Q4 2020 Omega Healthcare Investors Inc Earnings Call

Good morning, and welcome to the fourth quarter 'twenty 'twenty earnings call. All participants will be in a listen only mode should the need assistance. Please sitting on the conference specialist by pressing the Starkey followed by C. L.

After today's presentation there'll be an opportunity to ask questions to ask the question. You May Press Star then one on I touched on the phone to withdraw your question. Please press Star then two please note. This event is being recorded.

I would now like to turn the conference over to Michele Reber. Please go ahead.

Thank you and good morning with me today are Omega C. E O Taylor Pickett C O O Dan Booth, CFO, Bob Stephenson, Chief Corporate development Officer, Steven and soft and Megan Kroll Senior Vice President of operations.

<unk> made during this conference call that are not historical facts may be forward looking statements such as statements regarding our financial projections dividend policy portfolio of restructurings rent payments financial condition or prospects of our operators contemplated acquisitions dispositions or transitions and our business and portfolio outlook generally.

These forward looking statements involve risks and uncertainties, which may cause actual results to differ materially. Please see our press releases on our filings with the Securities and Exchange Commission, including without limitation of our most recent report on form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described.

Forward looking statements during the call today, we will refer to some non-GAAP financial measures such as NAREIT F. F O adjusted F O Fad and EBITDA.

Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles as well as an explanation of the usefulness of the non-GAAP measures are available under the financial information section of our website at Www Dot Omega healthcare Dot com and in the case of NAREIT <unk> and adjusted <unk> in our recent.

Yes, you'd press release in addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega I will now turn the call over to Taylor.

Thanks Michele good.

Morning, and thank you for joining our fourth quarter 2020 earnings conference call.

Today, I will discuss the pandemic and the related government response and support our fourth quarter financial results, the vaccine rollout and our new Brookdale relationship.

Again want to thank our operating partners and their staff.

Third for the tens of thousands of residents within our facilities.

I'd also like the recognize and thank the federal government and the states for their support of the skilled nursing and assisted living communities.

The allocation and distribution of additional government funding along with the communication and evolution of clinical protocols has been critical on protecting and saving lives as we combat this unprecedented deadly pandemic.

Continued federal and state government support will be critical from the skilled nursing and assisted living care settings. The law.

Latest round of cares act funding targeted operators that have been disproportionately impacted by the pandemic.

We believe at least $23 billion of cares Act funding under the provider relief fund remains on allocated we are hopeful that new legislation will add to provider relief funding and hopefully will support the industry through its 2021 recovery.

Turning to our financial results.

We're very pleased with our fourth quarter results, our adjusted <unk> of 81 per share and our funds available for distribution of <unk> 77 per share allow us to maintain our quarterly dividend of <unk> 67 per share.

The payout ratio is 83% of adjusted <unk> and 87% of funds available for distribution.

Additionally for the fourth quarter and in January we collected virtually all of our contractual rents.

We continue to gather vaccine roll out data from our operators and can report the following as of January 31, based on 92% of our facilities reporting.

95% of the Saudis have conducted or are scheduled within the next week for first dose clinics the.

The vaccination rates for residents is approximately 69% of vaccination rate for staff is approximately 36%.

For most facilities the second dose clinic, which occurs 21 days. After the first dose will also incorporate a new day of first doses for those residents or staff, who are not available or who are not prepared for the vaccination during the first round clinic.

Turning to Brookdale.

We were very pleased to have established a relationship with brookdale.

The senior housing facilities and related Master lease that we've acquired from health peak.

We believe the Brookdale is exceptionally well equipped to address the current COVID-19 environment and the prosper as we emerge from the pandemic.

They have an excellent leadership team substantial liquidity to sustain and grow their operations low rate long dated secured debt tied to their own the assets and valuable integrated home health and hospice companies.

We look forward to working with the Brookdale team and possibly identifying new opportunities, where we might partner in the future.

I will now turn the call over to Bob.

Thanks, Taylor and good morning, I'd like to start by thanking our operators and their employees for their continued heroic efforts during the pandemic I'd say of providing of central care to a portion of all of our elderly population.

Turning to our financials for the fourth quarter, our NAREIT at that though one of the dilutive basis was $173 million or <unk> 73 per share for the quarter as compared to $176 million or <unk> 77 cents per diluted share for the fourth quarter of 2019.

Our adjusted <unk> was $192 million or <unk> 81 per share for the quarter and excludes several items as outlined in our adjusted I thought the reconciliation to net income found in our earnings release, and our supplemental and also on our website.

Revenue for the fourth quarter was approximately $264 million before adjusting for the nonrecurring write down of the straight line receivables as well as other non recurring favorable revenue items.

Revenue for the quarter included approximately $12 million of non cash revenue.

We collected over 99% of our contractual rent mortgage and interest payments for the fourth quarter and for January as well excluding of course rental payments due from DAYBREAK, which is under a forbearance agreement and has not been making payments.

Our G&A expense was $10 $4 million for the fourth quarter of 2020 in line with our estimate of quarterly G&A expense of between nine and a half and $10 $5 million ex.

Interest expense for the quarter was $56 million with the $4 million increase over the third quarter of 2020, primarily resulting from our October issuance of $700 million of three 375% senior notes due February 2031.

Our note issuance was leverage neutral as proceeds were used to repay LIBOR based borrowings some of which were hedged.

As a result of the repayments, we terminated $225 million of LIBOR based swaps and recorded of approximately $12 million and early extinguishment of debt.

Our balance sheet remained strong throughout 2020, we continued to take steps to improve our liquidity.

Our October bond issuance repaid $683 million of short term LIBOR based borrowings.

