if we get into an extended recovery.
We will continue to advocate for health care providers as the pandemic continues to unfold and we intend to continue providing you with as much and meaningful data and transparency about them as we can.
That's for Caretrust I'm pleased to report that we remain in great shape.
From April through October, we collected over 98% of rents and with the exception of one small seniors housing tenet November rent collections are on track and continuing to come in as expected.
With nothing drawn on our revolver and 25 million in cash on hand, we have the lowest leverage in company's history today at less than three times net debt to EBITDA at the moment.
Interest costs on a floating rate debt are at historic lows and we have no debt maturities on the horizon before 2024.
We were also able to post modest external growth in the quarter, despite the pandemic and the challenges that it poses for underwriting.
And we've grown or pipeline despite the disruption in M&A activity in our space since April.
Finally, we are raising and narrowing guidance for the year from her previous normalized FFO per share of 132 to 134 and normalized Fad per share was 38 to 140.
We are now projected normalized AFFO per share 136 to 137 and normalized fad per share of 142 to 143.
Finally, just looking forward, we feel good about our prospects for both collections and external growth over the next three quarters or so which is about as good as our crystal ball ever gets.
And we see great potential for great 2021, so.
So first I'll turn it over to Dave for some more color on whats happening out. There then mark will jump in with acquisitions and Bill will finish off the financials. Then we'll open it up for QNX Dave.
Thanks, Greg Good morning, everyone.
I ended last quarter's call with some milestones we would be tracking to measure progress towards turning the corner on coated so let me start there with my comments today first.
First critical capability.
You know both testing and treatments have improved dramatically since the beginning of the pandemic further.
Furthermore, most operators have now adapted to the cobot environment and largely put the initial.
Disorientation and distress or the pandemic behind them.
The second milestone, we monitor closely as government funding.
After four rounds of announced funding skilled nurse on skilled nursing operators are in fairly stable shape.
And seniors housing operators have recently been given another chance at a plane for funds.
The third milestone we were watching as hospital volumes.
Both through the emergency Department and electric procedures, returning to pre pandemic levels.
Due to the fluid nature the virus recovery of hospital volumes has been limited and idiosyncratic so far.
We expect hospital volume to ebb and flow by markets, depending on the continuation of future waves of infection.
And fourth and finally, the milestone of course is the vaccine.
And we're encouraged by the aggressive efforts by industry and the FDA to bring an effective vaccine to market in record time.
We're pleased to see the prioritization of nursing homes and seniors housing settings in those discussions.
It is really good to see some genuine progress on several fronts.
Next let me turn to occupancy.
I'm pleased to report that from March through October seniors housing occupancy in our portfolio has held steady compared to skilled nursing and the seniors housing sector at large.
Overall, we did see a minor 150 drop in seniors housing occupancy over the last few months compared to June.
Individual facilities have declined while others have actually gained occupancy this year, it's been impressive to see a couple of hours of our seniors housing operators actually perform better during the pandemic than before.
For skilled nursing not including inside our.
Our overall occupancy has dropped 710, bips or roughly 9% from March through October 30, Onest, but.
But the higher margin skilled occupancy has increased 480, bips or almost 31% over the same period.
The additional skilled revenue provides a meaningful partial offset to the overall occupancy loss and increased expenses associated with covance.
Now I'd like to talk about the government relief funding and our reported lease coverage.
We are grateful and applaud the federal and state governments for providing the level of support that they've given to the sector. Thus far.
Some operators have desperately needed the funds to bridge them until they're fundamentals recover.
Her operators have benefited from the security of the funds provide in a very uncertain time and a couple of dark.
Operator said actually returned the funds altogether.
A question on everyone's mind is due the HHS funds provide us sufficiently long bridge for operators to manage through until pre cobot operating conditions return.
In other words, whereas the risk in the portfolio.
Traditionally TTM lease coverage has been the primary bellwether to assess risk of master lease rents.
Last year, we increased visibility by disclosing EBITDAR and EBITDARM lease coverage by operator for our top 10 tenants, who account for roughly 80% of our revenue.
Because of coated and the HHS relief funds.
Reporting a meaningful coverage number for you became a real challenge this time.
