Q3 2021 LTC Properties Inc Earnings Call
Hello, everyone and a warm welcome to the L. P. C properties, Inc. Third quarter, 'twenty, 'twenty, one analyst and Investor call.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Full management begins its presentation. Please note that today's comments, including the question and answer session May include forward looking statements subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC properties filings with the Securities and Exchange Commission from time to time, including.
The company's most recent 10-K dated December 31st 2020, LTC undertakes no obligation to revise or update these forward looking statements to reflect events or circumstances. After the date of this presentation. Please note. This event is being recorded I would now like to turn the conference over to Wendy Simpson.
Thank you operator, welcome everyone to Ltc's 2021 third quarter conference call. Joining me today are Pam Kessler, our co President and Chief Financial Officer, and Clint Malin co President and Chief investment Officer.
I am so pleased to be able to open up comments by saying we have successfully eliminated several ongoing operator challenges executed on 46 million in new investments and have an active and healthy pipeline.
At the same time the industry is recuperating from the incredible strain created by the pandemic.
I have said before that our industry handle be imaginable with Grace and poise and is proving that seniors housing is a safe and necessary component of our national network of health care in the United States.
While there are still some challenges to overcome I continue to believe that the industry strength and perseverance will help us navigate the new normal.
And L. T six portfolio occupancy gains are continuing vaccination rates among patients and residents remain high and the potential of the vaccine mandates amongst staff holds the promise of continuing to reduce the impact of COVID-19 in our buildings at.
It seems the recovery has begun and should continue into the new year.
Before I get into our L. T C specific discussion I'd like to spend a moment discussing industry staffing. The problem is very real but our operators are working constantly and creatively to find viable solutions.
I have not spoken to an operator, yet that has not had trouble finding and retaining qualified employees.
Operators are turning away residents and patients due to the labor shortage and the resulting staffing challenges we have heard from several operators that if not for the current labor constraints. They could increase occupancy. So they are increasing wages and providing sign ups and retention bonuses to help meet.
This demand.
Additionally in person school is now open freeing parents to be able to reenter the workforce and COVID-19 related add ons to unemployment insurance have expired requiring a return to work for some to make up for that income shortfall.
However, the child tax credit that most families are receiving and is proposed to be part of the build back better legislation will likely continue to provide public support sufficient enough to keep some people from returning to work.
On the plus side. It has been reported recently that Texas, where we own 34 properties passed a bill to support long term care in the state.
The Bill proposed as 200 million in grants for skilled nursing and $178 3 million in grants for assisted living communities and other care based providers to help fund staffing recruitment and retention.
We would love to see other states follow this example.
Government support for our industry is continuing there is about 17 billion available for distribution to health care providers through phase four of the provider relief fund and another $8 5 billion available for distribution to rural providers through the American rescue plan.
The portal for requesting a closed a few days ago on the October 26th deadline. So we anticipate receipt of funds by operators later this year at the earliest.
In a recent interview with provider magazine, Mark Parkinson, who has been a pass guests that our earnings calls.
And I quote the Delta variant has caused a pause in the financial recovery of the sector combined with increasing staff costs that we are already experiencing we are going to need continued help from both the federal and state governments.
He believes that there is a bipartisan support stemming from the efforts made by providers throughout the pandemic, but that passing legislation and a divided Congress will make real change difficult highlighting the need for actions that don't require congressional approval.
However, short of a new highly contagious variant or Covid surge I truly believe that our industry is a more solid footing today than it has been since the pandemic began and I remain hopeful that some of the remaining pressures will continue to abate over the coming months.
Now moving to our third quarter rent and mortgage interest income collections, excluding senior care and senior lifestyle, where 94%.
We have received no new substantial requests for rent deferrals and abatements.
With occupancy increasing and pent up demand for needs based care, we don't expect to see a big change in rent deferrals and abatements in the fourth quarter for.
For the last several quarters. The requests we have received kept them from the same small subset of operators and that has not changed we do expect to continue providing some amount of relief until the occupancy gains become more permanent.
The senior lifestyle portfolio transition is complete with the exception of one building in New Jersey that is awaiting licensure, which we are expecting at any time.