At December 31, 2020, we had only 74 million pound sterling borrowings of equivalent to $101 million in U S borrowings outstanding under our 1.25 billion dollar of credit facility and had approximately $163 million in cash and cash equivalents.

We have no bond maturities until August 2023, and March 2020, we entered into $400 million of 10 year interest rate swaps at an average swap rate of approximately eight 7% the swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bomber.

Alrighty.

In the fourth quarter, we issued $4 2 million shares of common stock through our ATM program generating $151 million of net cash proceeds.

Well, we believe our actions today provide us the flexibility to weather a potential prolonged impact of COVID-19 on our business. It also provides significant liquidity the from potential acquisitions.

In 2021, we will continue to evaluate any additional steps that may be necessary to maintain adequate liquidity.

At December 31st approximately 95% of our $5 $2 billion in debt was fixed and our funded debt to adjusted annualized EBITDA was five times.

Our fixed charge coverage ratio was four three times.

When adjusting to include a full quarter of contractual revenue for new investments completed during the quarter as well as eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly $4 99 times.

It's important to note we have lowered our leverage five consecutive quarters with the goal of maintaining our leverage at less than five times.

As stated in our press release due to the continued uncertainty related to the COVID-19 pandemic its impact on the financial performance of our operators and the extent of future necessary government support to our operators, we will not be providing 2021 earnings guidance.

I will now turn the call over to Dan.

Thanks, Bob and good morning, everyone as of December 31, 2020, Omega had an operating asset portfolio of 949 facilities with over 95000 operating beds. These facilities were spread across 69 third party operators and located within 39 states and the United Kingdom.

Trailing 12 month, operator, EBITDAR and EBITDAR coverage for our core portfolio increased during the third quarter of 2020 to $1 87, and 1.51 times, respectively versus 184, and 1.48 times, respectively for the trailing 12 month period ended June 30th two.

'twenty these.

These numbers were negatively impacted by a number of external factors as a direct result of COVID-19, including a significant drop in patient census, and a dramatic spike in operating expenses, particularly labor cost and personal protective equipment or PPE.

These negative results were more than offset in the second and third quarters, while the positive impact of the federal stimulus funds, which were distributed in accordance with the cares Act.

During the third quarter, our operators cumulatively recorded of approximately $102 million and federal stimulus funds as compared to approximately $175 million recorded during the second quarter.

Trailing 12 month, operator, EBITDAR and EBITDAR coverage would have decreased during the third quarter of 2020 to 1.53, and 1.18 times, respectively as compared to 1.61, and one point to two six times, respectively for the second quarter when excluding the benefit of any federal stimulus funds.

EBITDAR coverage for the stand alone quarter ended September 30 of 2024 core portfolio was 1.44 times, including federal stimulus funds and <unk> 97 times, excluding the $102 million of federal stimulus funds versus 187 times and.

1.15 times with and without the $175 million in federal stimulus funds, respectively for the second quarter.

Overall operating performance continued to be significantly affected in the third and fourth quarters of 2020 due to the ongoing impact of COVID-19.

While the third quarter and the start of the fourth quarter of 2020 saw moderating of new Covid cases, the spiking outbreaks reported nationwide during the holiday season did not spare nursing home residents and employees late in the fourth quarter.

Cumulative of occupancy percentage for our core portfolio were out of pre COVID-19 rate of 84% in January of 2024.

Flattened out to around 75 per cent throughout the fall months and subsequently dropped to 72, 9% in December of 2020.

Based upon what Omega has received in terms of the occupancy of reporting from January to date occupancy has continued to decline slightly averaging approximately $72 one per cent.

We are cautiously optimistic that the rollout of vaccines, which began in late December of 2020 and has continued in earnest throughout January 2021 will provide an important catalyst for improving occupancy statistics as infection rates decline and visitation restrictions begin to ease.

In addition to Covid has negative effect on occupancy. The virus has also caused a significant spike in operating expenses, particularly labor costs and P. P.

Per patient day operating expenses for our core portfolio increased approximately $40 from pre COVID-19 levels. In January 2022 November of 2020, the latest stats available.

Turning to new investments on November one 2020, Omega completed of $78 million purchase lease transaction for seven skilled nursing facilities in Virginia.

The facilities were added to an existing operator's master lease for an initial cash yield of $9 five per cent with 2% annual escalators.

New investments for the year end of December 31, 2020 totaled approximately $260 million, including $113 million and capital expenditures.

Turning to subsequent events.

As mentioned by Taylor on January 20th 2021, Omega closed on the purchase of 24 senior housing facilities from health peak for $510 million.

The acquisition included the assumption of an in place Master lease with Brookdale senior living the leading operator of senior living communities throughout the United States.

The portfolio primarily consists of the assisted living independent living and memory care facilities with a total of 2000 and 552 units located across 11 states.

The facilities will generate approximately $43 $5 million from contractual 'twenty 'twenty, one cash rent with annual escalators of two four per cent.

Turning to dispositions during the fourth quarter of 2020, Omega divested 16 facilities for total proceeds of $64 million.

For the year ended December 31, 2020, Omega strategically divested of total of 35 facilities for $181 million.

Last but certainly not least I once again like the recognize and applaud our operators tireless selfless efforts, particularly those employees on the frontline.

Thank you for your unwavering commitment to the health and welfare of our nation's most frail and vulnerable elderly population.

I will now turn the call over to Megan.

Thanks, Dan and good morning, everyone.

Since our last earnings call. The 175 billion dollar provider relief fund was increased by $3 billion. As the result of the $900 billion stimulus package signed in December of 'twenty 'twenty.

Of that fund of approximately $23 billion remains on allocated.

In terms of previously allocated funds still on the process of being paid out.

As previously mentioned on July 22nd Medicare certified nursing home targeted infection control of funds of $5 billion was announced.