This challenge is magnified by the fact that there is no uniform methodology for operators to account for their provider relief funds.
Resulting in some a plane large amounts right away and others, taking a wait and see approach.
So simply reporting coverage based on the financials as reported by our operators would be confusing at best So.
We are reporting coverage this quarter by looking at two time periods.
First three months of coated and also at the trailing 12.
And we're reporting those two periods in two different ways first by stripping out HHS funds.
And second what we believe is most important and most indicative of the operator's ability to out run the pandemic, we show coverage, including HHS funds amortize through June of next year since as of now they have until June of next year to use those funds.
We're very pleased to report that through the second quarter overall portfolio EBITDAR lease coverage on a TTM basis stripping out all HHS funds is 1.94 times.
Ensigns, certainly pulls up that average.
Without inside that portfolio coverage without HHS funds is still a very strong 1.28 times.
And for just Q2, the first quarter and likely hopefully the worst quarter of Cove it.
EBITDAR coverage.
Without HHS funds was 2.09 times.
And without inside it was 1.30 times.
Finally, we continue to be grateful and proud of our association with the operators, who are adapting managing and in some cases improving.
During these extraordinary circumstances.
Like I said last quarter.
As we weigh the current challenges along with the support provided to date we can.
Can you to see a path forward for operators to continue to care for their residents and patients.
Keep their caregivers fully employed and pay their rent.
They fulfilled their role as a critical part of the solution to the crisis.
With that I will pass the call over to Mark to talk about investments part.
Thanks, Dave and Hello, everyone.
The investment front, we got back on the board in Q3 with a great tuck in investment with our tenet healthcare. The two building portfolio located in Helena, Montana had very little exposure to coated.
The financial does not have a lot of noise, which made devaluation Mr. Ford.
We paid $16.6 million for the two buildings, which moved up from our seventh the fifth largest.
As we added one and a half million and ran through our master lease with that.
Year to date, our investment activity is produced 42 and a half million in new investments you.
We continue to see a steady flow of opportunities coming across our desks.
Although not close to the pre pandemic volume, we experienced back at the beginning of the year.
Opportunities range from broken in non strategic.
Performing buildings as well as portfolios.
We continue to see smaller operators looking to exit this new space for good and expect that trend to continue to happen over the next 12 to 24 months.
We are cautiously optimistic about some larger opportunities that we believe will be coming to market over the next several quarters and expect 2021 to be a really active year on the acquisition front.
In the meantime.
We continue to pursue opportunities that we feel we compare with our existing operator bench.
Also some operators with whom we would love to commence a relationship that are currently in our operator pipeline.
Turning to our turning to the pipe well our normal deal flow typically sit in the 100 to 125 million range as a result of our singles and doubles approached acquisitions.
We are happy to report that we currently sit at 150 to 175 million range for deals that we feel very good about.
The pipe consists of a few small portfolios as well as a few singles and doubles.
Composable snus in seniors housing.
The acquisitions in the pipe allow us to further strengthen our existing tenant relationships, but as we discussed on the last call allow us to begin relationships with groups that we believe will enhance our ability to continue to grow our portfolio both in our existing footprint as well as in new markets.
Please remember that when we quote our pipe we close deals we are actively pursuing under our current underwriting standards and then only if we have a reasonable level of confidence that we can lock them up and close them in the relatively near term.
And now I will turn it over to bill to discuss the financials.
Thanks, Mark for the quarter normalized FFO was 32.5 million or 34 cents per share normalized Epay de was 33.9 million or 36 cents per share.
At quarter end, our payout ratio remains at or among the lowest of our peers at approximately 74% normalized FFO and 69% normalized that they do.
Leverage was at an all time low on a net debt to normalized EBITDA ratio basis from 3.1 times and net debt to enterprise value was 22%.
During the first quarter, we put in place a new 500 million dollar ATM and a 150 million stock buyback plan neither have been utilized today.
Our liquidity remains extremely strong with more than 25 million of cash on hand today. We also have 600 million of availability under our revolver and we produce almost 9 million of cash per quarter. Even after this year's increase in our dividend further.
Further with our recent sale of our remaining independent living facility that we owned and operated our net debt to EBITDA drops below three times.