We have fully transitioned the senior care portfolio as well with these challenges successfully addressed we are excited to be working with new operators and solidifying relationships with current operators, who have the resources and desire to stabilize operations and further grow occupancy.
As I mentioned earlier, we recently completed 46 million in investments and have built a healthy pipeline.
We remain focused on shorter term cash flows strategic deals that have what we believe to be reduced risk profiles and look forward to announcing additional investments over the next several months, we have ample access to liquidity to act on these opportunities to provide accretive returns for LTC and our shareholders.
Yeah.
We maintained our 19 cent per share monthly dividend by paying out $22 4 million in common dividends during the quarter to our shareholders. The payout ratio on our dividend excluding nonrecurring items was approximately 100% for the third quarter.
If we used pro forma performance, including recently completed investments the third quarter F. A D payout ratio, excluding nonrecurring items would be approximately 96%.
Although this remains well above our preferred payout ratio of approximately 80% of Fad, we expect our 2022 fad to improve with the additional revenue from the releasing of the senior care and senior lifestyle portfolios, which will help bring the payout rate.
So more in line with historical levels.
With respect to guidance for the fourth quarter, we expect F. F O to increase approximately two cents to <unk> <unk> per share excluding nonrecurring items from third quarter results. Please note. This guidance does not include the recovery of any deferred rent or additional investments.
Now.
Now I'll turn things over to Pam.
Thank you Wendy total revenue decreased 701000, compared with the third quarter of last year, resulting principally from unpaid rent from senior care and senior lifestyle.
Abated and deferred rent and the sale of a property in Washington, The decrease was partially offset by the write off of straight line rent receivable balances in the prior year quarter rent received from releasing 18 properties and the senior lifestyle portfolio completed development projects and increase in property tax revenue annual rent.
<unk> capital improvement funding and higher payments from anthem.
Interest income was comparable year over year interest expense decreased 751000, mostly due to scheduled principal paydowns on our senior unsecured notes and lower interest rates on our line of credits, partially offset by a higher outstanding balance on our line of credit.
Transaction costs increased $4 million related mostly to our settlement with senior care and related fees.
During the 2021 third quarter, we recognized a gain on sale of real estate of $2 7 million related to the sale of a skilled nursing center in Washington.
In last year's third quarter, we recorded a $900000 impairment charge related to a closed assisted living property in Florida, which was sold in the first quarter of 2021 and received 373000 in insurance proceeds for damage related to a property sold in the first quarter of 2020.
Net income available to common shareholders decreased by $1 2 million, primarily due to the previously discussed revenue decline and settlement and related fees for senior care. The decrease was partially offset by a prior year impairment charge any current year gain on sale.
NAREIT <unk> per diluted share was <unk> 45 cents this quarter compared with 58 cents in last year's third quarter, excluding nonrecurring items <unk> per share was <unk> 55, this quarter compared with 71 cents in the third quarter of 2020.
The decrease excluding nonrecurring items was due to receiving zero rent from senior care and senior lifestyle debated in deferred rent and higher G&A expense. These decreases were partially offset by higher revenues, resulting from releasing 18 properties and a senior lifestyle portfolio completed development projects.
Doesn't mean loan funding and lower interest expense.
During the 2021 third quarter, we funded a $4 $4 million mezzanine loan and a $1 $8 million mortgage loan. Additionally, we funded $2 8 million in capital improvement projects on properties we own.
Subsequent to the end of the quarter, we funded two mortgage loans for a total of $39 5 million Clint will discuss our investment activities in a moment.
During the third quarter, we borrowed $68 5 million under our unsecured revolving line of credit and paid $25 2 million in scheduled principal paydowns on our senior unsecured notes.
Currently we have $5 9 million of cash on hand, $465 6 million available on our line of credit.
With $134 4 million outstanding and $200 million available under our ATM. This leaves us with ample liquidity of 671 5 million, we have no significant long term debt maturities over the next five years.
At the end of the 2021 third quarter, our credit metrics remained strong with a debt to annualized adjusted EBITDA for real estate of five eight times and annualized adjusted fixed charge coverage ratio of four three times and a debt to enterprise value of 35, 3% pro forma for recently completed.
