Q2 2021 CareTrust REIT Inc Earnings Call

August 6, 2021

[music].

Good day, and thank you for standing by.

Come to the care Trust REIT second quarter, 2021 earnings conference call.

At this time all participants are in a listen only mode.

After the Speakers' remarks, there will be a question and answer session.

To ask a question during the session. Please press star 1 on your telephone keypad.

I would now like to hand, the conference over to Lauren Beale SVP and controller. Please go ahead.

Thank you and welcome to take care of Trust REIT second quarter 2021 earnings call participants should be aware. 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 the care trust business and the environment in which it operates these statements may include projections regarding.

Future financial performance dividends acquisitions investments return financings and other matters and may or may not referenced other matters affecting the company's business or the businesses of its tenants, including factors that are beyond their control such as natural disasters pandemics, such as COVID-19, and governmental actions the.

Company's statements 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 characterize the SEC 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 characteristic REIT and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as the 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, SSO, and MFA D or fad and normalized EBITDA <unk> and <unk>.

When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP reports.

Yesterday <unk> 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 <unk> website at Www Dot care Trust REIT Dot Com AR.

Replay of this call will also be available on the website for a limited period.

On the call. This morning are Bill Wagner, Chief Financial Officer, Dave Sedgwick, President and Chief Operating Officer, Mark Lamb, Chief Investment Officer, and Eric Gillis, Vice President of portfolio management and investments I'll now turn the call over to Greg Stapley characterize reeds, chairman and CEO Gregg, Thanks, Lauren and good morning, everyone.

In Q2, we continue to methodically execute on our long term business plan in spite of the near term challenges posed by the pandemic requires some great facilities refinanced some higher cost debt raised a little equity sorry sufficient to start to rebound collected all of the contract rent from continued to refill our pipeline.

But before we go into all of that we note that as the current wave of Delta infections raises the possibility of more of limitations on the activities of daily living.

Skilled nursing and seniors housing industries continue to battle back from the downdraft in census, the bottomed in the first quarter of this year.

Surprisingly skilled nursing and seniors housing facilities, which were a favorite target of the finger players in the early days of the pandemic.

But the day become some of the safest and healthiest places for vulnerable seniors in post acute patients to be.

We're proud to be associated with the people who provide the services and we continue to base our business strategy on a commitment to move as many facilities as we can into the strongest operating hands possible.

While our providers of risen to the challenge of protecting our residents patients and staff from this highly infectious disease theres still dealing with the lingering effects of the pandemic, most notably the priest depressed census increased labor costs and the shortage of qualified workers.

Our robust disclosure around lease coverage, which we began last fall has clearly demonstrated the importance of provider relief funds for the skilled nursing industry.

Our skilled nursing providers have fared well as the government has provided significant funding and other measures designed to fill the gaps.

Created by a decrease the occupancy revenue and increased operating costs were.

We're hopeful that the industry will soon receive some or all of the remaining provider relief funds as many operators still need.

Our quarterly lease covers disclosures of also highlighted the looming dangers of failing to provide direct financial support to seniors housing.

Census for a L providers is unlikely to recover as quickly as it will for skilled nursing these providers, especially those serving mid market and lowering from client tells provide of highly valuable and essential service to society and are there and there are good reasons for payers to want to keep those revenues healthy and in place for as long as possible.

We joined with many voices, we're calling on government to acknowledged the critical role that assisted living providers play in the health care continuum with direct relief funding.

That said, we're very pleased with where we are today.

This quarter, we posted double digit normalized <unk> per share growth of 10, 2% over the same quarter last year and increased our dividend by 6% at the same time.

We collected 100% of contract rents in Q2, and 96, 2%. Thus far for July we believe that we can get collect 100% of rents due this year.

We grew the portfolio was $42.3 million of new investments since the last quarter, bringing our total capital deployment for the year to almost $185 million so far.

We reduced our borrowing cost with the $400 million 7 year bond issue. We completed in June of the 370 eights coupon to refinance our previous 5 of the quarter percent bonds.

This fixed and reduce that chunk of our long term interest expense and push those maturities out to 2028.

We held steady on leverage with net debt to EBITDA of 3.7 times and that the EBIT of 22, 1% at quarter end.

We used our ATM to sell 288000 shares in the quarter at an average of over $24 per share.

And with all of that we increased our <unk> and if the guidance yesterday, reflecting our constructive view of our own future and the future of the post acute care and seniors housing the industry's notwithstanding the near term headwinds we are all facing.

The other than that is a pretty boring quarter.

And so to wrap up despite the short term challenges with great operator relationships plenty of liquidity and a great team here characterized remains well positioned to continue pursuing our mission of pairing great operators with meaningful opportunities to transform individual facilities and by extension of the industry as a whole for the better with.

With that I'll turn it over to Dave to discuss the industry on a portfolio of and Mark will jump in with recent acquisitions in the pipeline and Bill will finish off with the financials. Then we'll open up for Q&A David.

Thanks, Craig and good morning, everybody.

In Q2, our skilled nursing operators reported continued occupancy of recovery.

Looking at the facility level of data through May 8.

18% of our Smith from campuses are at or above 100% of their pre COVID-19 occupancy and are moving in the right direction.

For the Snip portfolio overall occupancy has grown from January of <unk> 4 of about 67%.

2 of around 70% in June.

Or a rate of recovery of about 60 bps per month.

If that rate held constant we would be looking at approximately next April to may to return to our pre pandemic occupancy levels of.

The <unk> 77, 7%.

But we expect it to fluctuate a bit due to a few factors like the delta waves concerns, which we hope will be short lived.

Seasonality.

Q3, usually being the softest quarter for skilled nursing census for example.

Our reported the inability in some market to admit patients due to staff shortages, which we think may be beginning to resolve.

On the skilled mix from at quarter end, our operators were still roughly of 150 bps above the pre pandemic skilled mixed norm.

Which continues to help offset some of the revenue loss while occupancy of recovers.

Seniors housing the occupancy is a somewhat different story.

Before Covid average occupancy in our portfolio was 84, 5%.

We appeared to hit a low point in March of 73, 5% and that level has held steady through June.

While we expect the seniors housing occupancy to recover and actually exceed pre pandemic numbers at some point as Greg mentioned, it will not happen nearly as quickly for assisted living as it is happening for skilled.

As a reminder, senior housing on the accounts for about 17% of our portfolio.

Next let me talk about our lease coverage.

On yesterday's supplemental we continued our enhanced COVID-19 era of disclosure wherein we tried to be as transparent and helpful. As possible by reported lease coverage on an EBITDAR and EBIT darn basis.

Excluding cares act funding and including in the amortizing the cares Act funds received to date.

Since last quarter's supplemental.

HHS updated the utilization and recording guidelines for the cares Act.

So this supplemental of amortization methodology of follows the updated guidance and provide the pretty reassuring picture from most if not all of our skilled nursing tunnel.

Looking at the Covid era of numbers overall portfolio EBITDAR coverage, excluding cares act funds was essentially flat from the immediately preceding quarter ticking down slightly from $2.12 times for the 9 months ending on 12.31 2020 the.

2.7 times for the 12 months and in $331.21.

However, both of these numbers are considerably higher than the same pre pandemic number which.