$2 $5 billion was paid out in August and an additional $2 billion was set up as the quality incentive payment program with payments based on the facility's ability to maintain a rate of infection below the counting of infection rate and if that's right below the national performance threshold from nursing home residents.

Payments are made based on monthly performance from September through December.

The September payout was made in October at $330 million.

With the October payout being made in December at $530 million.

And the November payout just starting to go out last week.

With respect to the phase two general distribution announced in September.

It is the fact that HHS hadn't previously tracked the assisted living facilities.

Like the tax identification process delayed the pay out from many of assisted living providers to December and early January the.

This allocation with the application process, perhaps the two per cent of 2019 patient revenues from Medicaid Children's Health insurance program and assisted living providers.

The $20 billion Phase III General distribution announced on October was increased to $24 5 billion worth of all applications were received and reviewed.

Bailable, the all healthcare providers previously eligible for payouts.

Net and as we're able to apply.

$10 billion of paid out in December with the remainder of expected to be paid out within the coming weeks.

Payouts are based on the change in net operating income related to patient care for the first half of 2020 as compared to the first half of 2019 with the stated payout of <unk> 88 per cent.

That said on previous federal stimulus money received offset these numbers, bringing that percentage down substantially from money.

In addition to the financial support with Covid cases on the rise in the latter part of the year and the corresponding increased testing requirements.

The real government's efforts to provide more cost effective testing capabilities through the distribution of rapid antigen tests has been critical.

Supply is provided by the government, coupled with easier and cheaper access the testing supply.

It has provided for a quicker turnaround of test results and therefore, the ability to respond timely or to the outbreaks.

It cannot be stressed enough how crucial the government support thus far has been to the long term care industry. During this turbulent time.

However, even post vaccine rollout the effects of this pandemic will be of long lasting.

We are hopeful that the new administration will recognize the urgency of this matter and will quickly expand on support efforts to this vital industry.

I will now turn the call over to Steven.

Thanks, Megan and thanks to everyone on the line today for joining.

In conjunction with Maplewood senior living we have completed work on our Alf memory care High rise at second Avenue of Ninety-third Street in Manhattan. The opening of the project is pending licensure by the New York State Department of Health.

We are in ongoing communication with the D O H and understand that while they are conducting licensure surveys and it is reasonable to expect our shortly the challenges of the ongoing pandemic understandably, forcing a reallocation of resources.

The final project cost is expected to be approximately $310 million.

The COVID-19 pandemic poses certain challenges unique to senior housing operators, including increased costs the challenges of managing COVID-19 positive patients and meaningful practical limitations on admissions well. They very much appreciate the help they have received private pay senior housing operators have not seen the level of government support provided to other areas of.

Senior care.

We saw challenges to our senior housing occupancy throughout the third quarter with variations tied to win and where Covid outbreaks were encountered.

However, we have seen evidence of stabilization and strengthening of sensus in certain markets. By example of our Maplewood portfolio, which is concentrated in the early affected Metro New York and Boston markets.

Meaningful census erosion early in the pandemic with second quarter census, hitting a low point of 84% in early June.

That said the portfolio occupancy had returned to 84, 5% at the end of August and increased further to 85, 6% in the month of November.

We find this resiliency and occupancy to be encouraging but still of a way to go before the pandemic driven top and bottom line risk to our E. L. F operators is behind US Inc.

Putting the land and CIP at the end of the fourth quarter Omega Senior housing portfolio totaled $1 $6 billion of investment on our balance sheet. This total does not include our recent brookdale investment, which closed after year end.

All of our senior housing assets are on Triple net master leases, excluding our 24 recently acquired Brookdale assets. Our overall senior housing investment comprises 129 assisted living independent living and memory care assets in the U S and U K.

As expected this portfolio on a standalone basis had its trailing 12 month EBITDAR lease coverage fall four basis points to 1.12 times in the third quarter of 2020 with Covid outbreaks affecting different markets of different times. It is reasonable to think the coverage makes the additional downward pressure during the course of the pandemic before we see a rebound.

While we remain constructive about the prospects of senior housing. The COVID-19 outbreak is warranted a far more selective approach to ground up development.

Well, we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets, we invested $19 4 million in the fourth quarter of new construction and strategic reinvestment.

<unk> $8 million of this investment is predominantly related to our active construction projects. The remaining $6 $6 million of this investment was related to our ongoing portfolio of Capex reinvestment program.

I will now open the call up for questions.

Okay.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up the handset before pressing the keys.

If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Yeah.

The first question comes from Collyn or Seversky with Baird. Please go ahead.

Good morning, everybody and thank you very much for having me on the call just to start a curious about brookdale as it was the subject of some lease revisions with some of your peers. This year. So anecdotally I'm just wondering how those conversations progressed with the operator as you near closing.

The second to that what the rent coverage look like currently and then what kind of occupancy rebound might you be expecting for this portfolio as we look forward. The next couple of years.

Yeah.

Most of our conversations to the place obviously with the seller.

Pete.

Our portfolio, we did have an opportunity to.

The conference call with the management team, but we would definitely became comfortable and are comfortable with the management team and the prospects for this portfolio going forward.

Coverage ratios, we're looking at as we look on our overall portfolio on a trailing 12 month basis.

Through September 30 day average was right around one to one with titles.

And about <unk> nine without the once again trailing 12 months September 30th.

Do you expect that to improve the occupancy has taken a hit due to COVID-19.

We expect that the turnaround.

So I think in the latter part of 2021, we would think that this portfolio will rebound to pre COVID-19.

Performance.

Cash at this point, but that's our expectations.

Okay. Thanks for your assets help go.

Go ahead.

I just wanted to make sure I covered everything.

Okay. Thanks for that that's helpful color and then just double checking on pricing so $43 million in rents over the 510 million of acquisition cost was about.