Pleated investments annualized adjusted EBITDA for real estate was five seven times the annualized adjusted fixed charge coverage ratio was four three times and debt to enterprise value was 32, 9%.
I'll finish my discussion with rent deferrals and abatements as Wendy mentioned, excluding senior care and senior lifestyle, we collected 94% of third quarter rent and mortgage interest income.
During the quarter, we provided $1 3 million in rent deferrals, and 970000 and rent abatements as Wendy noted these deferrals and abatements related to the same small subset of operators that had been receiving ongoing relief from us.
As a reminder, senior lifestyle did not pay us rent in 2021.
With the exception of the one property when you discussed the portfolio is transitioned and we are receiving contractual rent from the operators who know lease these properties.
Senior care did not pass rent in the third quarter, we do expect to receive rent from AMG as performance improves Clint will provide more detail.
In October we provided rent deferrals totaling 438000 and rent abatements totaling 240000, we have agreed to provide rent deferrals of up to 441000 and abatements of up to 240000 for each of November and December 2021.
Now I'll turn the call over to Clint.
Thank you Pam I'll start today by putting a bow and our senior lifestyle and senior care portfolios is when do you discuss these portfolios had been fully transitioned but for the licensure of one property currently operated by senior lifestyle in New Jersey.
By and large the properties in this portfolio have generated occupancy gains under new management.
In total we have transitioned 18 of the senior lifestyle buildings with the 19th expecting shortly.
So these 19 buildings occupancy for the month of December 2020 was 71% increasing to 75% for the month of September 2021.
I'd like to provide some additional color on the six properties in the portfolio with market based rates.
At June 30, EBITDAR, excluding stimulus on a trailing 12 month basis for the six properties was 870000.
On a trailing three month annualized basis EBITDAR, excluding stimulus was 150000.
Occupancy for the month of December 2020 for these six buildings was 60% growing to 65% for the month of September 2021.
With respect to the 11 property senior care portfolio in late August we reached a settlement with senior care and Aubrey health services under which LTC made a onetime payment of $3 million to $5 million in exchange for cooperation and assistance in facilitating an orderly transition of the portfolio.
As of October one the entire 11 property portfolio was leased to an affiliate of H M. G healthcare under a one year master lease with rent based on cash flows.
H M G commenced operation of the portfolio.
We need to assume senior care's Medicare provider agreements and took on a known liability for stimulus funds received by senior care under the Medicare COVID-19 accelerated and advanced payment program.
This assumed liability is capped at $3 7 million.
H M. G is responsible for the repayment of this liability, which it will fund from cash flow.
LTC expects to collect rent sometime in 2022.
<unk> improves and the liability has been repaid.
It is our intention to add the 11 properties to a master lease currently existing between LTC and H M. G. After establishing a stabilized rent rate during the first lease Shaw.
We also agreed to provide <unk>, a 25 million secured working capital loan maturing on September 32022.
<unk> balance sheet allowed us to provide this loan on an expedited basis to mitigate the timing risk of H M. G. Using a third party lender.
This portfolio was based in Texas, and as Wendy mentioned earlier the stay.
<unk> recently announced an additional $200 million and support for snips.
Next I'll provide an update on our most recent development projects that are now operational Weatherly court in Oregon, which is operated by field senior living for occupancy rise to 45% at September 30 up from 36% at June 30, while ignite medical resorts in Blue Springs, Missouri.
Grew occupancy to 90% at September 30 up from 83% at June 30.
I will discuss our portfolio numbers with the caveat that we don't believe coverage is currently a good indicator of future performance at this time, given the pandemic and the challenging environment. It creates.
Before I detail our coverage numbers. Please note that senior care and senior lifestyle no longer qualify for our same store portfolio given the transitions. So they are excluded from these numbers.
Q2, trailing 12 month, EBITDAR and EBITDAR coverage as reported using a 5% management fee was 1.06 times and 0.86 times, respectively for our assisted living portfolio.
Excluding stimulus funds received by operators coverage was <unk> 87 times and 0.68 times respectively.
For our skilled nursing portfolio as reported EBITDAR and EBITDAR coverage was 2.08 times and 1.61 times respectively.