It was 192 times for the 12 months ending on $3.31 'twenty.

The relative strength comes from several of our skilled nursing operators, including M, which has done an amazing job throughout.

Predictably, if you've been watching our coverage disclosures our senior housing operators are facing strong headwinds right now.

Our current assisted living operators were improving operations and coverage of the leading up to the pandemic.

And the all largely held their own through 2020.

But January sharp decrease in occupancy coupled with elevated labor costs.

Made of challenging operating environment that much harder.

I'd like to point out on.

The top 10 coverage slide that noble's coverage is not apples to apples.

Last quarter's supplemental we've removed 2 facilities from their coverage calculation as we are pursuing the sale of 1 and the other has been undergoing a major remodel and has not been open or operating.

Noble did not paid July red and has requested the short term deferral for July August and part of September backed by our plan to have all of deferred rent paid before the end of the year.

As we sit here today, we have not agreed to the deferral request, but are having positive discussions with them about their plan and path forward.

All of our assisted living tenants have been very communicative and open with us about the situations and the effort to weather the storm for.

<unk>. This has made it much easier for us to work with them is the chart of positive path forward and we have reason to believe that they will continue to improve operationally barring any major fallout from the current dealt the way.

Shifting from our portfolio to the broader picture, we have a positive update regarding the remaining provider relief funds.

First we enjoyed a defensive when when Congress agreed not to tap into the other obligated provider relief funds.

To help pay for its current infrastructure Bill.

Second it had previously been reported that at roughly $24 billion remained on the provider relief fund on.

<unk> 19, the government Accountability office reported a much higher amount of on obligated funds of $43.7 billion.

In addition, the remains another $8 billion in relief funds earmarked for rural providers, bringing the total unallocated in undistributed funds.

The 52 billion.

As far as timing goes we don't know but.

But we do understand that the program is at the White House for final approval, which would assist providers based on lost income in the increased expenses during the second half of 2020 in the first quarter of 2021.

Given <unk> current attention the infrastructure Bill our understanding is that movement towards the final approval of the execution, we'll wait until the current infrastructure Bill has done.

Another positive development is that CMS has agreed to not change the PDP M formula until at least October 2022.

This is certainly welcome news for the sector that is still very much battling the effects of the pandemic.

Finally, the Delta variant warrants dimension.

We will leave the predictions for the scientists and statisticians, but we can say both based on the report this week from the American Health Care Association and the anecdotal reports from our tenants that infection rates among nursing facility residents and staff.

We're not claiming at anywhere near the rate being experienced in the general population.

So far in nursing homes remain some of the safest places to be in America.

With high vaccination rates.

Accurate rapid testing on site, which we did not have this time last year and full of infection protocols in place were hopeful that the delta wave will be nothing like the original outbreak in 2020.

With that I'll pass the call over to Mark to talk about investing Mark.

Thanks, Dave and good morning, everyone.

In Q2, and we continue to be aggressive on the acquisition front with 2 investments that we believe will be accretive to not only us, but our operators as well.

First at the end of April we acquired a 123 beds sniff for $9.8 million in an off market transaction brought to us by our tenant base on our senior communities.

The facility was of value add opportunity in the secondary market here in southern California, and the prior operator was the single asset mom and pop provider.

It was of great match for <unk>, whose principals have extensive relationships in the operating experience serving higher acuity patients from that market.

Who have consistently been exported to other markets due to a lack of sophisticated local care.

<unk> is now bringing that level of operational sophistication and quality care to the facility and the community response has been gratifying.

Second earlier this week, we announced the acquisition of 2 state of the art skilled nursing facilities located in Austin, Texas, which we leased to the operating affiliates of the enzyme group the.

The facilities add the enzymes existing footprint in Austin and strengthened their position in Texas, which they cited on our call last week as 1 of their highest performing states for care Trust the transaction allowed us to grow with the bluest of blue chips in enzyme.

In the state, we like and in arguably the hottest real estate and growth market in the country.

The 2 assets, which were both constructed in 2017 were purchased from the original developer in an off market transaction for approximately $32.5 million.

Inclusive of transaction costs.

Enzyme after the make an upfront rent reduction payment of $5 million of clothing, and the annual cash rent under the existing master lease to which the facilities were added was increased by approximately $2.2 million.

This produced.

First year cash on cash yield of care trust of approximately 8%.

Which is lower than our typical going in yield on sniff assets, but obviously reflects the credit and operating strength of the premier operator on enzyme.

Both the California, and Texas transactions were funded using characterize 600 million dollar unsecured revolving credit facility.

Through today, we have invested $184.1 million. So far this year and we will continue to press forward on the acquisition front of hopefully finish off the year with the kind of external growth results.

We're accustomed to seeing from us prior to the pandemic.

As for the market deal flow has been somewhat consistent over the past few weeks and months with a number of 1 off skilled nursing facilities hitting the market with very little volume for small to mid sized portfolios.

On the seniors housing front, we're seeing the entire range from half empty turnarounds to performing class a product.

I can say as a whole.

In both of the skilled nursing and seniors housing space is pricing at this point in time is dislocated from property level performance, but we continue to underwrite carefully and look for opportunities that fit us and our operating partners Lastly, our pipe has been reloaded back to our historical range of $100 million to $125 million the <unk>.

<unk> made up of singles and doubles and we continue to pursue pieces of larger portfolios that look interesting to us.

The pipe opportunities will allow us to do tack ons with some of our existing operators and also begin new relationships with operators that we have quoted over the past 12 months to 18 months.

Finally, the composition of the pipe of largely snips with the few potential mezzanine loan relationship opportunities that we think.

Could be a good long term fit for our sniff investment thesis.

Please remember that when we quote our pipe we only quote deals that we are actively pursuing under 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'll turn it to build the discuss the financials. Thanks, Mark for the quarter normalized <unk> grew by 11, 4% over the prior year quarter to $35.8 million and normalized Fad grew by 13, 5% to $38.

$1 million.

On a per share basis normalized <unk> grew by 10, 2% over the prior year quarter to 37 per share and normalized Fad grew by 12, 3% to <unk> 40 per share.

During the second quarter, we issued 400 million of new senior notes due in 2028, and an interest rate of $3.700 eights.

The proceeds of the issuance were used to pay off the 5 on a quarter $300 million senior.

<unk> senior notes due in 2025, and the related call premiums fees and expenses of the issuance and the remaining funds were used to pay down the revolver to about $50 million.

More on this transaction and the quarterly impact from it can be seen on our supplemental on par.

Page 6.

Moving onto guidance, we are raising our previously released guidance by <unk> <unk> on both ends of the range for normalized <unk> per share to of $1.48 to $1.50 of normalized fad per share to $1.57 to $1.59.

This guidance includes all investments and dispositions made to date the share count of $96.9 million shares and also relies on the following assumptions.

1 no additional investments dispositions of rent cuts of reserves, nor any further debt or equity issuances. This year.

2 <unk>.

The <unk> based rent Escalations, which account for almost all of our escalators at an average of 2%.

Our total rental revenues for the year again, including only acquisitions made to date are projected at approximately $186 million, which includes less than $60000 of straight line rent.

3 of interest income of approximately $2 million.

For interest expense of approximately $24 million.