Eight 5% are there any sort of capex expectations that you're aware of for this portfolio.

Yes, as part of the transaction.

There was the $30 million capital.

Moving on wine, which obviously we will.

It runs through 2025.

So, yes, we expect to put that money to work and improve on polysilicon plants.

Okay, and then and then one more from me just anecdotally I'm thinking about the read across from one of the hospital operators that reported earlier last week the C.

Of that admission to the ticked up meaningfully for inpatient procedures and I'm just wondering if theres any commentary from your operators in regard to referrals to sniff soon.

Is that kind of dynamic is improving somewhat as we approached the end of the year.

The commentary.

Alert Pickett.

I think it's just a little too early.

To talk about trends, there, but obviously thats.

The good one.

We haven't heard from our operators.

Any uptick in occupancy as a result of that but I would be I'd be surprised if a multitude of value.

One quick thing I'd like to add just to be clear on returns on the Brookdale portfolio.

$30 million of committed Capex.

The 7% yield attached to them.

Okay, Great. That's all from the all of you before thank you.

Yes.

The next question comes from Aaron Hecht with JMP Securities. Please go ahead.

Good morning, guys. Thanks for taking my questions.

Wondering on the Brookfield deal.

Brookdale if the if.

If they offer you the opportunity to transition to our idea.

Would you take that or would you have to think about it.

Where would you stand on that opportunity if it was presented.

So as you know we don't have any idea in our portfolio.

And it's a model that we're not necessarily uncomfortable with but I think.

From our perspective, the triple net structure for this portfolio.

Right.

So I don't think Youll see us looking at any type of conversion there.

Gotcha and.

What made this deal.

Early interest there or what made you excited about it given.

The operating difficulties that everyones, having and you know the coverage was.

Around one times with a you know occupancy being pressured in the fourth quarter is it just the recovery play on new normal is there something else within the portfolio are the you saw as attractive any sort of insight on that would be helpful.

Sure. So you hit on a couple of points.

Long term.

Meeting two to three years out we think this portfolio is going to do.

Well very well.

And when you think about buying it.

And at eight 5% yield.

That's pretty favorable pricing.

Flex any perceived risk long term, which frankly, we don't see we think this portfolio has.

Lots of opportunity.

To grow cash flow.

The successful in the past I think the Capex will be helpful. And then on the short term side of it called out the next couple of years.

On the Brookdale hazard.

<unk> balance sheet.

On of liquidity the.

The receiving government support and the facility portfolio that we've acquired.

The well.

Through the pandemic, so I think.

You put those two things together and the strategy from our perspective.

It's completely rational in terms of how you allocate capital.

Right.

And then just bigger picture for Omega.

Does this deal kind of Mark of point, where Theres a shift at all on your preference for senior housing over skilled nursing or did you just like did.

Could you just like the package too much the pass on it.

Is there a change going on there fundamentally you know the interesting thing is.

We have very little senior housing in our portfolio.

Seven years ago.

And we are on.

That side of the portfolio every year since then.

Continue to look so we haven't had a goal of becoming 50 50, but we are.

Now a little bit over 20% senior housing and I think that just comes down to the model of finding the right folks to partner with <unk>.

Finding opportunities where our cost of capital.

It doesn't make a deal dilutive.

And we will continue to pursue those so no shift in overall strategy just a continuation of looking at that segment of the business.

<unk>.

And growing it with partners that debt.

On a role within the future.

Appreciate that guys nice quarter I'll jump back of the queue.

Thank you.

The next question comes from Jonathan Hughes with Raymond James. Please go ahead.

Hey, good morning.

I was hoping you could walk us through the decision not to give guidance on you you've already collected virtually all of January rents. The Brookdale deal was already completed and financed and we've had other sectors like office and apartments.

That are much more volatile will give the first quarter or even full year guidance. So I know you are your operators are dependent upon government support but.

Thats somewhat been the case for her for 20 years, So I guess just more.

Could you give us some more thoughts and color on what's holding you back from providing any guidance I think it's just an abundance of caution in the what could be of highly volatile environment.

And when you think about the <unk>.

Government support in this business there.

There are certain operators.

That need more support soon.

And if they don't get it in the near term.

They will have issues and then I think the other thing Thats important Jonathan is.

We still have for those operators that took the advanced.

Medicare Drawdowns that payback starts April.

April 1st.

And that payback is just the offset against your Medicare receipts otherwise so.

So those two elements of volatility that.

We're very hopeful.

That the new administration.

Ex quickly as it relates to those two issues, but if they don't.

We could we could see some issues before the end of the quarter.

And so we're just very very cautious about.

And frankly, it's.

If you think about it with.

With the steady portfolio.

And our earnings Inc, Q4.

Q1 isn't going to differ much if we collect all of our reps. So I'm not sure that it's actually all of that helpful. When it's all said and done.

Okay.

I guess kind of bringing up the operators that.

Yeah, maybe keep you up at night I know, we've got a couple of large ones that are on cash basis did you get any updates from operators, where the auditors force them to kind of give the going concern language in flip from and would maybe lead you to flow from accrual to cash basis, the county or are there any operators on the fringe.

Hey, Jonathan it's Bob so during the quarter, we did move one additional operator, who had a going concern opinion from.

From the straight line to a cash basis immaterial.

3% of our annualized.

The revenue.

And we did write off just 600 K of.

The straight line revenue related to that operator.

Okay.

That's helpful and then just one more.

One more from me then you know as we look at.

Underwriting snaps are you on you look at underwriting sniffs today, what's the most difficult thing there is it just lack of operators willing to take new buildings because of lack of sizable portfolios overall uncertainty with the ability to pay rent.

Given there is.