Cash collections for contractual cash rent in October were 98.7% and we expect to end November collections at around 98% as well.
Moving on to guidance. Despite the pandemic, we're revising upward our previously issued guidance for 2020, which called for normalized FFO per share of $1.32 to $1.34 normalized EPS per share of $1.38 to $1.40 based on 95.6 million shares.
We now project normalized FFO per share of $1.36 to $1.37 and normalized EPS de per share of $1.42 to $1.43 based on 95.4 million shares.
With only a couple of months to go into year, Let me update you on some of the assumptions that were used in our upwardly revised guidance rents.
Rental income is projected at approximately 170 million for the year, which only includes $80000 and straight line rent.
Interest income is projected to be 2.3 million.
Interest expense is projected to be approximately 24 million and assumes a LIBOR rate 30 bips.
Interest expense also includes roughly $2 million of amortization of deferred financing fees.
DNA is projected to be between 15.5 and $16 million and includes roughly 3.7 million of amortization of stock comp.
Guidance for 2021 will be provided in our year end press release now.
With that I will turn it back to Greg.
Thanks Bill.
We hope this discussion has been helpful to you. We thank you again for your continued interest in supporting of Caretrust and with that we'll be happy to answer questions. Kevin can you instruct one questions.
Ladies and gentlemen, a question or comment at this time. Please press. The Star then the one key on your personal telephone. If your question is that that's where you were still yourself from the queue. Please press the country.
First question comes from Jordan Sadler with <unk> capital markets.
Thank you and good morning out there so.
First question just really on the pipeline.
It seems.
That there may have been some developments overnight.
The pipeline.
And relative to the press release last night, saying 125 to 50, 150, 260 to 175 or so that mark so.
Interested in hearing sort of what the.
The pipeline is comprised of.
Mostly sniffs.
And what pricing looking like and then I'm also interested to hear.
Little bit more about some of the larger opportunities you mentioned that could come to market and maybe if you could kind of give us some guide post for what larger bids.
Yeah, George it's Mark so.
So I'd say the existing the existing pipe is made up of mostly snus. We're looking at some some campus opportunities that do have senior housing component, but no no standalone seniors housing.
At this time.
To your question on.
To your question on kind of.
Future opportunities just just in discussions with operate our investment kind of advisor community.
Over the last couple of weeks, we know that that some larger deals come to market I would say somewhere in the anywhere between 50 and $160 million.
And those are those are obviously auction processes.
Good quality assets as.
As Walter.
Hearing.
Opposition to the portfolio.
So so we're interested to see what those look like as as Weve seen much in 2020, a lot of the.
The larger deals has been call. It non strategic there was a couple that we're in now.
Just earlier this week.
And so we're cautiously optimistic about what is Connie I think I think as.
Cobiz sort of played out opportunities have.
Have kind of come and gone and.
And operator portfolios have been sort of held until people feel like there may be right at the end of the tunnel.
In a few particular cases, the portfolios that we expect to see.
The next quarter too far.
Been held until people can kind of get their arms around.
Financials, and hopefully we'll be able to.
Underwriter.
EBITDA run rate, assuming something gets figured out.
Yes.
Sure.
So just expanding on that a little bit.
Obviously, there's been some deterioration in census, broadly speaking across the space and so when you when you're underwriting one.
I assume you're looking at opportunities that include you know market level deterioration.
Just wondering how you think about that and see where we go with that last sentence and then you are in your underwriting.
When I have just and then kind of a follow up it would just be how is this affecting.
You know coverage underwriting.
Some sort.
So to the first question.
I think it's obviously important to kind of look at that.
I have three pretty tepid numbers certainly understand why.
The level.
Scaling in place because you can have a drop.
You can have a drop in census, you can have a spike.
Q mix or skilled mix.
But is the spike.
Solely based on on scaling in place.
Or is there an actual chicken.
More skilled skilled patients coming in it's probably going to be a.
The combination of ball with probably heavy slant towards scaling in place.
So so how we address that in the underwriting is you try to structure it.
Yeah.
In the documents to make sure that there is there's a safety net.
The.
We account for the downside risk.
In other ways, so we're not necessarily solving.
All the problems just in our underwriting I think the other piece of it is is making sure that from.
From a transactional perspective, we've covered.