In our calculations, we have assumed a LIBOR rate of 15 bps and of grid based margin rate of 125 bps on the revolver and 150 bps on the unsecured term loan.

Interest expense also includes roughly $2 million of amortization of deferred financing fees.

Not included in interest expense as of $10.8 million charge that we will take in Q3 related to the refinancing the $10.8 million is made up of <unk>.

$7.9 million of redemption fees and of $2.9 million write off of deferred financing fees.

And 5 we are projecting G&A of approximately $19.6 million to $21.5 million.

This range is up approximately 600000 over the previously released guidance due to certain hurdles being met relating to our short term incentive compensation program.

Our G&A projection also includes roughly 7 million of amortization of stock comp.

Our liquidity remains extremely strong with approximately $25 million in cash 5.

$500 million available under our revolver, having drawn $50 million on it subsequent to quarter end and we produce roughly $12 million in cash after we pay the dividend every quarter.

We also raised almost $7 million of equity off of our ATM at an average price of 24.

Point of <unk> during the quarter.

Average also continues to be strong and the net debt to normalized EBITDA ratio of 3.7 times today on <unk>.

Net debt to enterprise value was 22, 1% as of quarter end and we achieved a fixed charge covered ratio of 8.1 times.

Lastly, cash collections for the quarter came in at 100% of contractual rent in July came in at 96, 2% I would expect August to be much like July based on the color given on the call today.

With that I will turn it back to Greg. Thanks, Bill and thank you everyone. We hope. This discussion has been helpful. For you we will turn it now back to Christy to start the Q&A Christie.

Certainly and as a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.

And your first question is from Juan Sanabria of BMO capital markets.

Hi, good morning.

Just hoping you could talk a little bit about the senior housing performance on the assisted living side.

Basically flattish occupancy.

Do you think at the holding that back we've seen a bunch of your peers, who are both al and IL.

Expose have perhaps a bit of a better balance off the bottom. So just curious of the.

Maybe smaller facilities or labor constraints that you've kind of touched on but any color on.

On the lack of of.

The growth in occupancy would be helpful. Thank you.

Thanks, Juan this is Dave what we have.

Heard from our operators as.

That some local restrictions on visitation.

Ben.

<unk> staffing.

It has also been.

Challenging for some of them in.

In order to to.

To grow the occupancy.

We do have.

The occupancy numbers that we gave.

A really through June, but we do have some more real time in some of that that's more positive.

We are seeing in some parts of our portfolio of some real momentum.

The momentum in occupancy.

As we sit here today from July even to August that's going to if it holds for sure.

Pretty good improvement over what we've reported through June.

The particular state for example, we have some buildings in Michigan that we're at 73% occupancy in June.

That are today at 79% and projecting to be at 82% by the end of this month.

So.

We just we did have some.

Some.

A bit of a stalemate there, but it looks like we're starting to pick up some some good momentum.

Okay.

Are there restrictions on visitations for some of your operators and all of those self imposed or mandated by.

The local.

Authorities.

By and large the restrictions have been lifted as as the most restrictive restrictions were in place last year.

But that was.

So that is as we sit here today has been mostly lifted in some operators every operator approaches their policies of little bit differently, some are more cautious than others.

At this point.

I think all of the facilities are open for business and open for admissions.

With 1 exception, where we have 1 building in the portfolio that we're aware of that.

That is dealing with.

A bit of the.

A small outbreak of the Delta variant.

Okay.

And maybe a question on the balance sheet with regards to how willing you are to get more aggressive in kind of goldfarb fit into your historical targeted range of $3.7 today very cautious and conservative.

Or are you at the point, where youre willing to become more offensive or given the delta very preferred of kind of stick, where you are and keep it rolling from just have that insurance policy.

1 of this is Greg.

We've always been willing to be more aggressive if the.

Situation or opportunities rather Meredith it.

That's why we keep it low.

Not really.

<unk>, although works that way.

Our thesis for keeping it low is that we want to be able to do the big deal when it comes along.

And now is probably not the time for that as Mark mentioned in his prepared remarks pricing for assets is.

<unk> is rather.

Severely dislocated from new.

Normal underwriting standards and the realities on the ground.

And so we are still sitting on that dry powder, but we will not hesitate to use it.

When the time comes if the time comes.

Thank you.

Your next question is from Jason <unk> of RBC capital markets.

Hey, guys I'm, just wondering how we should be thinking about investments today.

I think last quarter, you guys mentioned that there could be some larger portfolios that you guys were looking at in on it sounds like today, it's mostly singles and doubles. So I guess on those larger portfolio is just not come to the market. Maybe it's the level that you had expected or what are you guys seeing on the acquisition from.

This is Greg.

I'll take that and the Mark to Mark can fill in if I Miss anything there on a couple of larger portfolios out there. We think we see everything that comes through the marketing this quarter demonstrated we actually see stuff that doesn't come to the market.

So we've kind of pre comprehensive view of what's going on and we would just tell you that the.

The portfolio is always carry premium that's the.

Seldom justified, but just the norm.

And in the current environment, it's really tough to get the the pricing that some are willing to pay for the larger portfolios. So we've always said that.

That we are opportunistic buyers and that if the opportunities weren't there.

We will always comfortable taking their money and heading for the sidelines, we're not on the sidelines now as you've seen we are having a pretty good year so far.

But it has required us to really get in and beat the bushes and do a lot of this on on smaller deals the portfolio that we acquired in March was 4 buildings out of 125 million so that wasn't small but.

Right now with our pipeline at 100 to 100 quarter. It really is singles and doubles and the big portfolios are.

Our kind of priced out of range of especially considering the financial distress that still that still lingers across the industry Mark the anything to add.

I would just say that if.

When youre looking at larger portfolios Youre oftentimes looking to partner with operators, who their situations can change from time to time.

So depending on what happens with Delta they may or may not be in a situation to take on.

More buildings into their into their portfolio. So it's a little bit of.

It's a little bit of a fluid situation in terms of matching matching the assets with operators assuming that we can get there on pricing.

Got it Okay and then in terms of the provider relief funds. So there's 52 billion left I guess, 1 what would be the expectation of on what would prevent them from distributing that full amount.

As opposed to like holding some of that back.

I guess, what's your guys expectation there and on what's the potential in your eyes of seniors housing getting the chunk of that.

Yes. This is Dave good question the expectation is that.

The.

The whole $52 billion would be in <unk>.

Play eventually.

There was some there is some talk about holding some back.

To correct mistakes from previous phases, either miscalculation on.

For money going to the wrong, operator, because of changes of ownership that sort of thing.

But the but that essentially still distribute.

All of the money, we have not heard any recording or our rationale for for them to withhold any dollars from providers.

We also it's my understanding that this phase 4 that is on deck would include seniors housing operators, but at this point we can't.

We can't promise that that's just what we've been told by those who are closer to it than we are.

Got it okay. Thank you guys.

Welcome.

Thank you. Your next question is from Jordan Sadler of Keybanc capital.

Hey, This is Arthur Porto on for Jordan, just 1 question from me, we noticed that you closed your first acquisition of alongside enzyme for the first time in a while maybe even since the spinoff of the company is this the beginning of the more.

The active relationship with Ensign or was this more of a 1 off transaction. Thanks.

