Q4 2021 LTC Properties Inc Earnings Call
Again please.
Please note. The event is being recorded I would now like to turn to compensate to Wendy Simpson.
Thank you operator.
Like to welcome everyone to Ltc's 2021 fourth quarter Conference call. Joining me today are Pam Kessler, <unk>, President and Chief Financial Officer, and Clint Malin co President and Chief investment Officer.
The seniors housing and care market continues to deal with the impact of COVID-19, pandemic, but shows signs of sustainable recovery.
Therefore, I continue to believe that a bright future for our industry remains intact.
As I speak to you today I remain cautiously optimistic.
I am excited by the opportunities we are seeing to put our capital to work with several investments completed in the fourth quarter and others planned for 2022.
I also am grateful that the omicron variant seems to have had a less significant impact on society with cases, and hospitalizations now trending down from the highs we saw late last year and earlier this year.
It is my hope that this downward trend will allow our operators to continue the recovery process.
We are incredibly proud of how the seniors housing and care community came together to find effective ways to care for our nation's most vulnerable population during the pandemic.
Although we are not completely out of the woods I steadfastly believe that as an industry, we will persevere and come out of this stronger than we were before we.
We will successfully adapt to whatever becomes the new normal and with the growing elderly population with ongoing needs for safe engaging in compassionate care. The long term outlook is positive.
In the shorter term operators continue to manage through staffing shortages with many identifying ways to address the challenge since we spent a good deal of time on this issue last quarter I won't belabor the point, but did want to recognize that census could remain somewhat constrained until the staffing <unk>.
<unk> are mitigated until that time federal and state assistance is still needed and would be of some help.
At a recent industry conference in Miami, Mark Parkinson, President and CEO of Parker and <unk> spoke to the audience about the road ahead for long term care providers.
Other messages he stressed the need for continued federal and state support until census, recovers and the need for structural Medicaid changes to create stability and accommodate changes in the labor force.
In 2020, when the pandemic began the federal government took several steps to assist our industry among.
Among others. The sequester was eliminated Medicare payments changed the three day stay rule was waived additional Medicaid support was made available to states and billions of dollars were deployed as part of the provider relief fund and.
In 2021, the focus shifted to state run assistance totaling approximately $10 billion.
Currently at the federal level. There is about 8 billion remaining to be deployed to providers, who have not yet received their phase four payments with a target completion for total distribution by the end of March.
At the state level virtually every state phase one has allocated some amount of money to providers from each states stimulus funds and from the extra Medicaid reimbursement provided by the federal government among others.
The hope is that in 2022, we'll see an additional $10 billion in aid.
In many states the extra money is tied to the federal public health emergency with States like California, North Carolina, and Texas, among others, providing substantial daily Medicaid add ons for as long as the public health emergency remains in effect.
It is currently extended to the middle of April because by rule. It can only be extended for three months at a time.
Mark believes that through substantial lobbying efforts the public health emergency could remain intact until census, fully recovers with some optimism that it will be extended in April for at least another three months.
Speaking to LTC specifically.
We closed on $103 $3 million in investments in Q4, including future funding commitments that are embedded in the closed transactions total.
For all of 2021, we invested $109 4 million and disposed of assets for net proceeds of $44 million.
Which resulted in a gain on sale of $7 million.
We continue to have an active and healthy pipeline moving into 2022, the value of which is just north of $110 million <unk>.
Including a $25 million transaction, we expect to close by the end of the month.
With occupancy increasing private rates going up.
Pent up demand for needs based care, we don't expect to see a big change in rent deferrals and abatements in the first quarter, but do continue to anticipate providing some amount of relief until occupancy gains become more permanent.
Our former senior lifestyle portfolio transaction is virtually complete we still await licensure for one building in New Jersey.
The delay has been purely administrative in nature at the state level.
And we have no reason to believe that the transfer will not happen in due course.
Since the transition of the former SLC properties, the new operators of the buildings have adapted to the current market and are seeing some occupancy increases.