Ourselves from.
From anything that.
Could take place going forward, just depending on how long.
From an underwriting perspective every.
Every deal is a little bit different as you know as weve sort of had done this for.
Five to six years now every every deal is different in a lot of the opportunities that we see on the underwriting side really have a lot to do with the operator that's exiting.
And.
And so in.
In each case is as we have opportunities in our pipeline a lot of you know the first assessment is certainly what what the port folio is performing at today.
But also where we.
There.
There can be some some day one changes.
Cost structure.
Terms of insurance.
In terms of.
Maybe on the revenue side of us capture capturing rate so.
What we have historically discussed as low hanging fruit so.
You know the underwriting really is.
Kind of a fluid process in terms of looking at.
What are the in place economics of UBS.
Buildings on the portfolios that also.
Where where's the low hanging fruit.
Great. Thanks.
Okay. Thank you.
Sure.
Our next question comes from Michael Carroll RBC.
Yes, Thanks, Mark I wanted to kind of continue that line of questioning a little bit.
I think that you are saying earlier that there are some smaller operators that are looking to to exit the business and no care Trust has been able to.
By properties in retaining and is that something that you're still actively looking to do right now in this day environment or is it more of the bread and butter sale leaseback type transactions just given the uncertainty.
You know I would say I would say no. We are continuing to look for opportunities that that folks are exiting the business and we can bring our our our existing operators into into new acquisitions I think the.
There continues to be.
Opportunities.
Once you strip out.
The HHS funding.
Operator, so still feel very good about being able to come in and take over if you look at the transaction we did in.
In the quarter.
It was an operator, who wanted to exit our operator tomorrow felt very good about coming in and taking over and being able to kind of reach another level from from a performance perspective despite coated.
So you know that that continues to be our bread and butter and we'll continue to look to to tack on acquisition opportunities with our existing with our existing tenant base.
No. It does those deals take longer today, just given the uncertainty in probably the difficulty to transition operations just given that we're in the pandemic.
Or is it I.
I mean, this kind of just has to be more careful about if it's still possible.
Mike its Greg.
You know I think.
I think your questions in Jordan's both both things.
Acknowledged.
You know the truth that.
Underwriting under current conditions has become quite a bit more complicated.
It's difficult to give you a simple answer every deals so different as mark says to begin with and and then you've got this temporary condition hopefully temporary condition that you really don't know quite know how or when it's going to shake out and sort of normalize. So we're trying to take those things into account from getting very granular with our analyses.
These.
Target acquisitions, just as we've done with the lease coverage numbers that we gave you on our existing portfolio today trying to understand what's really going on behind the scenes and I think if there's ever been a time when our background operators has been of a benefit to us.
Is never been more so than right now so we continue to look at those deals we are committed to continuing to grow we have great operators in the wings that we would like to bring in and great operators in the portfolio that we would like to expand and we're not really.
Well, it's more difficult, we're not really going to let the pandemic.
Slow us down you ask about whether transitions take more time actually true.
Transfers of operations.
Not more complex some of the documents around them take a little more time.
To do under the current conditions, but it's really just the underwriting and evaluating and creating the safety nets.
Our transactional structures that mark talked about which can take a variety of forms that we're not don't necessarily want to talk about here, but.
All of that getting to the deal is is much more laborious now than it's ever been but actually doing the deal. Once steps is is fairly straight forward. When we say that things are pretty called out there and that the the operator community seems to be ready to handle the third.
Wave that they're much better prepared written it's true.
It is really are in a much different environment today than we were six months ago things feel I mean, there's there's new things happening every day in the facilities, but they are used to them and and it's now standard operating procedures. All this infection control and.
And limited access and everything else, so it's really not.
Complicated in that respect, but it is.
Sort of tough to get to the right numbers and get them over the finish line.
I hope that helps.
No. It does and then just one last question.
What is the competitive landscape right now I mean is there a lot of capital on the sidelines waiting to kind of get into this space are you competing against the same players which were previously or or is just been so quiet that there's not a lot of people be enacted.
Yes, I would say, it's it's similar to what we've experienced over the last 12 to 24 months private.
Well capitalized buyers who are sophisticated.
With respect to our understanding of this business.