Arthur This is Greg look we never didn't really didn't have an active relationship with the enzyme what we had was.

The significant need of following the spinoff.

To diversify the portfolio it took us a long long time to educate the investor community as to the benefits of our in St concentration and.

It wasn't until we were well under 50% concentrated with them. The people started to go.

Kind of get that now as their as their coverage climb. So we've always wanted to do things with ensign.

We do think the world of those guys as operators on <unk>.

We don't think there's anybody better out there and they're just a great great partner to have in the portfolio of finding they have very very stringent.

The underwriting and expansion standards, they always have it as part of their secret sauce, we respect that and we've tried things over the years, but it's only recently that we've actually found assets in their markets that are of good match for them and been able to do this deal. It was a great deal for them. It was a great deal for us.

We love these assets.

These are the last assets the mark of an eye toward.

Before the pandemic in late February of 2020.

We just kind of had to keep that deal warm through through the turmoil of the last year in order to get it done, but we're very grateful we did it and we and we hope that we'll be able to do more deals like that and more deals with insight.

In the future.

Great. Thank you.

Thank you. Your next question is from Steven Valiquette of Barclays.

Thanks, Hello, everyone. Thanks for taking the question.

First if we think about your rent diversification by state time page 12 in the supplement.

This was touched on on a little bit but 1 of your.

Skilled nursing REIT peers did note that some of the rising labor pressure on wages can be.

All of the manage on stage with limited or no COVID-19 reimbursement relief. So I guess I'm curious if you can speak at a high level on.

The <unk> exposure to the major states with limited or no COVID-19 relief of operators or lack of exposure, if that's the circumstance, which of which would obviously be positive.

From that on.

Thanks for the question.

Right now.

The.

The performance either positive or distress, we're really not seeing of connection.

To that issue.

We've been pleased generally speaking where how the states have responded with F map increases or.

Or across the board Medicaid rate increases.

In the states and most of the states that we're in.

We feel that the state of response, coupled with the federal response.

As Ben has been good.

But as we've hinted that or talk that directly today.

<unk> is definitely needed.

So we're anxious to see the phase core funding approved.

And distributed.

In the months to come.

Okay great.

1 quick follow up here. So you guys had a great slide deck back at <unk>.

The weak back in June of I feel like might of been somewhat overlooked in the investment community. So I just had 1 question around 1 of the slides and Theyre not.

Not to have to make your tap of your memory banks I wanted to side of that was the page 19 of it basically showed your monthly skilled mix occupancy and how that's benefited from the elimination of the 3 day hospital stay of rule.

So that it peaked at around 26% in December of 2020.

Back to on all the way on the first 4 of 5 months of 'twenty 1.

Of course to me I think it was a little bit surprising, but so the question is on what's your latest intelligence on the duration of the suspension of the 3 day hospitals day requirement.

And then 2 if you did have to predict how your skilled mix occupancy will progress for the rest of 2021, how would you characterize it.

Okay, great. Thank you.

So.

We were not surprised that the the SKU.

The mix has dropped since there it really.

Correlates closely with the the drop in Covid and the facilities.

Most of the.

Exactly mirror.

Of that peaking in December the vaccine coming in place.

And and the new cases of Covid has just dropped precipitously since since December.

And the skilled mix has sort of so the operators lose those skilled patients.

But they're able to they've been able to maintain.

A little bit higher average than pre pandemic levels for skilled mix because of the 3 day of qualifying stay.

Waver as you stated our understanding is that that is.

As of today, which this can change of course.

Is still in place through the end of this year.

And talking to some of our operators.

<unk> talked about this I think on their earnings call as well.

Many of them are.

Believing that theyre going to be able to maintain a little bit of an elevated level of skilled mix over pre pandemic levels throughout this year.

Possible to predict of course, but that's that's the latest Intel the rehab.

Okay, Alright, great Thats great color. Thanks.

Thank you. Your next question is from Daniel Bernstein of capital 1.

Alright.

I guess my question on the Ensign relationship was actually asked but.

And that same kind of context and sign on the earnings call was saying that some of the properties.

I guess some of the new properties, new leasing with you where operators have exited the business and so maybe if you could talk about this in terms of the pipeline are you seeing a lot more operators exiting the.

The business spend before maybe pre COVID-19.

Or any potential tax implications.

Coming out of the federal government may be an impetus for.

For that thanks.

Thanks.

Hey, Dan its Greg the.

The operator.

Debt.

The enzyme replaced in those 2 Texas buildings not exiting the business. It was exiting those particular facilities.

But there is still around.

Other places it had been for a long time.

In terms of.

What's going on out there with the stuff that's on the market.

We do hear from time to time that people are motivated.

By the fear of capital gains rate tax increases coming of possibly in the future.

That really is not the biggest motivating factor for anyone to sell.

Usually there is other stuff going on in.

We are we are addressing that.

Best we can in the deals that we chase, but no we're not.

It's logical but were not seeing tax motivations for the sales.

Okay.

That was still on the question I had I appreciate it thanks guys.

The.

And we have no further questions I will turn the call back over to management for any additional or closing remarks.

<unk>, we just saw 1 more pop up in year 2.

Yes, we have Jonathan Hughes of Raymond James.

Hey, good afternoon. Thanks for squeezing me on I appreciate it.

Bill can you go back to the guidance I don't know if I heard you correctly or are mistakenly but did you say you expect rent collections.

Going forward to look a lot of like July but the guidance includes no rent shortfall.

Yes, I did say that I expect August collections to be a lot like July.

But as we said in the prepared remarks, we expect to be made whole on 100% of <unk>.

<unk> cash rent by the end of the year.

Okay, So maybe the cadence.

Okay.

Cadence. It would then be for like third quarter may be down a little on the river.

Worked itself from the fourth quarter.

Yes, but we're keeping.

The tenant that we mentioned.

On an accrual basis, because we feel the collections are probable.

Okay.

That helps and then I don't think I heard anybody talk about the.

Covenant.

Average dropped a little there.

Can you just maybe talk about what happened there any concerns on that portfolio.

Sure Jonathan it's Dave.

The.

Covenant care among.

Among the hardest hit in our portfolio.

From a census perspective the dropped from.

From around 90% occupancy pre pandemic down to 70%.

And.

And labor costs were also hit hard there, they're built they're 6 buildings with us on.

On a small piece of the overall portfolio, but they are in rural.

The market that.

Have just had a little bit of a harder time with COVID-19.

Then the rest of the portfolio, which is which is more urban based and is recovering a lot better.

So the recovery really well before the pandemic, we think they've bottomed and are in our other way back in.

And the the parent company credit is it gives us no cause for any.

Concern in the short run.

Okay, and Thats, all skilled nursing REIT, it's not seniors housing.

That's right.

Okay.

And then.

Just 1 more from me for maybe marker or Greg on.

But given the dislocation and pricing fundamentals for acquisitions I think is how are.

You framed it where the.

The potential sale of some property.

Could this environment give you an opportunity to perhaps move on and try to deploy capital elsewhere.

And that may be a better option than.

Working with some of these operations until things recover over the next few years.

I guess I'm just getting at is there any potential of our capital recycling in the next 6 or 12 months.

Well, Jonathan it's Greg we did mentioned.