Excluding stimulus funds coverage was one point to four four times and <unk> 99 times respectively.
Now for some occupancy trends, which are as of September 30, and our for our same store portfolio.
Because of our partners have given this data to us on a voluntary and expedited basis. The information. We are providing includes approximately 90% of our total same store private pay units and approximately 90% of our same store skilled nursing beds.
Private pay occupancy was 77% at September 30, 75% at June 30, and 73% at March 31.
For our skilled portfolio average monthly occupancy was 71% in September 70% in June and 69% in March.
As Wendy mentioned, we recently closed approximately $46 million in investments.
The first investment was a $27 million mortgage loan for the purchase of a skilled nursing center in Louisiana by a regional operator, new to LTC.
The term is three years with 112 month extension option.
The second investment was a $12 $5 million mortgage loan for the purchase of an assisted living and memory care community in Florida to be operated by a regional operator, new to LTC. The loan term is for approximately four years and includes an additional $4 2 million loan commitment to be funded at a later date subject to satisfaction of <unk>.
Various conditions for the construction of a memory care addition to the property.
The third investment was a $1.8 million loan secured by a parcel of land in Missouri for the future development of a post acute skilled nursing center.
The loan term is for one year. We are currently negotiating a potential real estate joint venture with ignite for the development of the center.
The final investment was a $4 $4 million mezzanine loan for the refinancing of the independent living community in Oregon operated by a regional operator, new to LTC.
Long term is for three years with 212 month extension options in total.
Weighted average term of the loans is three two years the investments are expected to generate an annual interest income of approximately $3 5 million.
Our pipeline remains healthy, it's a nice mix of opportunities, including for private pay and skilled nursing and with regional operating partners, both new to LTC and existing in total our near term pipeline is valued at more than $100 million.
Although sales cycles remain elongated and pricing for some properties does not accurately reflect what we believe is the true value. We remain optimistic in our ability to complete additional accretive investments. We are keeping our focus for now on structured finance deals as Wendy and Pam commented, we have sufficient liquidity and flexibility to provide.
Strong regional operators with creative financing solutions, we continually strive to provide options to operators, who are looking for long term relationships with the ability to grow. This has been a hallmark of our investment strategy and one that we plan to continue.
Now I will turn things back to when do you for some closing remarks.
Thank you Pam and Clint.
But I'd most like you to take away from this call is that while the pandemic certainly cause strife in our industry. I believe we are firmly in the midst of a recovery.
While I cannot predict exactly when we'll return to pre pandemic levels of operations. We are seeing continuing signs that give us hope occupancy is increasing demand for needs based care is growing and we're once again, making strategic investments it has not been easy getting to this.
Point, but I couldn't be more proud of our industry operators and employees for the grid. They have shown since start of the pandemic.
As our confidence continues to grow we look forward to providing operators with the financing solutions. They require to serve the nation's most vulnerable population, we are well positioned to take advantage of favorable industry demographics, and we'll focus on engaging with more and more regional operators to further strengthen.
In our portfolio for the long term, we may be relatively small, but we are stable and secure we've built a balance sheet capable of seeing us through what has been a difficult period and now with a recovery in process. We plan to use our resources to return to growth in 2022.
Operator, we're ready to open the call to questions.
Thank you.
I would like to ask a question today. Please press Star then one on your Touchtone keypad to withdraw your question. Please press Star then two when preparing to ask your question. Please ensure that you'll find is unmated lately.
Our first question comes from Juan Sanabria from BMO capital markets.
One please go ahead.
Hi, good morning, Thank you.
Was just hoping you could give us a little bit more color or insights about how you are thinking about the go forward earnings run rate you talked about.
I believe there's two or three cents of FX drove growth in the third quarter.
How can you break that down between the external investments and then any incremental pickup from senior care and senior lifestyles, but maybe more importantly, how you think about how that number should trend.
Into 2022.
As we start to think about exiting this pandemic period.
Mhm sure Juan.
It's the pick up is it comes from in the external investments.
Because the third quarter had the assumed leases in there or the new leases. So it is external investments and as Clint mentioned, we have a healthy pipeline that we're hoping to execute on.
Over the next 12 months so.