So maybe.
We're starting to maybe see some other of our repairs.
We are hearing about that or better sort of.
Off the sidelines.
Any games so.
So, yes, I would say there's.
Substantial amounts of capital as we can.
Sure.
Our opportunities to.
To find a home.
Okay, great. Thank you.
Sure.
[music].
Your next question comes from Jonathan Hughes with Raymond James.
Hey, good afternoon intern East coast. Thanks for the prepared remarks, and disclosure I'm, Dave I was hoping you could talk about what happens to trillium EBITDAR coverage on that one.
Stuck out to me and the drop in the second quarter.
Hey, Jonathan Thanks.
Yes, the trillium.
It goes up to the top 10 because of a rent increase that they had.
Taking trios place.
And.
First quarter.
Of the covert experience really took its toll on on Trillium.
An increase in labor costs and.
A decrease in revenue.
Resulted in in the numbers that you can see there.
The good news is if there is any in there is that Q3 is better.
In Q2 still not quite up to the one times coverage without HHS funds, but.
But a lot closer.
And.
We feel like they are.
<unk>, making the changes that they need to to their business to.
To to manage through this.
Trillium is a great example, actually of just how important is HHS funds are.
And and.
Disclosure that we show amortization amortizing their relief on through June of next year kind of shows showed that.
And again that amortization schedule does not.
Include any future expected.
Additionally, the relief funds that we think are coming from the government.
Okay.
No. It's very helpful and that disclosure is really useful so thanks for putting that together.
Jordan I already covered my question on the pipeline.
Just one more for me.
If.
I know that the pipe is a little bigger than even last night and you guys are optimistic fight.
And if we roll into January February and we don't see yes.
Some money moving out the door in terms of investments could we expect a larger dividend raise than in prior years to share some of that the cash flow with investors.
It's been raised 9% annually for the past five years, which is very strong, but I mean could it be even higher if the investment paid 10.
Ken remains a little.
Little muddied as we turned the calendar.
You know I am Jonathan its Greg I.
We really haven't talked about that is probably not a lot that I should say and projecting with dividends going to be like last year I will say that historically, we've been very committed to making sure that that multiyear dividend graft keeps ascending at a solid rate but.
But we've also been very committed to maintaining a payout ratio that.
Puts.
Funds back into the company when possible because that's our cheapest form of capital and some of the best return that we believe we can give to our shareholders and so I don't know what the dividends going to look like when the time comes to visit that next February March, but I will tell you that we remain committed to both of those.
Concepts and we will work through it as we see what the next few months spring.
Back to your question about timing with respect to these deals the it's important to sort of look at what we're saying in light of the normal cycle for deals that happens every year, we're not a custom in this space to seeing a lot of deals coming to market in November and December usually they've come back.
By September and October when we're hitting the knick conferences and the and then everybody kind of goes silent until January when people get back after the holidays. So.
While we do have a host for closing some additional deals this year and we also have some stuff in the pipeline for next year I'm not sure exactly what the timing on any of those would be.
And we just.
Ask you to hang in in in and watch the tape and.
We'll keep putting points on the board as they're good points to be had.
All right I'll be patiently waiting thanks for the time guys.
Thanks.
Our next question comes from Steven Valiquette with Barclays.
Hi, Thanks, Hello, everyone. Thanks for taking the questions.
So also just sticking with the lease coverage ratios on page six.
Yeah basically of the top 10 tenants. If you look at column, three which excludes the a really fun to credit the column one.
Interesting that seven of the company there on their coverage ratio of only three are down.
Maybe across the industry, you might have that ratio that percentage and reverse the other way. So I guess I'm just curious what do you think are the common operating characteristics of the.
Having operated they're able to drive better rent coverage and that June quarter, I would have to be the period, where you'd have the biggest falloff in post acute patient volume being referred in.
[music] care setting et cetera, just curious to get more color on what drove some of the positive.
Trends thanks.
Yeah. This is Dave Yeah, that's a great question and the answer really lies primarily in.
Having a couple of things one you have.
Well, we haven't or top 10 is not what you would consider an index.
Senior the skilled nursing space.
We really do.
Right ourselves in partnering with.
Best of breed operators and this business pre pandemic.