Turns and uncertainty about the administration. The three nights day rule has helped obviously support operators, but it's made underwriting in the normalized environment, a little more difficult and I know the brookdale portfolio.

With the unique opportunity with someone you you bought from in the past but.

Just curious what's the biggest hindrance to getting sniff acquisitions done in this environment.

Well I think for starters, there's just not of lot of deals out there on the market.

C.

But not a lot and they've been pretty small trades the other component of it.

The ability to underwrite in this particular environment you've got.

You have to add backs of stimulus you've got occupancies.

On down.

All of the things that we talked about operating expenses have gone up. So you really have to look at either pre COVID-19 operating performance more projections going into it.

On a one and really now into 'twenty two so it makes the underwriting.

Quite a bit more difficult, but also anytime we want.

You do get into the underwriting of your attitude.

So the next step which is you know looking at your real.

Real estate Havent per quarter.

The ports that's the challenge.

M&A type of third parties go and visit facilities and go through facilities.

With the dissipation rights such as they are right now so so underwriting snaps on this market is challenging I think the biggest thing is.

The financial underwriting of operating performance in 2020.

I really have to do a lot of the deep digging into the.

The individual facility in the markets, where they were before Covid and where we expect them to the post COVID-19.

Just more <unk>.

<unk> I think we're still.

Obviously looking at a lot of deals we still continue to look at deals and we'll still continue on the underwrite deals hopefully the picks up as we get a little bit more clarity.

On where occupancy rates youre going to go.

Alright, thanks for the time.

Thanks, John.

The next question comes from Daniel Bernstein with capital one. Please go ahead.

Okay. Good.

Hum.

Just just a follow up question there.

How would you characterize the general state of distressed opportunities.

For for maybe seniors versus skilled nursing on you just made some comments that its hard to underwrite and there's not that many deals out there or are you anticipating.

More distressed opportunities.

And seniors and skilled as year goes on.

Are you hearing some rumblings out there.

Really not as much as you might think.

Given the environment we're in.

And I attribute a lot of that too.

The substantial government support that we've seen to date and are now seeing in the assisted living industry as well so.

Will we see distress.

Yes, I think at some point, we might then but.

But I don't think it's.

Q1, or Q2, I think it's probably further out of the year.

Okay.

And I guess, what would you say, it's probably more on the senior side.

And skilled nursing side of it.

You may make the acquisition of Brookdale.

Assets, but then there you had some comments there on the why youre, not giving guidance and it kind of gives me the sense that maybe there was some.

Yes, maybe the strength, you're always kind of thought maybe the distress on seniors housing with lead to more opportunities there, but I guess I'm getting a little bit of a mixed message, maybe maybe there'll be stress everywhere.

Just trying to understand maybe where that might be.

Yes, I think it just comes down to.

The government support.

We still have.

We still are based on the government still has completed the payout of the latest round of $24 $5 billion.

14 in the past $1 billion hasnt been allocated and a good chunk of that is likely to go to assisted living providers.

I think it.

It's just the unknown of.

Whereas the government support for that and then if it doesn't fall sufficiently how much distress comes out of that.

I still think we see it.

Q1 for sure Okay.

Okay.

And then the other question I was thinking about here of she had the.

The Ohio Governor was proposing the buyback I guess $50 million of.

Oh, the licenses or or beds.

To reduce.

Supply given how low occupancy has gone and sniff space.

I don't know, if you've looked at that or or other governors considering that but.

What does that do I mean, if you if you reduce the supply out there because I know you've put out some presentation showing if you go out five or 10 years this could actually be.

But not enough supply.

For the demographics so.

I don't know if you of any thoughts or you talked operator, it's about the.

The possibility of selling beds back to the.

The state.

The two comments around that.

One is.

That is in Ohio.

Trade it for many many years Youll see.

Thats move.

Around county lines, where there is demand.

So theres better parts of it for beds in Ohio.

The 10000 dollar of bad price tag on I think they were talking about.

As it reflects market trade that we've seen over a long period of time, but I will point out the one other thing that was mentioned in that article.

And the reality is.

You are of higher where to do that they're going to be very careful in terms of.

Thiago fees, because there of counties, where there's not sufficient supply or.

There are no excess beds.

Yes that is going to apply across all different geographies and really isn't a new story do you think about Texas with <unk>.

70% occupancy and rural Texas in many places even lower so.

I don't know that.

Thats, particularly meaningful.

Okay.

To your point you take beds out of service.

It's very expensive and on top of put them back into service.

I don't know.

C that as a trend.

Okay.

And then one last question.

You know you've been doing a great job of deleveraging the balance sheet and improving the balance sheet.

I guess the goal is to be sub five but is there a kind of.

A bottom on that.

Nicole I mean is it four and a half is at four O.

Kind of.

Trying to get a sense of where where are you on where you ultimately really want to go on leverage.

Hey, Dan we've always publicly stated.

To be between four to five times, the the sweetest spots of probably about 475 times in that range. We don't get any price if were at one time, we were below four times and we get no credit for that so and I think broadening the base with the risk profile.

Seven.

75, net range, plus or minus a little bit.

Okay.

I'll hop off I appreciate the time guys good quarter. Thanks.

Thanks, Dan.

The next question comes from Joshua <unk> with Bank of America. Please go ahead.

Yeah, Hey, good morning, guys I'm, just kind of curious on how the maplewood portfolios weathering the pandemic.

Maybe if there's any discussions around the upper east side building since it's I think it's been about a year since they started paying rent on that but it's still not open.

Sure Stephen do you want to take that yes.

Yes sure.

<unk>.

From a overall, what I'll call ex upper east side portfolio standpoint.

Sensus is creeping upward as I mentioned.

In my prepared remarks.

Even through January.