I think for US the message is you know we're we're we're cautiously optimistic returning to growth. So you know we don't win when we give guidance, we don't put any additional investments in our assumptions. So the two to three cents doesn't include anything other than what we've already announced so I guess, if you're asking.
That's a good run rate.
Absent anything else happening I think so.
Okay, and then just on the apps or anything else happening.
Just curious on your comfort level I don't know, how you want to frame it.
Good times, one low 10 high that we're not gonna have other hiccups.
You kind of touched on labor at the outset.
It seems like despite occupancy improvements with some of your peers tenants at the labor maybe.
Caused a bit of a strain caused one specific tended to go for incremental deferrals, but just curious on your thoughts about that.
About that level of confidence about the need for any other deferrals given the labor unknown and how that may impact occupancy at this point.
Well, where we sit right now we're fairly confident but like we said that the.
Rent support we've been giving to the small subset of operators has been constant for the past three quarters and although there are labor pressures. Some operators are able to pass through rent increases that are helping that the government has given more support as Wendy and.
Clint talked about so where we sit right now we're fairly confident that the world is ever changing and there are a lot of.
Unknown things that could crop up so I am sorry, if I sound like I'm hedging my bets, but I just don't like my Crystal ball.
Opaque right now but.
But where we sit right now with all of the known fairly confident.
Okay and then just the last one for me just at least.
Sense of what the labor.
First one is for your operators I don't know if its different for skill.
Versus seniors housing I mean.
You see some of the headlines in the hourly increases that are being passed through across the economy are very high on a percent basis, but just curious how the operators are thinking about their budgets for for 2022, and what that labor growth.
Or labor cost line could be on a percent basis, any guideposts or that you could help us with would be much appreciated.
It's front and center for all of our operators are whats happening and as I go through the budgets for 2020 to Japanese right now the budget in the fourth quarter.
As an example in Texas.
This grant that was passed to help with some of that will be a benefit to the operators in Texas and Michigan.
Had some similar all support they provided on increasing the reimbursement component for skilled nursing so.
When we when we've spoken with the operators and staffing is on the forefront.
And they're looking at how they address it with the agency bonuses.
Covid is definitely is.
The second item in line on on issues that are being discussed so but there's a there was business to do and there is there is a need to need based business and they're being creative trying to find ways to make this work and as Pam mentioned on the private pay side people are experimenting and working through rent escalations to offset some of those.
Cost and through the government stimulus.
On skilled that's helping at this point in time, so we'll have to wait and see what happens in 2022, but it is something everybody is hyper focused on.
Thanks for the time.
Thank you.
Thank you on our next question today comes from Jordan Sadler of Keybanc capital market your.
Your line is open. Please go ahead.
Thank you and good morning.
So just wanted to dig in a little bit deeper I'm trying to understand.
The run rate the trajectory so.
More specifically on an H M. G. Any insight you can offer in terms of what that cash flow.
Contribution might be I know, they're paying no rent based on cash flows I assume you're assuming nothing in the fourth quarter, but maybe just if you could sort of point to how we got cash flow contribution cash flow base rent contribution might flow through next year that'd be helpful.
Sure.
Correct.
For the fourth quarter there'll be no rent included in that so I'll give you some numbers here Jordan just for context and again. This is the reason why we did a cash flow lease because.
Performance has declined.
I'll give you the numbers as of August after a different run rate Timeframes and I'll give you a comparable numbers back to 2018 in 2019 on an EBITDAR basis.
So for context, the trailing 12.
EBITDAR for August this year was $10 4 million.
On a trailing three annualized basis, it was $6 5 million.
And on a P to its.
It's $3 million.
And then we're obviously transferred on August or October 1st historically going back to 2018 in 2019 at that point in times senior care was in the process of the first bankruptcy.
The <unk> 12, EBITDAR back in 2018 was $17 5 million.
$17 3 million in 2019.
And so what we've done is we've positioned ourselves with a strong regional operator in Texas, whose management team has members that are familiar with these assets.
And we positioned ourselves in a.
Cash flow leaves during this first year to participate in improvement as it happens.
So that's sort of some context of what this Hollywood has done recently and historically.
And what is so what is this.
Could you give us an idea of what's the structure of this cash flow bakeries.