During pandemic post pandemic.
It's incredibly leadership sensitive and management sensitive you have the same exact brick and mortar, but you change out the operator and you have very different results, even with the same exact.
Employees and and patients and residents.
And so management matters massively and I think that's what you see in these numbers and and then when you look at the commonalities as you're asking about.
The ability to skill in place is a huge factor.
Because not only do you pick up.
Skilled patients that are higher margin patients.
But you.
You also have the.
The ability to.
I didn't market yourself as a solution to the problem to the communities. So in many of our operators. They not only are dealing with the pandemic, but they're positioning themselves to become the operator of choice for not just the hospitals, but assisted living in the area that has.
I have to find a solution.
To taking care of these these coveted residents.
So as you have that ability to skill in place.
Affectively take care of these patients.
That is what's largely translating into these numbers.
Okay, that's helpful and just.
Referred to as the Premier the only company in that list, that's predominantly senior housing focus.
Premier's seniors housing as is dependent group number six I'll remind you dependent was part of the insane group until.
They spun off for about a year ago.
And that is primarily a seniors housing operation for us. They also do home health and hospice services besides that.
Yes, yes, there probably is a contract that ones okay.
Okay, I think that covers it.
Maybe just do a quick follow up until the debate on this one or not but if you had to guess just directionally for next quarter. When these ratios are all shown would it be directionally, improving or maybe staying about the same or maybe is falling off slightly if you just had to give you on these the directional view.
View of how things might trend when they're worth reporting these ratios for the.
Third quarter.
Well I think what you'll see is a bit of a mix right.
And I say that because in some cases and I think what we'll probably do is is continue to show the the.
Time period of the pandemic versus a trailing 12 number and as you look at just depend demick numbers.
Versus the first part or the first three months of the pandemic you will see that some folks who were hit hard at the outset will likely be able to show some improvement as they have been able to make some adjustments to how they manage it.
In another cases, you might find that in that first quarter. Some of these operators who were able to benefit from scaling in place.
We're able to do that without really being hit too hard by the pandemic as you know it was in Q3. This second wave really hit the Western States, where a lot of our our facilities are and.
And so that as we know it can be a blessing and occurs on the financial side of things depending on how they manage it so I'm not going to be able to tell.
Tell it take to be completely and tell you that it's going to go up or down for as a whole, but I think you will see some some mixed results there, but I think you might be surprised with some some people continuing to do well through six months.
Okay, that's great color all right. Thanks.
Our next question comes from Daniel Burke from capital one.
Hi.
I just echo I appreciate the disclosures on the.
Before and after.
Yes funding on the coverage is that's pretty helpful.
You know the one question I have is CMS has been recently putting out some tool kits for home health and real.
Really in an effort to maybe decrease institutional piece of institutional facilities first.
For skilled nursing and.
It very much in its infancy right in and then also you look at the home health public health providers here.
Holding some skilled nurse skilled nursing and home do you see.
Skilled nursing and home as a threat to the skilled nursing industry and maybe related is a threat to assisted living.
Occupancy as well.
Hey, Dan its Greg all only and then I'll, let the guys jump in as well if I missed something but this is a conversation that actually not new it's kind of intensified since pandemic began.
And there is there's a lot of opinions floating around out there about whether or not some percentage of the of the traditional skilled nursing population is going to move.
To home health.
Well some comments by seem Afirma recently that I read the question, whether some of the traditional long stay Medicaid patients in the nursing facilities might be better served in assisted living.
Our our position has always been that.
Those individuals who really could go someplace besides skilled nursing.
Have always gone there and while there may be some extraordinary things going on right now with some stretching by home health and assisted living to hang on to residents are tracked residence in some extraordinary things going on with respect to the fears of being in a skilled nursing facility. We believe those are subside.
Already and that.
There's going to be.
Nice snap back to some semblance of normal Wilson move maybe.
The the patient population has been.
Shifting around the health care continuum for a long long time.
People that were in.
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Nursing homes years ago are in assisted living a lot longer now that you know.
Demonstrated fact and.
So we expect that dynamic to continue but we also expect the hospitals to continue push.
Get their census back up to be a lot of pent up demand for some of those elective surgeries and we expect.