The 85% Maple, we've done a particularly strong job managing sensus and is marketed through the pandemic obviously.

Obviously has cost pressures like everybody else does.

Upper east side.

We've got reason to believe.

From the communications with the Department of Health in the state that it could be a couple of weeks before day, our green lighting us.

Somewhat hesitant to be overly optimistic on timing well, that's probably the best case when they do final walk through surveys if everything goes well I think great, but there could always be lifesaving matter of two that has to be remedied, which could delay a week or so.

So it's imminent.

And hopefully.

We won't be talking about how many folks are moving in the building from a quarter from now.

Everything goes according to plan.

Yeah. Thanks, It's a great building of member I remember looking at it.

The year ago, So I'll.

I'll yield the floor of everything else was answered thanks guys.

Thank you.

The next question comes from Nick you liquor the Scotia Bank. Please go ahead.

Thanks, Good morning, everyone, I guess going back to the.

The the cash basis tenants can you just remind us at this point.

You know what what percentage of.

Revenue is on a cash basis and.

I guess, if we relate that back to page six in the supplement where you guys give the the breakdown and coverage.

Is that also are those tenants also then reflected in this page are they not reflected on this page.

Oh, Hey, Hey, Nick it's Bob So one of the annualized basis around 14% of our.

The fractional would be on a.

The cash basis.

So net.

One additional operator since last quarter, but the percentage of stayed about the same as I said, because it was only <unk>, 3% with the new operator.

I apologize did you did you say 14%.

Correct.

Okay, and then as it relates back to page six right on when we see the you know the.

Buckets of coverage.

Where you know certain operators have lower coverage.

Are those is that 14% of the company reflected on this page are or any of those get removed.

They're all reflected.

Okay got it alright got it so I guess I mean can you maybe maybe you can just kind of square that away with us because you know I know you you did talk about in relation to the guidance.

Yeah. Some worries about the reason why you didn't give guidance because there could be.

You know maybe some operators having some problems. If they are if you don't get additional government stimulus, but if you're already I guess, if we look at this page page six of the supplemental where you have the two buckets that you'll have lower coverage adds up to about 10 per cent of the company.

Saying, 14% of that of tenants are already on the cash basis that would be more than these two buckets. So I'm just trying to I'm just trying to understand if if you face incremental pressure from tenants.

Have you already are you already accounting for that by virtue of the fact that those tenants are on the cash basis or is there. Some additional impact that we should think about that could happen.

Yes so.

And I'll have Dan jump in if he has any thoughts about this but the interesting thing as you look at Genesis is one of the the big.

Tenants that went on a cash basis.

We're just the.

The portion of the Genesis World.

And our portfolio does reasonably well so as you think about coverages in those buckets.

Genesis is in and those low or two buckets.

And I.

Zinc metal of GMO might be the same day.

Correct.

So.

The cash based decision was driven by.

The account the accounting rules, where the accountants are looking forward and saying, but for government assistance. The next year could be troublesome for these operators and Thats a fact.

They just happen to have audits, where those are where the opinions come out so I don't know if that ties together.

Where you're headed Nick but.

I mean.

There is not a correlation between those operators that got put on the cash basis on the low.

Low coverage bucket just not.

And Nick just wanted to the point there.

Genesis of the GMO or 11% of the 14%.

So is there of the bulk of them.

Got it okay, and so maybe the other way assets is right. So obviously, you're moving tenants to two of cash basis, There's a straight line rent impact, but can you just remind us where you know for the tenants that are on a cash basis right now where they are on payment on a cash basis versus there.

Contractual rents aren't just sort of a rough feel for that because that would obviously be the other incremental pressure I guess you could face.

Is that you just have lower cash collections on those type of it.

So it's.

As we stated we've been collecting over 99% of our contractual revenue.

Each quarter in 2020, and if you look at our a R.

$10 million of contractual AOR on our books, but thats really all of the mortgage interest switches book in arrears, so less than I think affiliate of couple of hundred Grand total.

It's true normal.

Yeah.

Okay got it that's helpful. I just just one other clarification question. When you when you were talking about the Brookdale coverage earlier.

Was that was that EBITDAR or EBITDAR coverage.

The EBITDAR coverage.

Okay, alright, thanks, everyone.

Thanks, Nick.

The next question comes from Tayo Okusanya with Mizuho. Please go ahead.

Hi, Yes, good morning, everyone.

Two questions from me.

The one around Brookdale again appreciate all the color you've given can you talk about the.

Underwriting of the book for you on kind of what kind of a worst case scenario you could kind of occur that would be will ensure that the transaction created value for shareholders.

Right.

Well I mean, we underwrote the portfolio, obviously on a pre COVID-19.

Operating performance basis, we looked at how they are done.

Obviously throughout 2020 of Nate had actually fared.

Quite a bit better than the comparable and on now of course, we look to.

'twenty 'twenty, one and beyond.

What it will take.

From a simple standpoint for the occupancy what they would need to go up to bring this thing back to.

Coverage is more.

Consistent with our overall portfolio on it.

It wasn't material so.

There wasn't a whole we didn't feel there was a whole lot of downside to the.

This acquisition.

We felt that.

Looking out 'twenty, one and particularly in the 22 that there was quite of bit of upside.

Throw on the fact that we've as we mentioned we.

$30 million of capital committed.

Which we hope to put to work in the short term, which will hopefully.

Translate into.

It's more in the higher expenses.

So that's sort of kind of.

On the play Devil's advocate here that if we did have a scenario where all of these day and to become the dominant very on the vaccines not very good vessels in all of these very in the kind of go back and just sort of locked out occupancy dropping.

You don't think there's any kind of downside risk at that point.

The kind of given the rent coverage is below one times at the current moment.

Well you know the one.

One thing to bear in mind Tayo.