In our prepared remarks, 1 facility that we are we've now slated for sale.

And then it'll be a very very small deal immaterial.

In fact, but.

Yeah.

We don't.

We don't really look at the portfolio.

On that way our portfolio is relatively young and has not had a lot of time to appreciate significantly in value.

And so we don't see.

A lot of big upside in.

In the value of our facilities.

That might be captured with the sale like that.

We're not against it.

Don't see it right now.

Okay, Yes, I did see the <unk> noble I would guess it was just more asking on a on a larger scale, but you just address that.

Okay. That's all I had I appreciate the time Joe of the weekend.

You too.

We have no further questions.

Very good well. Thank you everyone from being on will be of a nice weekend and as always you know where.

Of the reaches if you of any additional questions take care.

Thank you. This does conclude today's conference call you may now disconnect.

[music].

Good day and thank you for standing by welcome to the care Trust REIT second quarter 2021 earnings conference call.

At this time all participants are in a listen only mode. After.

After the Speakers' remarks, there will be a question and answer session.

You asked the question during the session. Please press star 1 on your telephone keypad.

I would now like to hand, the conference over to Lauren Beale SVP and controller. Please go ahead.

Thank you and welcome take care of Trust REIT second quarter 2021 earnings call participants should be aware of 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 the characterize business and the environment in which the operates these statements may include projections regarding.

Future financial performance dividends acquisitions, and investment return financings and other matters and may or may not referenced other matters affecting the company's business or the businesses of its tenants, including factors that are beyond our control such as natural disasters pandemics, such as COVID-19, and governmental actions.

The company's statements 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.

During the call of the company will reference non-GAAP metrics, such as EBITDA S. S M.

And at the D or fad and normalized EBITDA <unk> and S E D.

Yesterday care Trust filed its form 10-Q, and the accompanying press release and its quarterly financial supplement each of which can be accessed on the investor Relations section of that characterize the website at www Dot care Trust REIT Dot com of.

A replay of this call will also be available on the website for a limited period.

On the call. This morning are built out and hurt the Chief Financial Officer, Dave Sedgwick, President and Chief operating Officer.

Lamb, Chief investment Officer, and Eric Gillis, Vice President of portfolio management and investments I'll now turn the call over to Greg Stapley characterize reeds, chairman and CEO Gregg Thanks, Lauren and good morning, everyone Inc.

Q2, we continue to methodically execute on our long term business plan in spite of the near term challenges posed by the pandemic.

Part of some great facilities refinanced some higher cost debt raised the little equity Socs. This since the start to rebound collected all of our contract rent and continue to refill our pipeline.

But before we go into all of that we note that as the current wave of Delta very infections raises the possibility of more limitations on the activities of daily living.

<unk> nursing and seniors housing industries continue to battle back from the downdraft in census, the bottoms in the first quarter of this year lots.

Not surprisingly skilled nursing and seniors housing facilities, which were a favorite target of the finger pointers in the early days of the pandemic has the day become some of the safest and healthiest places for vulnerable seniors and post acute patients could be.

While our providers of risen to the challenge of protecting our residents patients and staff from this highly infectious disease.

Still dealing with the lingering effects of the pandemic, most notably the priest depress census increased labor costs and the shortage of qualified workers.

Our robust disclosure around the lease coverage, which we began last fall has clearly demonstrated the importance of provider relief funds for the skilled nursing industry.

Our skilled nursing providers have fared well as the government has provided significant funding and other measures designed to fill the gaps created.

Created by decreased occupancy revenue and increased operating costs were.

We're hopeful that the industry will soon receive some or all of the remaining provider relief funds as many operators still need.

Our quarterly lease coverage disclosures of also highlighted the looming dangers of failing to provide direct financial support the seniors housing.

Census for a L providers is unlikely to recover as quickly as it will for skilled nursing lease providers, especially those serving mid market and lower income clay Intel's provide of highly valuable and essential service to society and are there and there are good reasons for payers to want to keep those residents healthy and the in place for as long as possible.

We joined with many voices, we're calling on government to acknowledge the critical role that assisted living providers play in the health care continuum with direct relief funding.

That said, we're very pleased with where we are today.

This quarter, we posted double digit normalized <unk> per share growth of 10, 2% over the same quarter last year and increased our dividend by 6% at the same time.

We collected 100% of contract rents in Q2, the 96, 2% thus far for July we believe that we can get collect the 100% of rents due this year.

We grew the portfolio was $42.3 million of new investments since the last quarter, bringing our total capital deployment for the year to almost $185 million so far.

We reduced our borrowing cost with the $400 million 7 year bond issue. We completed in June of the 370 eights coupon to refinance our previous 5 of the quarter percent bonds. This fixed and reduce that chunk of our long term interest expense and push those maturities out to 2028.

We held steady on leverage with net debt to EBITDA of 3.7 times and that the EBIT of 22, 1% at quarter end.

We used our ATM to sell 288000 shares in the quarter at an average of over $24 per share.

And with all of that we increased our <unk> and that the guidance yesterday, reflecting our constructive view of our own future and the future of the post acute care and seniors housing the industry's notwithstanding the near term headwinds we are all facing.

Other than that is the pretty boring quarter.

And sort of wrap up despite the short term challenges with great operator relationships plenty of liquidity and a great team here characterized remains well positioned to continue pursuing our mission of pairing great operators with meaningful opportunities to transform individual facilities and by extension of the industry as a whole for the better.

Thanks, Craig and good morning, everybody.

In Q2, our skilled nursing operators reported continued occupancy of recovery.

Looking at the facility level of data through May 18% of our Smith from campuses are at or above 100% of their pre COVID-19 the occupancy.

And are moving in the right direction.

For the sniff portfolio overall occupancy has grown from January as floor of about 67%.

True around 70% in June.

Or a rate of recovery of about 60 bps per month.

If that rate held constant we would be looking at approximately next April to may to return to our pre pandemic occupancy levels of.

77, 7%.

But we expect it to fluctuate a bit due to a few factors like the delta of ways concerns, which we hope will be short lived seasonality Q.

Q3, usually being the softest quarter for skilled nursing census for example.

Our reported the inability in some market to admit patients due to staff shortages, which we think may be beginning to resolve.

On the skilled mix from at quarter end of our operators were still roughly of 150 bps above the pre pandemic skilled mix norm with.

Which continues to help offset some of the revenue loss while occupancy of recovers.

Seniors housing the occupancy is a somewhat different story.

For Covid average occupancy in our portfolio was 84, 5%.

We appear to have hit a low point in March of 73, 5% and that level has held steady through June.

As a reminder of senior housing on the accounts for about 17% of our portfolio.

Next let me talk about our lease coverage.

Yesterday supplemental we continued our enhanced COVID-19 era of disclosure wherein we tried to be as transparent and helpful. As possible by reported lease coverage on an EBITDAR and EBIT darn basis, both excluding cares act funding and including an amortizing the cares act funds the seek to date.

The last quarter's supplemental.

Jay just updated the utilization and reporting guidelines for the cares Act.

So this supplemental of amortization methodology of follows the updated guidance and provides a pretty reassuring picture from most if not all of our skilled nursing tenants.

For the 12 months and in $331.21.