Like to quickly address anthem as we continue to receive questions about the health of our portfolio with them.
They have made considerable progress since we first reported their challenges in 2017.
We are proud of the strides they have made.
In 2020 anthem paid us annual rent of $9 9 million.
Increasing to $10 8 million in 2021.
Our expectation is that they will continue to pay annual rent of $10 8 million in 2022.
We anticipate setting more permanent rents in the next 12 to 24 months, depending on performance and as occupancy returns to pre pandemic levels.
I would also note that anthem is now expanding their footprint, which we see as a positive sign at.
At the end of last month anthem agreed to manage nine memory care communities across several states, including four states new to them.
As I discussed earlier, our pipeline remains robust as we've continued to work towards enhancing relationships with existing operators and building relationships with new operators, who have the resources and desire to grow.
During the quarter, we closed on three mortgage loans Pam will provide more details later in the call.
We continue to strongly believe that these types of investments, which are shorter in duration represent cash flow strategic deals with what we believe to be reduced risk profiles. Additionally.
Additionally, the shorter durations of these investments can act as an inflation rate hedge which is important in today's market with.
With our solid balance sheet, we have ample liquidity to quickly act on opportunities and we are doing just that.
We maintained our <unk> 19 per share monthly dividend during the quarter with a payout to shareholders of $22 4 million.
R D.
<unk> payout ratio decreased from the third quarter to 93% in the fourth quarter and was 94% for the year.
Based on our fourth quarter investment activity and assumed rent payments from the former senior care and senior lifestyle portfolios, we anticipate that our fad payout ratio will continue to decline during 2022 and approach our target of 80% by the end of 2022 or the <unk>.
<unk> of 2023.
Our guidance for the first quarter anticipate <unk> to increase approximately <unk> <unk> to <unk> <unk> per share excluding nonrecurring items from both quarters results.
This guidance does not include the recovery of any deferred rent or additional investments other than the upcoming $25 million investment I already discussed.
Now I'll hand, the call over to Pam.
Thanks, Wendy total revenue decreased $6 8 million compared with last year's fourth quarter, primarily resulting from lower rental income related to the transition of the former senior care portfolio lower rental income related to the re leasing of the former senior lifestyle portfolio and abated and deferred rent. This was partially offset by annual.
Rent escalation and capital improvement fundings.
Interest income from mortgage loans increased $1 1 million, resulting from loan originations interest and other income was comparable to the same quarter last year, as where interest expense and transaction costs.
Income from unconsolidated joint ventures increased 231000 for the fourth quarter of 2021 due to the funding of a mezzanine loan.
G&A increased by 556000 related to greater incentive compensation in 2021 than in 2020 and higher noncash compensation charges proper.
Property tax expense increased 299000 for the 2021 fourth quarter, resulting from the timing of certain operators property tax.
Square receipts and the payment of related taxes.
Our provisions for credit losses increased 964000 year over year due to mortgage loan and working capital originations during the 2021 fourth quarter.
Upon origination we record a loan loss reserve estimate equal to 1% of the loan balance. This reserve is amortized as the loan principal is paid down.
Net income available to common shareholders decreased $4 7 million, primarily due to the revenue declines I mentioned earlier, partially offset by an impairment charge of $3 million recorded in the prior years fourth quarter related to a memory care property in Colorado previously leased to senior lifestyle.
While we diluted NAREIT <unk> per share was <unk> 56 in the 2021 fourth quarter compared with 78 since last year.
Excluding nonrecurring items <unk> per share was <unk> 59 versus.
Versus 78 in the 2024th quarter.
The decrease excluding nonrecurring items was due to lower rent related to the transition of the former senior care and senior lifestyle portfolios abated in deferred rent and higher G&A, partially offset by higher revenues, resulting from mortgage loan originations and mezzanine loan funding.
As Wendy mentioned during the 2021 fourth quarter, we originated three loans totaling $103 3 million.
The first was a $59 2 million mortgage loan secured by 13 assisted living communities 12 in North Carolina, and one in South Carolina with an aggregate of 523 units operated by an existing LTC partner.