We've got the.

The Brookdale credit.

And so I think.

At that point, you have to look to their balance sheet.

Which has huge amount of liquidity.

And a lot of long dated low rate.

Net.

Oh the portfolio so.

When we did our work from a credit perspective.

And thinking about.

What I think is highly unlikely, but that that downside scenario.

There is very little likelihood that.

Looked out.

The Brookdale doesn't survive through this then theres going to be a lot of other damage in the in the industry enormous amounts of I think they are really well suited.

And that that Garrett the corporate.

Guarantee sitting behind all of this is extremely valuable.

Got it okay. That's helpful.

The question if you don't mind Megan comments earlier on just about what was going on from a regulatory perspective of palpable.

It's clear what the new administration of a lot of uncertainty could you just talk a little bit about again your lab.

On exactly what they are trying to do on what they're trying to achieve.

On a going forward basis on how the kind of see things possibly.

Seeking out in regards to the future support of the support for the skilled nursing assets in the housing industry.

Yeah.

Do you want to address that.

Sure I mean, I think you know the American Healthcare Association of so you're running the same agenda that they did with the prior administration.

But it's really too soon to tell them, what's going to happen there on the only because you know folks are new into it in case of jazz provider relief on folks haven't been picked yet and so.

Theres still you know blinding everything up but it's a little too soon to tell but they'll still continue pushing the agenda for the long term care of industry.

Got it on any.

In regards to you know a lot of of the chatter, we're hearing about home health.

The administration kind of prefer in home health as the the preferred post acute care setting because of any of that stuff kind of come up and what are you kind of hearing of along those lines.

Okay.

I mean on the home outside again I think you know you you've got a lot of the selling into home health, who are COVID-19 recovery patients. So let's call. It goes the way it'll just be something that we have to watch to see if there is.

The continued increase there I think it'll likely move back into the the snip industry.

Gotcha alright, thank you.

Yeah.

The next question comes from Nick Joseph at Citi. Please go ahead.

Hey, it's Michael Bilerman here with Nick So just want to come back on the Brookdale transaction the <unk>.

43 million of rent what does that represent is that a re straight lining of GAAP under for the next seven years.

Is that current cash and if the current cash what are the bumps that are on those leases between now and the end of the lease term and maybe you can talk about what the renewal options our debt.

Brookdale has.

At the end of the lease term.

So the $43 5 million.

Is the 2021 contractual rents non.

Straight line its cash and the.

The escalates through the terminal of lead.

Okay.

Yeah.

Most of the increase sorry, what was the increase.

$2 four per cent per annum.

Okay.

Brookdale has 210 year renewal options.

And what are those renewal options based on is that day.

Market rent is under negotiation, what's the right now.

No.

It's the so the current ran at that time escalated so theres no recent rights.

At their discretion.

And in terms of the increases in the coverage you're talking about I assume that coverage is a probably the last 12 months coverage I.

I think you've talked about being of close to one times I would imagine the brookdale got a bunch of stimulus that probably positively impacted that number.

The addition of the fundamentals of weakened throughout the year. The likelihood is that coverage is going to get the hell of a lot weaker this year.

How do you think about how youre going to book.

The rents in terms of this year and whether you would have to take the reserve.

Given the fact of the coverage will be so low in the near term.

Okay.

Wow.

We don't expect it to be the low in the near term.

One of the car.

There wasn't a lot of federal stimulus money.

Ouch.

September 30th.

Actually we anticipate.

More to come out with whats remaining in federal stimulus funds, so actually the.

You should actually pick up.

Or for Alps in general and for Brookdale on this portfolio of specific things.

And we think that.

Assistance, we will.

And then as we said the occupancy of the portfolio was not.

It is a lot of the comparables that we looked at in this market. So.

We don't think day fell as far as many and we think so they don't have as far to climb back up to what was normal before so.

We don't see this portfolio of diving into the.

Okay.

Yes.

Right. So youre eight and a half that you quoted is a current cash on that 43 million on a GAAP basis, the yield of just north of nine.

Yes.

It's about nine point too and we will book this on a straight line basis.

Well currently.

And your auditors don't want you take any reserve, given where coverage or the trend line is on operating fundamentals.

Not at this time now.

Okay, Nick do you have on as well.

Yeah, I just wanted to follow up on the guidance question.

The fourth quarter run rate I guess it was 81.

Net annualized is the 325 I know, there's some give and takes with the transaction activity and then obviously brookdale, but there are asset sales on equity issuance.

Wondered if 81.

Right run rate going forward recognizing of course kind of the uncertainty around rent collections of government stimulus going forward at least book in past fourth quarter, how to think about that 81 Seth.

Well, yes.

And of said what the uncertainties are you have timing of that new deals yet the brookdale pro forma of.

Also stated debt.

We're looking to continue to reduce our leverage so the additional shares if we had had any will will impact that as well.

And then the asset sales so.

I wish I had the crystal ball to tell you exactly of that but.

A lot of moving parts, we feel pretty good with the fourth quarter going into first quarter and then beyond that it's it's.

It's all of those moving parts.

Thank you.

Yeah.

The next question comes from Rich Anderson with S. M. D. C. Please go ahead.

Good morning, and so when you look at the Brookdale deal is there an element of distress. There in your opinion I mean, if you put a six cap on that on that.

Rental rate of $43 5 million, you get to $725 million value today of how much of that.

Play a role in your decision to.

The pull the trigger on this one and also where you offered more could you have gotten more out of peak if you wanted it.

Yes.

As it.

Well.

Sure from our perspective, we think long term.

That portfolio.

We'll have the kind of values that you've talked about in terms of six type of cap rates.

In the interim.

You've heard all the questions about the short term and how are you.

Maneuver through the pandemic.