However, both of these numbers are considerably higher than the same pre pandemic number which was 192 times for the 12 months ending on $3.31 'twenty.

The relative strength comes from several of our skilled nursing operators, including M. <unk>, which has done an amazing job throughout.

Predictably, if you've been watching our coverage disclosures our senior housing operators are facing strong headwinds right now.

Our current assisted living operators were improving operations and coverage of the leading up to the pandemic.

And the all largely held their own through 2020.

The January sharp decrease in occupancy coupled with the elevated labor costs.

Made of challenging operating environment that much harder.

I'd like to point out on the top 10 coverage slide that noble's coverage is not apples to apples with last quarter's supplemental.

We've removed 2 facilities from their coverage calculation as we are pursuing the sale of 1 and the other has been undergoing a major remodel and has not been open or operating.

Noble did not pay July rent. It has requested the short term deferral for July August and part of September backed by our plan to have all deferred rent paid before the end of the year.

As we sit here today, we have not agreed to the deferral request, but are having positive discussions with them about their plan and path forward.

All of our assisted living tenants have been very communicative and open with us about the situations in their effort to weather the storm.

For novel This has made it much easier for us to work with them as they chart of positive path forward and we have reason to believe that they will continue to improve operationally barring any major fallout from the current dealt the way.

Shifting from our portfolio to the broader picture, we have a positive update regarding the remaining provider relief funds.

First we enjoyed the defensive when when Congress agreed not to tap into the other obligated provider relief fund to help pay for its current infrastructure Bill.

Second it had previously been reported that at roughly $24 billion remained on the provider relief fund.

On July 19, the government Accountability office reported a much higher amount of on obligated funds of.

$43.7 billion.

In addition, there remains another $8 billion and relief funds earmarked for rural providers, bringing the total on allocated in undistributed funds.

About 52 billion.

As far as timing goes we don't know.

But we do understand that the program is that the white house for final approval, which would assist providers based on lost income in the increased expenses during the second half of 2020 in the first quarter of 2021.

Given D C. The current attention the infrastructure Bill our understanding is that movement towards final approval of an execution well wait until the current infrastructure Bill he's done.

Another positive development is that CMS has agreed to not change the PDP M formula until at least October 2022.

This is certainly welcome news for a sector that is still very much battling the effects of the pandemic.

Finally, the Delta the variant warrants dimension.

We will leave the prediction for the scientists and statisticians, but we can say both based on the report this week from the American Health Care Association and the anecdotal reports from our tenants that infection rates among nursing facility residents and staff.

We're not claiming at anywhere near the rate being experienced in the general population.

So far in nursing homes remain some of the safest places to be in America.

With high vaccination rates.

Accurate rapid testing on site, which we did not have this time last year and full of infection protocols in place were hopeful that the delta waves will be nothing like the original outbreak in 2020.

With that I'll pass the call over to Mark to talk about investing Mark.

Thanks, Dave and good morning, everyone.

In Q2, and we continue to be aggressive on the acquisition front with 2 investments that we believe will be accretive to not only us, but our operators as well.

First at the end of April we acquired a 123 beds sniff for $9.8 million in an off market transaction brought to us by our tenant base on our senior communities.

The facility was of value add opportunity in the secondary market here in southern California, and the prior operator was the single asset mom and pop provider.

It was of great match from <unk>, whose principals have extensive relationships in the operating experience serving higher acuity patients from that market.

Who have consistently been exported to other markets due to a lack of sophisticated local care.

Based on <unk> is now bringing that level of operational sophistication and quality care to the facility and the community response has been gratifying.

Second earlier this week, we announced the acquisition of 2 state of the art skilled nursing facilities located in Austin, Texas, which we leased to the operating affiliates of the enzyme group the.

The facilities add the enzymes existing footprint in Austin and strengthened their position in Texas, which they decided on our call last week as 1 of their highest performing states for care Trust the transaction allowed us to grow with the bluest of blue chips in enzyme.

In the state, we like and in arguably the hottest real estate and growth market in the country.

The 2 assets, which were both constructed in 2017 were purchased from the original developer in an off market transaction for approximately $32.5 million.

Inclusive of transaction costs.

Enzyme the after to make an upfront rent reduction payment of $5 million of clothing, and the annual cash rent under the existing master lease to which the facilities were added was increased by approximately $2.2 million.

This produced a first year cash on cash yield of care trust of approximately 8%.

Which is lower than our typical going in yield on sniff assets, but obviously reflects the credit and operating strength of of premier operator on enzyme.

Both the California, and Texas transactions were funded using characterize 600 million dollar unsecured revolving credit facility.

Through today, we are investing $184.1 million. So far this year and we will continue to press forward on the acquisition of front to hopefully finish off the year with the kind of external growth results you were accustomed the scene from us prior to the pandemic.

On the seniors housing front, we're seeing the entire range from half empty turnarounds to performing class a product.

Can say of a hole.

<unk> made up of singles and doubles and we continue to pursue pieces of larger portfolios that look interesting to us.

The pipe opportunities while at the <unk> tack ons with some of our existing operators and also begin new relationships with operators that we of course over the past 12 months to 18 months.

Finally, the composition of the pipe of largely sniffs with the few potential mezzanine loan relationship opportunities that we think.

Could be a good long term fit for our sniff of investment thesis.

Please remember that when we quote our pipe we only quote deals that we are actively pursuing under current underwriting standards.

$1 million.

On a per share basis normalized <unk> grew by 10, 2% over the prior year quarter to 37 per share and normalized Fad grew by 12, 3% to <unk> 40 per share.

During the second quarter, we issued 400 million of new senior notes due in 2028, and an interest rate of $3.700 eights.

The proceeds of the issuance were used to pay off the 5 in the quarter $300 million senior.

Senior notes due in 2025, and the related call premiums fees and expenses of the issuance and the remaining funds were used to pay down the revolver to about 50 million.

More on this transaction and the quarterly impact from it can be seen on our supplemental on par.

Page 6.

Moving onto guidance, we are raising our previously released guidance by <unk> <unk> on both ends of the range for normalized <unk> per share to of $1.48 to $1.50, and normalized fad per share to $1.57 to $1.59.

This guidance includes all investments and dispositions made to date the share count of $96.9 million shares and also relies on the following assumptions.

1 no additional investments dispositions of rent cuts of reserves, nor any further debt or equity issuances. This year.

2 <unk>.

Equation based rent Escalations, which account for almost all of our escalators at an average of 2%.

Our total rental revenues for the year again, including only acquisitions made to date are projected at approximately $186 million, which includes less than $60000 of straight line rent.

3 of interest income of approximately $2 million.

For interest expense of approximately $24 million.

In our calculations, we have assumed a LIBOR rate of 15 bps and of grid based margin rate of 125 bps on the revolver and 150 bps on the unsecured term loan.

Interest expense also includes roughly $2 million of amortization of deferred financing fees.

Not included in interest expense as of $10.8 million charge that we will take in Q3 related to the refinancing the $10.8 million is made up of <unk>.

$7.9 million of redemption fees and of $2.9 million write off of deferred financing fees.

And 5 we are projecting G&A of approximately $19.6 million to $21.5 million. This range is up approximately 600000 over the previously released guidance due to certain hurdles being met relating to our short term incentive compensation program.