This loan provides for an initial investment of $52 5 million and an additional commitment of $6 7 million for capital improvements and working capital at the communities securing the loan the loan bears interest at 7.25% with an IRR of 8% and matures in four years.
The second loan with a $27 million mortgage loan secured by 189 bed skilled nursing center in Louisiana with a regional operator, new to LTC. The loan term is for three years with 112 month extension option and bears interest at seven 5%.
The last loan with a $16 $7 million mortgage loan secured by a 68 unit assisted living and memory care community in Florida with a regional operator new to LTC.
<unk> includes an additional commitment of $4 $2 million to be funded at a later date subject to satisfaction of various conditions for the construction of a memory care addition to the property. The loan has a yield of 7% and three quarters percent any term of approximately four years.
In total the three investments are expected to generate approximately $7 million in interest income in 2022.
During the quarter. We also funded $9 9 million of our previously committed $25 million secured working capital loan for <unk>, the operator to whom we transitioned the 11 former senior care properties.
<unk> to the end of the quarter, we funded an additional $5 $8 million. The loan has a current balance of $15 $7 million with remaining availability of up to $9 3 million and a yield of 4% maturing on September 32020 to Clint will discuss our investment activity in greater detail shortly.
Regarding our former senior lifestyle and senior care portfolios I'd like to provide some additional details unexpected rents going forward for.
For the remaining six buildings and the former senior lifestyle portfolio under two separate two year market based rent leases, we anticipate receiving 45000 in each of the first and second quarters 340000 in the third quarter and 450000 in the fourth quarter. Our expectation is that we will set.
More permanent rents sometime in 2023.
For the former senior care portfolio, we do not expect to receive any rent in the first quarter, but anticipate receiving approximately $1 million in the second quarter and $2 million in each of the third and fourth quarters. This year from the 11 transition properties.
As we move through the remainder of the year, we will be working toward amending and extending our <unk> lease which would include more permanent rents.
Moving to our debt activity during the 2021 fourth quarter, we amended our unsecured credit agreement to extend its maturity to November 19, 2025, and reduced the aggregate commitment from $600 million to $500 million. The one year extension option and the ability to increase the aggregate loan commitments up to a total of 1 billion.
<unk> remains unchanged.
500 million aggregate commitment is comprised of a $400 million revolving credit facility and $2 $50 million term loans. The first term loan matures in 2025, and our second matures in 2026.
In connection with the term loan we entered into interest rate swap agreements to effectively fix the interest rate on the two term loans at 256% and $2 six 9% per annum for their respective terms.
We borrowed $76 5 million in the 2021 fourth quarter under our unsecured revolving line of credit.
As of December 31, 2021, we had $110 9 million outstanding with $289 $1 million available for borrowing.
<unk> to December 31, 2021, we borrowed an additional $22 million under our line.
During the quarter, we paid $15 million in scheduled principal paydowns on our senior unsecured notes and repaid an additional $7 million in scheduled principal pay down subsequent to the end of the year.
As Wendy mentioned during the quarter, we paid $22 $4 million in common dividends.
Presently we have $5 2 million of cash on hand, $267 1 million available on our line of credit with $132 9 million outstanding and $200 million available under our ATM, providing us with ample liquidity of approximately $435 million, we have no significant long term debt.
Charities over the next five years.
At the end of the 2021 fourth quarter, our credit metrics remained solid with a debt to annualized adjusted EBITDA for real estate of six times and annualized adjusted fixed charge coverage ratio of four three times.
Debt to enterprise value of 34, 9%.
Although our debt to annualized adjusted EBITDA for real estate metric is higher this quarter than our long term target of below five times. We anticipate this metric will trend lower during 2022 with increased rent from the properties previously leased to senior care and senior lifestyle scheduled principal paydowns on our senior unsecured note.
And Paydowns on our line of credit from potential asset sales Clint will discuss shortly.