That the hospitals will continue to push patients out quicker and sicker.
Skilled nursing is the only destination for the vast majority of those I don't know, Dave Mark anything else that let's get right.
Yes.
I couldn't say it does it myself or fair.
I guess related to that is it sounds like you think do you.
The discharge patterns, probably returned to normal at some point.
In the skilled nursing space I think that's been the other debate is whether there has been.
Permanent change in.
And those skilled nursing patterns, but just trade patterns, but it sounds like you think that there may be some semblance of normality overturned wed like to see.
Surgery.
Yes come all the way back.
Is that right or is it still a little bit too early to.
To make that judgment well, we think it's certainly too early to call time of death on skilled nursing.
Turning back to normal our thesis is that.
Once weve turned the corner once.
The country Reopens and life gets back to normal that we return.
Basically to the pre coated conditions as we hadn't before both in the operating environment labor environment and the discharge environment from the hospitals.
Okay.
One more for me, which is.
You know some of your peers have been doing preferred and matched funding.
And loans out there rather than bringing assets right on the ballot right on to the balance sheet right away.
As part of your pipeline are you looking at.
You know mezz preferred.
Kind of winding deals right.
Then just straight acquisitions.
Dan its Greg.
We actually have looked at some mezzanine preferred recently, we don't we are not counting any of that in our pipeline at this very moment.
But.
We're open to it we've done preferred in the past and.
We actually have I think a pretty good prospects on the horizon, we'll see how long it takes to come to fruition for some more preferred.
Development.
We're excited about.
And in terms of the Mezz never done it before.
Haven't really viewed.
Mortgage lending is our thing.
But certainly not.
Averse to it if the deals right and the collateral is good.
Okay.
That's all I've gotten tougher.
Okay.
Yeah.
Our next question comes from Walter <unk> with BMO capital markets.
Hi.
Good morning to you guys just a follow up question from what Dan was asking so is the bigger picture that the.
Elective procedures have come back for your personal color.
Customer segment.
And despite the fact that the hospitals are saying overall the elective procedure volumes are coming back or maybe just not for your target segment or is it.
The second choice that you're just losing share at least temporarily to other options maybe.
I'm just trying to.
I understand the drivers of census.
Yes, so the.
The discussion of elective procedures.
Is there is a little bit a nuance there on because.
The vast majority of the.
The patients that come skilled patients to come to a skilled nursing facility.
Started there started their journey through the emergency Department.
Not not really through a conveniently scheduled elective surgery.
There certainly are those.
But over the last 10 15 years, those numbers have shrunk quite a bit.
As hips and knees in kind of the easy.
Patients have largely shifted.
To being discharged straight straight home with home health and things like that.
So the patients that are arriving in skilled nursing facilities are sicker than ever before and this is certainly true pre pandemic.
And so occupancy yes.
It's going to depend somewhat on those elective procedures.
But really it's going to depend more on the country reopening.
So that people are out live in their lives as they were before which result in.
Far more visits to the emergency Department.
And and then ultimately to the skilled nursing facilities.
So you don't think that there's been a loss of share per second.
No I don't think we have we don't have that data to come to that conclusion.
Okay and then just my last question is just on the balance sheet. I mean, you guys heard enviable position.
Is that because you want to protect the downside and don't know how long. This is where should we think of it at this point given the strength you've seen with the coverage numbers you talked about for the second quarter X. The government and that you have visibility to a third quarter that you guys are are kind of ready to go on offer to lever up from here how are you.
You're thinking about that big picture.
Hey, Juan it's Bill I think you can look at it as.
The truth.
Trent and leverage has gone down because the acquisition because of coal bed.
I would expect given our stated range of leverage being four to five times that over time, we would probably depending upon the deal the yield.
And the size that over time, we would get to a more to.
To a higher level.
Dupont merger as opposed to where we sit today, which is sub three.
Thank you.
Yes.
And I'm not showing any further questions at this carbon black turn the call back over to our host for any closing remarks.
Thanks, Kevin and thank you everybody for being on the call today as always if you have any additional questions you know where to find us and we're happy to visit with you anytime have a great weekend and stay safe.
Ladies and gentlemen. This concludes today's presentation you may now disconnect and have a wonderful day.
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