What percent are you entitled to.
How does it work.
I mean, it is that they get their management fee and we participated in an all cash flow.
100%.
Above the management fee and what is the management team.
5%.
Which a 5% fee was used in these EBITDAR numbers that I provided.
Okay interesting. So there is actually going to be a pretty significant contribution come one.
Q.
Essentially it once.
There's a three point.
$7 million liability has to be repaid first.
Brookline correct as I mentioned.
Correct in my comment I mentioned that we paid back from cash flow and that's why we're not expecting any revenue for this year.
Okay, but one Q it should I mean, given even the most recent trajectory you described.
There'll be something.
I mean, it'll be sometime in 2022 as to which quarter. It falls into I mean, that's a crystal ball looking forward.
I did provide.
Two is obviously dropped off a lot so.
But we've structurally.
Put the least together, where we can benefit from upside and cash flow and the intent is then as we mentioned in my comments to put this into the a long term master lease once we feel both LTC and <unk> comfortably said, what rent would be going forward.
Q2 was $3 million.
Did you say Bob correct that is correct, okay, and what was so as you describe the transition from tier three to tier two was that it was at a loss of senses ryzen expenses and what is that attributable to is that like sort of a delta issues or is that transition issues.
I would say its transition issues occupancies stayed relatively stable that's when we were negotiating the settlement agreement.
I'm imagining that took a lot of time and resources on senior care side. So we.
We have seen an uptick.
And agency usage and the the P&L from these buildings. So we're.
We're hopeful that H M. G, who is has been a texas based operator.
Can normalize and reduce the agency usage that's been on the on the expense side.
And did you give the occupancy.
So of course I didn't that argument.
That as well just from a comparative standpoint, so December of Q4 December of 'twenty.
2020, it was 57%.
In September of 2021 is 56%.
And what was it like going back to August 19 or at least.
Or was this a stabilized portfolio was at Bernstein I assume Oxford.
In 2018 was 72% in the same for 2019.
Okay.
That's really helpful.
Just had one more I don't want to leave Paramount here. So.
The leverage has ticked up.
Quite a bit that you've had.
Some of these deferrals and abatements, obviously pretty stupid Crazy times.
So.
It will come back around but you've also been investing at the same time what are your what are your thoughts on around leverage right now and how you expect it to sort of progress throughout next year.
Yeah.
Fair enough question as we noted leverage has ticked up and especially at the end of the quarter with the.
The borrowing for the investments that we made subsequent to quarter end.
But as you noted and we talked about as <unk> begins to pay on their lease and the senior lifestyle properties that are also on cash flow leases pay.
Average should come down, but we generally look to fund all new investments with a mixture of 70% equity and 30% debt. That's been historically, what we've done so that should not surprise.
Surprise, you and we have not changed our stance on that.
Okay. So I mean.
Is there an appetite to do equity.
Down here I mean I guess.
B sort of the follow up.
Well when we do investments we you know if you're funding 70, 30 that would imply yes that there would be some equity.
Okay great.
Okay. Thank you.
Model [laughter], how would you fund all our I wouldnt be aggressive and fund all our new investments and whenever you assumed for new investments next year with that.
And right now looking out to sell anything I mean, I think youre right in that the distinction over the past.
Two years has been that we have funded and investments with proceeds from sales and right now we don't have anything of size or substance.
That we're looking to sell so yeah, I think equity assumptions are rational.
Great. Thank you so much.
Thank you Jordan.
Our next question is from Michael Carroll of RBC capital markets. Please go ahead Michael.
Yeah. Thanks, winning in your earlier comments regarding some of the late labor pressures regarding operators turning away patients due to the lack of of labor and taking care of those patients is that comment related to skilled nursing facility only or is that including seniors housing also.
It's both of them.
Yeah.
It's not.
It's not.
Everybody as we did.
Good analysis of the 11 properties that we transferred to H M G and H M. G and LTC had a conference call. After they had looked at all of them in some markets. They didn't have labor problems in other markets they had labor problems.
So I would say generally across the United States there are labor problems, but there are pockets.
Where there aren't any.
We've had some of our skilled nursing operators for our assisted living operators say close to floor.