I'll close out my comments with rent deferrals and abatements during the fourth quarter, we provided $1 3 million in rent deferrals and 720000 rent abatements to the same small subset of operators that had been receiving assistance from us and.
In January and February we provided a total of 867000 deferrals and 480000 and abatements. We have agreed to provide rent deferrals of up to 452000 and abatements of up to 240000 for March 2022.
Now I'll turn the call over to Clint.
Thank you Pam.
I'd like to start by providing an occupancy update on the former senior lifestyle portfolio.
As I mentioned last quarter, we transitioned 18 of the 19, former SLC communities with the 19th is expected shortly.
These 19 communities occupancy at December 31, 2020, with 71% increasing to 78% of January 31 2022.
Occupancy at December 31, 2026 communities under two separate two year market based rent leases was 60% growing to 69% at January 31 2022.
For the 11 property portfolio that has been transitioned from senior care to EG.
Occupancy for the month of January 2022 was 57%, which is flat compared to December 2020.
Pam already detailed our fourth quarter investment activity. So I'll start by discussing the upcoming $25 million investment that wouldn't be mentioned as well as other recently completed transactions.
With $25 million investment is for our mezzanine loans secured by five communities to providing independent living assisted living and <unk>.
Memory care totaling 621 units in Oregon in Montana, a new market for LTC.
The loan will have a five year term with 212 month extension options and will bear interest at 8% with an IRR of 11%.
Subsequent to the end of the fourth quarter.
<unk> of two assisted living communities, we own in California, with a total of 232 units at <unk>.
The purchase option on the buildings.
Expect to sell them for $43 7 million by the end of the second quarter.
Produce Harvey gross book value of $31 8 million and a net.
Book value of $17 million.
We expect to recognize approximately $26 million gain on sale in the second quarter of 2022 <unk>.
Contractual rent for 2022 to approximately $2 8 million.
We also agreed to sell a 74 unit assisted living community located in Virginia to its current operator for $16 9 million, which we expect to close in the second quarter. It is a gross book value of $16 9 million and a net.
<unk> of $15 7 million.
In connection with the proposed sale for current operator will pay a $1 2 million lease termination fee, which is one year's worth of rent.
We anticipate recognizing an approximate $1 $3 million gain on sale upon closing.
Lastly, we expect to transition to memory care communities, including <unk> units in Texas to an existing operator by the end of this month.
The run from the previous operator was $2 million per year.
New Master lease will have a two year term with zero run for the first four months.
Thereafter cash rent, we based on mutually agreed fair market rent.
We expect to receive cash rooms. When these properties were approximately $600000 during 2022 with more permanent rent set in 2023.
Before I move to our portfolio numbers I'll discuss Brookdale. We recently had a very positive earnings reports and whose current lease expires on December 31 2022.
They have until April 30 to exercise their renewal option.
We have funded $4 million under our commitment remains available for capital improvements on the properties underlying lease.
We have granted an additional $2 million capital commitment to Brookdale, which is available in 2022.
Now I will discuss our portfolio numbers with the usual 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 as.
As I mentioned last quarter, the former senior care and senior lifestyle portfolios no longer qualify for our same store portfolio given the transition. So they are excluded from these numbers.
Q3, trailing 12 month, EBITDAR and EBITDAR coverage as reported.
Using a 5% management fee was <unk> 9 million tonnes, and 0.78 times, respectively for our assisted living portfolio.
Excluding stimulus funds received by our operators coverage was <unk>.
At times and six times, respectively.
For our skilled nursing portfolio as reported EBITDAR and EBITDAR coverage was 2.06 times and 159 times respectively.
Excluding stimulus funds coverage was 145 times and <unk> 9 million tons, respectively.
Moving onto recent occupancy trends, which are as of January 31 2022.
For our same store portfolio.
Our partners have given this data to us on a voluntary basis. So the information. We are providing includes approximately 60% of our total same store private pay units and approximately 91% for same store skilled nursing boats.
Private pay occupancy was 80% of January 31, 78% at September 30, and 76% at June 30.
For our skilled portfolio average monthly occupancy was 72% in January 71% in September .