So I think from our perspective.

The timing was right in the cycle.

And we appreciate the balance sheet. The Brookdale has I guess I'm thinking in terms of it is it is it of trade.

Yeah.

Essentially saw value that you can trade in and out of over the course of the next couple of years.

Yeah, no from our perspective, it's Walter Okay.

But like everything there is there's always the potential for trade, but thats not how we looked at this portfolio could you guys more.

Yes.

No.

You mean other house.

The other additional sales of that were contemplating the duck, yes.

Didnt look, but most of them of shop, and we did not look at debt okay.

Second question is.

When you think about this recovery post pandemic and skilled nursing versus senior housing I imagine since you guys are triple net debt. You're you think both will kind of have of recovery thesis, maybe equivalent to one another but but the fact of the matter is skilled got stimulus in the senior housing relatively speaking.

Did not in the perception will probably be the senior housing will be the winner among those two in the in the recovery cycle of all of this do you agree with that and is that why you're kind of getting more on the way of senior housing exposure or do you disagree with that probably your answer.

And think that it will be sort of equivalent on both sides in terms of the recovery.

I think the one.

Recovery is going to be driven principally by occupancy and.

So to the extent of it.

Have a big base of Medicaid residents in.

The skilled side of the house.

I think the recovery rates as it relates to Medicaid at senior housing.

Those are those pieces of the occupancy.

Are likely to track along at a similar rate.

You have a couple of new residents of month and it takes a while the film.

Then on the Medicare side of the equation within skilled which is a much smaller population with much bigger turnover I think you could see.

A more rapid rebound so.

What you're correlated altogether.

I would argue that skilled probably comes back a little bit faster because of the Medicare component.

But the stable base of Medicaid probably tracks very similar to senior housing.

Okay, and then real quick last one of the 36%.

The vaccine right for the healthcare service folks is that because they refused largely or its just taking time to get to them.

The <unk>.

<unk> done some work around the sort of talk about it.

Yeah, I mean on the employee side of it.

It's not that they're not having it offered to them on in terms of these clinics that are happening, but I think you're seeing two things one one of them.

The refusal only because you know there's still a lot of education, that's happening by the operators with the employees and that's why there's a third clinic that was added on to continue that education effort.

But the other piece as you know we had a large number of cases in December on you.

You can't get them, you can't get the vaccine and so 14 days close to recovery.

So that is going into some of that as well. So we do ex backing had been hearing anecdotally from operators that those numbers are starting to creep up at the second kind of coming on and people getting the first dose during the second chronic but still off from you know where I think everybody had hoped it would be it.

It must be the frustrating, though you want to see those people get vaccinated from your perspective, probably the come on throws of bone get vaccinated, but.

Any.

We haven't done the mind my idea of things on the I think as long as you get you know most of the residents vaccinated journey on a much better position on we're seeing those numbers go up as well with the second question I see that okay. Great. Thanks, very much everyone.

Thank you.

The next question comes from Todd Stender with Wells Fargo. Please go ahead.

Hi, Thanks for staying on and most of my questions are on the Brookdale portfolio of been answered, but I'm just when it comes to the asset sales.

The Q4 activity on that I think you've completed some of the already in Q1.

Anything you can share about how it's impacting your top 10 roster of any movement there.

As I look at the tenant concentration, maybe kind of maybe coming down a little bit.

Nothing of any significance Todd.

Okay, and then when you layer I guess for tenant wise Brookdale now is going to be in your top 10 rosters, that's fair to say.

Yes.

All right great. That's it for me thank you.

Thanks, Bob.

The next question comes from Lucas cartilage with Green Street Advisors. Please go ahead.

Thanks. Good morning, you touched on this a bit already but I'd love to go a little bit deeper.

The home health industry, it's really pounding the table that market share gains relative to the smiths or are permitted and likely to continue to increase even post COVID-19 and it sounded like you disagree and I just would love to go a little bit deeper on what your thoughts are around those comments from the from the home health industry.

Well. So my first comment would be this this is nothing new on the trend of of.

Moving towards home health as much as possible has been going on for years.

And so to the extent.

The pandemic, perhaps accelerated some marginal of patients.

Net.

I don't think Thats.

I don't think Thats.

Problematic because it is a trend that we've seen and frankly, we need to C.

Given the demographic.

Coming our way.

And.

You know the idea of when you look at it.

At our facilities and the activities of daily living and the increase in acuity over the last decade.

There are very few of those residents that you can pull out of that setting and take care of in the home setting for less economics.

In fact, the exit of the cost will be meaningfully higher in the home setting so.

I appreciate.

The commentary around it but I think it's all on the margin and we've seen it for a long time. So it does it is it meant 1% of occupancy and I have no clue of what it means.

You're going to get that back very rapidly with demographics that are already here.

That's helpful. Thanks, and then it also looks like based on your comments earlier that there was pent up demand for the maplewood portfolio with the the lease up from around 80 to well over 85 per cent occupancy in the pre short timeframes that I'm. Just curious did you see that elsewhere in your portfolio of that's something you're kind of ex that.

In the post Covid world of the common experience.

I think that has more to do with.

The highly desirable nature of the maplewood assets, where they have had waiting lists and many assets.

And.

And so as.

As residents got more comfortable setting.

They moved in but that is the good news that we saw folks who had the opportunity to move in to debt.

They had a need and they were on the waitlist. So that's the good side.

We have not seen that in other parts of our portfolio I would attributed to maplewood.

Marketing efforts and waiting on us.

Great. Thank you.

This concludes our question and answer session I would like to turn the conference back over to Taylor Pickett for any closing remarks.

Thanks, very much thanks for joining us today.

Please direct any follow ups, but they have to Bob or Matthew.

Yeah.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yes.

[music].