And are not opening a floor until they can get more labor.
But it's it's everybody is.
Yes.
Having to having to deal with Essent re.
Real love.
Salaries haven't gone up for many years. So I mean this is this is a catch up that's causing us a whiplash, but it'll it will flow through the system.
Okay and was it more prevalent though with skilled nursing facilities like if you'd talk to 10 skilled nursing facility operators I mean, how many of them said that they were turning away patients and I'm, assuming it would be fewer on the seniors housing side.
Yes.
Okay.
Great and then.
I guess Pam the quota coverage ratios in the supplements that includes the stimulus funds or the coronavirus stimulus funds I think you termed it now.
Now are those funds amortized over a period of time in those calculations or is it counted when the cash is actually received from either the federal or state governments.
No it's amortized they pull it in over a period of time. So there is there is.
And Mt sitting on balance sheets that havent been flowed through the income statement yet.
So then when does that get amortized is there a mic if they received the cares act funds at the beginning of the year. How long is does that amortize throughout these coverage statistics.
It offsets there losses related to the Corona virus losses. So if there was a decrease in occupancy.
And so it's hard to estimate how long.
It will be amortized through each property is an individual.
I would guess over the next.
12 months.
Okay, but this is also re operator uses a different methodology all bringing it in and this is the reason why we are in all the comments that coverage right. Now is very challenged to look at for these reasons.
No that makes a lot of sense and then the deferred rent repayments. That's included in the straight line rent forecast on page 20 of the supplement I mean, how confident are you that those are going to get paid back on time.
I guess, maybe a more general question. The the rents that you deferred I believe that you expect to repaid over the next several years I mean, when do those repayments start in and how confident are you that those repayments will occur as scheduled or as planned.
Okay.
That the the repayments that are forecasted on page 20, we're fairly confident of there are.
Other repayments that are not till 2023.
But right now everything we put in where we were fairly confident about.
Okay, great. Thank you very much.
Thank you Michael.
As a final reminder, if you would like to ask a question on todays call. Please press Star then one on your Touchtone fine.
We have a question from Daniel Bernstein of capital one. Please go ahead Daniel.
Hi, good morning.
I just wanted to ask.
On the kind of the broader risks and sniffs beyond labor it seems like the 2% sequestration holiday I guess ends at the end of this year there may be the enhanced F math.
Could end too.
Covid emergency is not extended there's a 5% claw back for 2020.
Probably gets delayed or phased in but they're too. So when you talk to operators when you talked to aka.
Did you get any sense of where those items stand and if those are additional risks that we should be thinking about for 'twenty two within the sniff space.
Dan that's always the risk in the skilled nursing industry is that sort of unknown I think during the course of the pandemic and to look at how the government has stepped in and provided support.
For the industry.
I mean, obviously it is a risk but you look at examples of Texas recently passing.
Some additional support for buildings, which is a positive.
So it is definitely a risk that people are looking at but by and large staffing component is still the main item.
That's on the forefront of operators.
So you know that uncertainty with regarding reimbursement.
It has always been out there and continues to be out there but.
And what's happened during the course of the pandemic and the government's focus on it.
Yeah, there's a belief that.
There will be continued support.
Okay.
And then back to the labor component are you finding I know, there's pockets of better labor of worst labor issues.
Within the portfolio, but are you finding that maybe more rural areas are having more trouble.
Staffing up facilities versus more suburban or urban areas.
You know, it's it's an interesting mix as far as pulling operators are finding it is a combination it really just depends on location and market and.
Yeah, the uniqueness of battery market, so, it's really hard to pinpoint it down to that one.
One operator makes it they're having a challenge in the urban markets and other offers that they have challenges in the rural markets.
So it's really a cross section again.
Okay, and then one more.
A question for me is I thought there were some purchase options in 'twenty two.
That could be exercised.
Yeah.
Provide some funds I guess to reinvest as well.
And so just using equity.
Sure.
Is there any sense any.
The sense of with purchase options could be exercised in 'twenty two.
We have one purchase option.
It could potentially be exercised in 2022 on too.
Assisted living communities in California.
But we will engage with that operator I'm working through.
Right now you can imagine with where census is that just broadly.