70% in June .
As I said earlier, we are pleased with the rate at which we are building and strengthening our pipeline current opportunities totaled more than $110 million and value stream private pay and skilled nursing are geographically diverse and include operating partners new to LTC as well as existing partners.
The opportunities also span a number of vehicles, including acquisitions development joint ventures, mezzanine loans and mortgage loans.
Our ability to get deals done regardless of the vehicle mix OTC, a strategic partner for operating partners, who have mirrored the wants and needs.
Our current investment strategy focuses on structured finance products, which began as a way to fill the void during the pandemic, but has become a creative and successful strategy.
Over the last two years, we have learned a great deal enhanced our internal business development team and built a robust skill set around providing financing that meets offers exactly where they want to be.
We have executed well against the strategy and we will continue to identify and close deals that allow us to utilize the expertise we have gained.
We are extremely comfortable participating in the capital stack in this fashion as the deals provide solid interest income and lower balance sheet risk at the same time. These types of investments allow us to participate in premier communities being built such as with Corso Atlanta and provide access to operators with whom we wouldnt otherwise.
Be able to generate business.
We still believe in more traditional triple net lease deals, which we continue to identify with these new investment opportunities provide us with the ability to deploy capital in new and meaningful ways for our shareholders.
Now I will turn the call back to Wendy for her closing remarks. Thank.
Thank you Pam and Clint.
It's been a busy fourth quarter and a busy start to the new year. We are very proud not only of our operators who have withstood an extremely trying two years, but of LTC and what we've been able to accomplish we've strengthened our portfolio strategically deployed capital and through asset sales.
<unk> have generated additional capital that we can put to work for our shareholders.
Through the pandemic, we've continued to pay our dividend with no reductions have developed new relationships with strong regional operators and have enhanced and solidified relationships with operators with whom we are currently working.
We have proven that we have built LTC to last by protecting our strong balance sheet, providing flexible financing solutions to those who are committed to serving the nation's most vulnerable population and by making sure. Our portfolio is managed by operators, who can and want to grow.
We look forward to this year as the recovery continues and we continue to do what we do best providing the right operators with the right financing for the right properties.
Operator, we're ready to take questions.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you'd like to remove your question. Please press star followed by two.
As a reminder to start followed by law.
If you would like to ask if you are using a speakerphone. Please pick up your handset before asking your question.
Our first question comes from Juan sung.
Maria.
From BMO capital markets. Your line is now open. Please go ahead.
Thank you good effort.
Just hoping.
Pam or when do your clip you guys could talk about.
The confidence level.
No material further degradation.
And cash flows.
You had.
It seems like a new operator in the memory care.
Memory care provider, there was $2 million in annual reps come out.
Okay.
A few of your peers have talked about kind of the tail risks, particularly around some of the skilled nursing tenants. So.
So just curious on your confidence level that we've trough here in <unk>.
Rental stays stable and coverage should improve here going forward.
Joining us to call the trough.
Yeah.
Yes.
Yes.
I think we have given very conservative numbers because of.
Our uncertainty during 2021, the former SLC and senior care assets.
What we've given you.
Is what we expect it's not what they expect to pay us.
We're under estimating well, what we hope they'll be able to contribute so there are some upsides.
The two properties that were transitioning we had a security deposit that we were using last year four to sustain that $2 million rent.
And the operator, just wants to be out of that market. So we have transitioned during this period and those assets were in.
Lease up at the time that the pandemic hit so we've talked to all of our operators and basically the more important or are the highest concentration of skilled operators and.
So far they've been pretty confident for 2022.
So I would be really surprised if we had a material revenue hit.
Great.
Just as a quick follow up to that are there any other tenants.
Using the security deposit.
Our present.
<unk> risk out there that we haven't discussed previously.
No no no.
Okay.
Used them all.
Yeah.
Okay.
Got it.
The first question is from.
The.
Physician pipeline I think you've talked about it.
Continuing to stay on structured finance predominantly a range of options, but just curious.
About your confidence or not four.