Our G&A projection also includes roughly 7 million of amortization of stock comp.

Our liquidity remains extremely strong with approximately $25 million in cash.

$500 million available under our revolver, having drawn $50 million on its subsequent to quarter end and we produce roughly $12 million in cash after we pay the dividend every quarter.

We also raised almost $7 million of equity off of our ATM at an average price of 24.

Point of <unk> during the quarter.

Average also continues to be strong in the net debt to normalized EBITDA ratio of 3.7 times today, our net debt to enterprise value was 22, 1% as of quarter end and we achieved a fixed charge covered ratio of 8.1 times.

Lastly, cash collections for the quarter came in at 100% of contractual rent in July came in at 96, 2% I would expect August to be much like July based on the color given on the call today.

With that I will turn it back to Greg. Thanks, Bill and thank you everyone. We hope. This discussion has been helpful. For you we will turn it now back to Christy to start the Q&A Christie.

Certainly and as a reminder, if you would like to ask a question Press Star then the number 1 on your telephone keypad.

And your first question is from Juan Sanabria of BMO capital markets.

Hi, Good morning, just hoping you could talk a little bit about the senior housing performance on the assisted living side, which basically flattish occupancy.

But what do you think is holding that back we've seen a bunch of your peers, who are both al and IL.

Expose.

The better balance off the bottom so just curious of the.

Maybe smaller facilities or labor constraints that you've kind of touched on but any color on.

On the lack of of.

Growth in occupancy would be helpful. Thank you.

Thanks, Juan this is Dave.

We've heard from our operators is.

Is that from local restrictions on visitation.

Ben.

Challenge staffing.

<unk> has also been.

Challenging for some of them in.

In order to to.

To grow the occupancy.

We do have.

The the occupancy numbers that we gave are really through June, but we do have some more real time intelligence that's core positive.

We're seeing in some parts of our portfolio of some real.

The momentum in occupancy.

As we sit here today from July even to August that's going to if it holds for sure.

Pretty good improvement over what we've reported through June.

In particular state for example, we have some on some buildings in Michigan that we're at 73% occupancy in June.

That are today at 79% and projecting to be at 82% by the end of this month.

So.

We just we did have some.

Some.

A bit of a stalemate there, but it looks like we're starting to pick up some good momentum.

Okay.

Are there restrictions on visitations for some of your operators in all of those self imposed or mandated by.

The local.

Our priorities.

By and large the restrictions have been lifted as the as the most restrictive restrictions were in place last year.

But that was.

So that is as we sit here today has been mostly lifted in some operators every operator approaches their policies of little bit differently, some are more cautious than others.

At this point.

I think all of the facilities are open for business and opened 3 admissions.

With 1 exception, where we have 1 building in the portfolio that we're aware of that.

That is dealing with.

A bit of the.

A small outbreak of the.

Delta variant.

Okay.

And maybe a question on the.

The balance sheet with regards to how willing you are to get more aggressive in kind of goldfarb fit into your historical targeted range of $3.7 today very cautious and conservative.

Or are you at the point, where you're willing to become more offensive or give on the delta very preferred of kind of stick where you are.

Keep it low and I'm just have that insurance policy.

1 of this is Greg.

We've always been willing to be more aggressive if the situation or opportunities rather Meredith. It that's why we keep it low but it's not really.

Cushion, although works that way.

Our thesis for keeping it low is that we want to be able to do the big deal when it comes along.

And now is probably not the time for that as Mark mentioned in his prepared remarks.

Pricing for all of the assets is.

Severely dislocated from the.

The normal underwriting standards and the realities on the ground.

And so we are still sitting on that dry powder, but we will not hesitate to use it.

When the time comes if the time comes.

Thank you.

Your next question is from Jason <unk> of RBC capital markets.

Hey, guys I'm, just wondering how we should be thinking about investments today I.

I think last quarter, you guys mentioned that there could be some larger portfolios that you guys were looking at in on it sounds like today, it's mostly singles and doubles. So I guess on those larger portfolios just not come to the market maybe it's the level that you had expected or what are you guys seeing on the acquisition from.

This is Greg.

I'll take that in the Mark to Mark can fill in if I Miss anything.

There are a couple of larger portfolios out there, but we think we see everything that comes through the marketing this quarter demonstrated we actually see stuff that doesn't come through the market. So we've got a pretty comprehensive view of what's going on and we would just tell you that the the port book portfolio as always carry a premium.

That's the sell them justified, but just the norm.

And in the current environment, it's really tough to get the the pricing that some are willing to pay for the larger portfolios. So we've always said that.

That we are opportunistic buyers and that if the opportunities weren't there.

We will always comfortable taking their money and heading for the sidelines, we're not on the sidelines now as you've seen we are having a pretty good year so far.

But it has required us to really get in and beat the bushes and do a lot of this on on smaller deals the portfolio that we acquired in March.

The 4 buildings out of 125 million, so that wasn't small but.

Right now with our pipeline at 100 to 100 quarter. It really is singles and doubles and the big portfolios or are kind of priced out of range, especially considering the financial distress that still that still lingers across the industry Mark the anything to add.

I would just say that day of.

When youre looking at larger portfolios Youre oftentimes.

Looking to partner with operators, who their situations can change from time to time and so depending on what happens with Delta.

They may or may not be in a situation to take on.

More buildings into their into their portfolio. So it's a little bit of.

It's a little bit of a fluid situation in terms of matching matching the assets with operators assuming that we can get there on pricing.

Got it Okay and then in terms of the provider relief funds. So there's 52 billion left I guess, 1 what would be the expectation of on what would prevent them from distributing that full amount.

And instead of like holding some of that back.

Whats your guys expectation there in on what's the potential in your eyes of seniors housing getting on a chunk of that.

Yeah. This is Dave good question the.

The expectation is that the.

The.

The whole 52 billion would be.

And play eventually there was some there is some talk about holding some back to.

To correct mistakes from previous phases, either miscalculation.

Or money going to the wrong, operator, because of changes of ownership that sort of thing.

But the but that essentially still distribute.

All of the money, we have not heard any reporting or our rationale for for them to withhold any dollars from providers.

We also it's my understanding that this phase 4 that is on deck would include seniors housing operators, but at this point we can't.

We can't promise that that's just what we've been told by those who are closer to it than we are.

Got it okay. Thank you guys.

That's helpful.

Thank you. Your next question is from Jordan Sadler of Keybanc capital.

Is this the beginning of the more the.

Active relationship with Ensign or was this more of a 1 off transaction. Thanks.

Our true. This is Greg look we never didn't really didn't have an active relationship with the enzyme what we had was.

The significant need of following the spinoff to diversify the portfolio. It took us a long long time to educate the the investor community as to the benefits of our ensign concentration and.

It wasn't until we were well under 50% concentrated within the people started to go.

Kind of get that now is there as their coverage climb. So we've always wanted to do things with ensign.

We think the world of those guys as operators on <unk>.

We don't think there's anybody better out there and they're just a great great partner to have in the portfolio of finding they have very very stringent.

Underwriting and expansion standards, they always have it as part of their secret sauce, we respect that and we've tried things over the years, but it's only recently that we've actually found assets in their markets that are a good match for them and been able to do this deal. It was a great deal for them on as a great deal for US we love.