For assisted living being able to extra.
Exercise that purchase option and get the appropriate financing you know it may not be the ideal environment to do that so we're actively engaged.
With that operator in regard to <unk>.
Any assistance, we can provide or maybe extending that out for a longer period of times. So it's something we're actively talking about that really is the only purchase option of size in 2022.
So probably probably actually pulled that pool.
Yes.
That asset sell from home or models.
Yeah, I mean, it's still up in limbo, but its Bob.
Okay.
Alright, it out, but I wouldn't have it in 2022.
Okay sounds good.
Thats all I have I appreciate it thanks.
Thank you.
Thank you Danielle.
We have a further question from Jordan Sadler of Keybanc capital markets. Please proceed Jordan.
Hey, guys I just wanted to follow up on the working capital loan and the $25 million.
What are the terms or what is the rate for the on that loan and how much how should we expect that to be drawn.
Timing perspective, where is it now and where will it be throughout next year.
Sure. So Jordan since we set up as a cash release I mean, the interest rate. We provided is 4% on those funds.
And it's a one year loan.
Ties to the.
Two the lease term.
And it's being drawn down on on a monthly basis. So.
No there's typical transition as far as provider agreements getting in place the assumption of the Medicare provider agreements. So it's really just bridging.
So I mean, we expect that by the time.
Getting into 2022.
The majority portion of that will be drawn down, but then it will be taken out.
Through a traditional <unk>.
L lender, we did the financing really just when we struck the deal on the settlement we didn't want to introduce third party that would slow down the transition. So it made sense for us to.
Minimize execution risk and provide that <unk> <unk> was actually engage with a third party lender.
Already on this but.
I am frame was tight and it just made sense for us we have the balance sheet strength to do it and it made sense for us to extend that.
That working capital, one which is which is secured.
By Oh the.
The accounts receivable and has a.
A component of it as a personal guarantee of the <unk>.
<unk> attached to it so.
It's a standard working capital loan.
Got it and then.
The other question I have for you is this.
The thought process and the strategy behind the structured financings.
Finance and investments.
Right now.
So he is really something that we've been talking about for a number of quarters now and it's really just reflective of us.
Analyzing the market and seeing what opportunities exist and as we see price points on existing assets, where theyre not stabilized I mean paying.
Paying up for an asset, especially where we know what it was.
We invest in the triple net structure, we don't participate in that upside so to buy something now and that's not cash flowing in and wait for the upside and it's a little more challenging to structure. So we've seen opportunities where.
It can be low in the capital structure, there is actual cash flow.
It just seems to be lower risk and more opportunistic to selectively do that and also we are at a point, where as Wendy mentioned, you know cash flow strategic investments given the transition from senior lifestyle. The senior care. We think it makes a lot of sense to focus on that at this point in time, obviously as things normalize our intent would be to get back to a blend of.
Our long term triple net leases.
Plus you know various aspects of our loan some loans and structured finance deals.
We're effectively arbitrage in our low cost of capital our low cost of borrowing and so where we're replacing some of the <unk> that we're having to.
Delay.
For AMG and the CEO.
Senior lifestyle assets as they say.
So when they return hopefully these these investments that we've made will pay off and we will use that cash to do.
Term investments, but great.
No no.
And I think the ones you've made 46 or what have you.
Or are there.
This most recent crop none of them are loan to own in particular.
No that is correct.
Okay, Yes in the context of my question I know you guys had been sort of focused here and the rationale for previously but I guess the context of my question is on this call you kind of make a.
Comments about feeling.
Better about sort of the industry and the position than you have at any other point during the pandemic, which makes sense because it was is that sort of the context for it.
Not that I haven't been paying attention for the last two years.
Uh huh.
So okay and.
I guess, that's it that's all I've got for you guys. Thank you.
Thank you Jordan.
Thank you Jordan.
We have no further questions. So I would like to hand, you back to Wendy Simpson for any closing remarks.
Thank you all for joining us on this call and we look forward to talking to you after our fourth quarter. Our year end results have a great weekend.
This concludes today's call. Thank you all for joining we hope you have a great rest of your day you may now disconnect your lines.
Yeah.
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Yes.
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Okay.
Yeah.