More skilled nursing deals to come to market and if you could give us any sense of where the deals that are trading you're trading.
Kind of yields are we talking about and our coverage metrics are being underwritten for the assets that are out there that are transacting.
And your confidence level or not.
Christine.
Josh.
For here going forward.
Sure well I think youll see two different markets youre seeing a lot of older assets that have come to market.
Which is predominantly.
What the what has been in the broker community.
There has been a large appetite for those type of deals.
And so those.
They don't always get announced but my guess is youre looking at cap rates, though it's hard to give a cap rate because when we do use Dubai that so people are buying it on their belief in what they can do from a pro forma perspective.
Our interest is we hubs.
As we have sold older skilled assets in our portfolio and we've worked on.
Developing and bringing on new assets and investing in new properties the yields on those differ.
So we're probably in the low 8% yield range for newer skilled nursing assets, which we would bring into our portfolio.
Thank you.
Youre welcome. Thank you.
Thank you next.
Next question comes from Rich Anderson of S and BC. Your line is now open. Please go ahead.
Unfortunately, we're not getting any audio from your.
Hi, Danielle.
Yes.
Hello.
Can you hear me everybody.
We can alright.
Sorry about that.
So.
Yes.
<unk>.
I guess it was I was saying this is a fine line when.
When we talk about the Covid wave declining and people sort of getting back to life and so on.
You and your business don't have that luxury.
And I guess, you're kind of always fighting the tape about getting continued support from federal and state sources.
Do you get that same sense that.
Perhaps the world around you is feeling better and getting back to business, but you guys.
Aren't able to do that is that kind of a constant sort of force that youre fighting at this point in time.
Well.
We're not fighting it at the corporate office, but our R.
Our operators definitely are I think Rick.
I'm, saying does it make it as the environment, making it more difficult for them to get their hands on funds Smart point yeah.
As well.
To get their hands on funds are not Havent go out an additional.
Overprice labor or.
Alright.
Inflation related to their supplies and food and things like that.
But our operators that we've talked to believes that they can manage.
To manage through this.
And they're not they're not really looking for the next government check to be put into there.
Government subsidy check, yes, theyre looking for the government check for the.
For the business, they're doing but they don't seem to be as.
Concerned as they were in the last couple of years I think to believe to rich as well as.
Government assistance.
No.
Subsides, meaning people are going to look at.
Going back to work and there is inflation as far as rent groceries, and so I think the belief as hopefully as we go through 2022, there is motivation for people to come back into the workforce.
Because the.
So all of the operators are looking at it and.
And I think from a momentum standpoint.
On the assisted living side, there has been fairly good momentum this year with occupancy increases I mean, the fourth quarter and the first quarter of this year are a little muted because of the omicron effects and that was primarily on the labor side.
So the increased costs that as quite and when he said if people get back to work I think the expense side should.
Rationalize a little more.
And then there is the rate increases on the private pay side, which has been.
Accepted so far in the market I think.
Residents are the families of residents I understand.
Increased costs in labor and increased costs across the board and they understand our rate increase.
And I think agency usage and the cost of agency usage, which has skyrocketed.
Hopefully about.
Hello.
Moderate going forward plus the reduce of usage of agency staffing will hopefully help that as well rich, yes, and then youll side, there's been a lot of stuff starts to.
There are increases in occupancy, which they've had not at the same pace as senior housing, but it seems like every time you start to get some momentum there has been a variant and boom.
<unk> elected to have been postponed and traditional sources.
Referrals have have kind of been put on pause. So that one has been a little more fits and starts and hopefully now that we have <unk> behind us and there is not a new one net debt.
That side will start to.
Experienced the same occupancy gains in senior housing.
Unfortunately, we're hearing about this new omicron still thing that's we'll see how that plays out but hopefully it sir.
Flash in the Pan.
The 10 billion that you are hopeful for in 2022.
The source of that is that federal or is that state funds.
Okay.
We're both lateral but we're going through right now.
Yes, the first part of the.