Of these assets.

These are the last assets the mark of an eye toward.

Before the pandemic in late February of 2020.

In the future.

Great. Thank you.

Thank you. Your next question is from Steven Valiquette of Barclays.

Thanks, Hello, everyone. Thanks for taking the question.

First if we think about your rent diversification by state time page 12 in the supplement this was touched on a little bit but 1 of your.

Skilled nursing REIT peers did note that some of the rising labor pressure on wages can be.

Difficult to manage on stage with limited or no COVID-19 reimbursement relief.

I'm curious if you can speak at a high level on.

The <unk> exposure to the major states with limited or no COVID-19 relief of operators or lack of exposure, if that's the circumstance, which of which would obviously be positive.

From that M.

Thanks for the question.

Right now.

The.

The performance of either positive or distress, we're really not.

<unk> seen a connection to.

To that issue.

We've been pleased generally speaking where how the states have responded with F map of increases or.

Or across the board Medicaid rate increases.

In the states and most of the states that we're in.

We feel that the state of response, coupled with the federal response.

As Ben has been good.

But as we've hinted that or talk that directly today.

<unk> is definitely needed.

So we're anxious to see the phase 4 funding approved.

And distributed.

In the months to come.

Okay great.

1 quick follow up here. So you guys had a great slide deck back at REIT week back in June the vector that might have been somewhat overlooked in the investment community. So I just had 1 question around 1 of the slides and Theyre not.

Not to have to make your tap of your memory banks I wanted to side of that was the page 19, but the basically showed your monthly skilled mix occupancy and how that's benefited from the elimination of the 3 day hospital stay of rule.

Sure that it peaked at around 26% in December of 2020.

The back down on all the way on the first 4 of 5 months of 'twenty 1.

Of course to me I think it was a little bit surprising, but so the question is on what's your latest intelligence on the duration of the suspension of the 3 day hospital stay requirement.

And then 2 if you did have to predict how your skilled mix occupancy will progress for the rest of 2021, how would you characterize it.

Yeah, great. Thank you.

So.

We were not surprised that the the SKU.

The mix has dropped since there it really.

Correlates closely with the the drop in Covid and the facilities.

Most of the.

Exactly mirror.

Of that peaking in December the vaccine coming in place.

And and the new cases of Covid has just dropped precipitously since.

Since December.

And the skilled mix has sort of so the operators lose those skilled patients.

But they're able to they've been able to maintain.

A little bit higher average than pre pandemic levels for skilled mix because of the 3 day of qualified each day.

Waver as you stated our understanding is that that is.

As of today, which this can change of course.

Is still in place through the end of this year.

And talking to some of our operators.

<unk> talked about this I think on their earnings call as well.

Many of them are.

Believing that theyre going to be able to maintain a little bit of an elevated level of skilled mix over pre pandemic levels throughout this year.

Possible to predict of course, but that's that's the latest Intel the rehab.

Okay, Alright, great Thats great color. Thanks.

Thank you. Your next question is from Daniel Bernstein of capital 1.

Alright.

I guess my question on the Ensign relationship was actually asked but.

And that same kind of context and sign on the earnings call was saying that some of the properties.

I guess some of the new properties due to the leasing with you where operators that exited the business and so maybe if you could talk about this in terms of the pipeline.

Seeing a lot more operators exiting the.

The business has been before or maybe pre COVID-19.

Or any potential tax implications.

Coming out of the federal government and maybe an impetus for.

For that thanks.

Thanks.

Hey, Dan it's Greg the.

The operator.

Net.

That is on replaced in those 2 Texas buildings not exiting the business. It was exiting that those particular facilities.

But there is still a rebound.

Other places it had been for a long time.

In terms of.

What's going on out there with the stuff that's on the market.

We do hear from time to time that people are motivated.

By the fear of capital gains rate tax increases coming of possibly in the future.

That really is not the biggest motivating factor for anyone to sell.

On.

Usually there is other stuff going on in.

We are we are addressing that as best we can in the deals that we chase.

But no we're not.

It's logical but we're not seeing tax motivations for the sales.

Okay.

That was still on the question I had I appreciate it thanks guys.

The.

We have no further questions I will turn the call back over to management for any additional or closing remarks.

Christy we just saw 1 more pop up in new too.

Yes, we have Jonathan Hughes of Raymond James.

Hey, good afternoon. Thanks for squeezing me on I appreciate it.

Bill can you go back the guidance I don't.

If I heard you correctly you are mistakenly but did you say you expect rent collections.

Going forward to look a lot like July but the guidance includes no rent shortfall.

Yes, I did say that I expect August collections to be a lot like July, but but as we said in the prepared remarks, we expect to be made whole on 100% of contractual cash rent by the end of the year.

Okay, So maybe the cadence.

Okay.

Cadence. It would then be for like third quarter may be down a little on the river.

Worked itself from the fourth quarter.

Yes, but we're keeping the current.

The tenant that we mentioned.

On an accrual basis, because we feel the collections are probable.

Okay.

That helps and then I don't think I heard anybody talk about the.

Covenant.

Average dropped a little there.

Can you just maybe talk about what happened there any concerns on that portfolio.

Sure Jonathan it's Dave.

Covenant care it was among the hardest hit in our portfolio.

From a census perspective the dropped.

Around 90% occupancy pre pandemic down to 70%.

And.

And labor costs were also hit hard there, they're built they're 6 buildings with us on.

A small piece of the overall portfolio, but they are in rural.

Market the.

The has just had a little bit of a harder time with COVID-19.

Then the rest of the portfolio, which is which is more urban based and is recovering a lot better.

So the recovery really well before the pandemic, we think of it bottomed and are in our other way back in.

The the parent company credit is it gives us no cause for any.

Concern in the short run.

Okay, and Thats, all skilled nursing REIT, it's not seniors housing.

That's right.

Okay.

And then.

Just 1 more from me for maybe marker or Greg on.

But given the dislocation and pricing versus fundamentals for acquisitions I think is how are you.

Framed it would a potential sale of some property.

Could this environment give you an opportunity to perhaps move on and trying to deploy capital elsewhere.

And maybe is that maybe a better option than.

Working with some of these operations until things recover over the next few years.

I guess I'm just getting at is there any potential of our capital recycling in the next 6 or 12 months.

Well, Jonathan it's Greg we did mentioned.

In our prepared remarks, 1 facility that we are now slated for sale.

There will be a very very small deal immaterial.

In fact, but.

On.

We don't.

We don't really look at the portfolio.

That way our portfolio is relatively young.

It has not had a lot of time to appreciate significantly in value.

And so we don't see.

A lot of big upside in.

In the value of our facilities.

That might be captured with the sale like that.

We're not we're not against it.

Don't see it right now.

Okay, Yes, I did see the noble I would guess it was just more asking on a on a larger scale, but you just address that.

Sure.

Okay. That's all I had I appreciate the time Joe of the weekend.

You too.

We have no further questions.

Very good well, thank you everyone for being on when you'll be able to.

Nice weekend and as always you know where the reaches if you of any additional questions take care.

Thank you. This does conclude today's conference call you may now disconnect.

Q2 2021 CareTrust REIT Inc Earnings Call

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