Of Covid effect, the federal government pushed out a lot of money directly and then that's kind of the second part is it's pushed to the states and the states have allocated alright.
Add ons yet.
Alright.
It's sort of a pass through I guess I would say.
I think it's important April that the.
Health Emergency has continued though.
Brian that's helped us gildner dialogue.
A question.
Mentioned staffing shortages, obviously is the narrative around <unk> around the world for you guys around the country at least.
And you mentioned operators.
Doing finding ways to address it can you be a little bit more specific what are some of the.
Efforts that are being undertaken to address staffing shortages in your portfolio.
So they are looking at wage increases obviously to compete in the community have duty upstate initiatives, such as Michigan, who is providing an add on specifically for wage increase.
Increases, which is helpful. I know, Michigan is looking at as we understand it trying to expand that beyond just direct caregivers, which would be a big benefit too.
Skilled providers trying to be flexible in and scheduling and how all this stuff.
Buildings something that.
Operators have been focused a lot on how do they accommodate attract workers through flexibility is a big item that we've heard others talk about.
Flexibility can translate into more interest.
<unk> holiday stuff.
Their schedules, whether it's split consecutive days and really trying to listen to how they can attract.
Labour through accommodating schedules.
Okay last for me.
Clint maybe talk about some of the loan activity that you guys have moved to structured finance and building some expertise there.
It's all well and good but is that also a reflection of just less opportunity.
Interesting opportunity on the kind of fee simple.
By a real estate asset.
Point of view.
I'm just curious if the loan business is picking up because.
The bricks and mortar business is not as fruitful today.
To date the challenge has been the opportunities have been value add and as we've had to provide rent assistance over operators to go and buy in to.
To acquire something that needs further rent assistance has been more of a challenge. So today because thats the case loan acquisitions for the most part we focused on structured finance and mortgage loans, because we if we're going in at a reasonable loan to value or slipping into the capital stack, where theres a lot of equity ahead of us we just didn't get the better.
Our risk adjusted return for now I mean, we were very active in the market, we're looking for opportunities for acquisitions and hopefully there's a turn in that.
It's a way for us to be able to.
The companies that we otherwise wouldn't be able to generate business from which I mentioned in my prepared remarks.
And so it just makes us more active and we've got a business development team are adults.
Working with the broker community is looking for opportunities. So we are hopeful that going into 2022, there will be actual acquisition opportunities.
Okay. Okay. Good enough thanks very much.
Thank you rich.
Thank you.
Our next question comes from Jordan Sadler of Keybanc.
Your line is now open. Please go ahead.
Thank you and good morning, So just wanted to circle up on a couple of the other.
Items surrounding some of the transition properties. So we'll see.
You guys touched on.
The fixed property, we expectations surrounding what about Randall and encore.
Portfolios I believe there are.
Scheduled.
For the first quarter should we anticipate.
Firstly I think those guys are still on being recognized on a cash basis. So.
Firm that and then second should we expect that those bumps will push through.
In the first quarter, yes.
Yes, Jordan they are on a cash basis, and we have no reason to believe that theyre not going to.
Be able to pay their rent payments as scheduled.
No occupancy number that I gave you.
No. That's for the entire list includes on GOR, Randall and we intentionally reset rents initially it was to increase the associated overtime to hopefully on track to occupancy increases, which we are seeing as occupancy increases.
They've made great strides this year, they're halfway to stabilization.
Those portfolios are transitioning in the low 70, percents and now they're close to 80% occupied so.
The trajectory is very good.
Yes, I heard those numbers seem pretty good can you.
You said, 71%.
Up to 78%.
We ended January does that.
That's great staff and when was the 71 ASO.
So as of 12 31.
2020.
Okay.
They picked up some pretty good occupancy.
Okay.
<unk>.
Okay. So separate question.
I'm just should come in.
Hi.
Yeah.
After that our.
Are slated to be repurchased I think.
<unk> already got a sensitive.
At least the repurchase option on the two in California, what was the situation supporting.
The other $16 9 million dollar sales.
Why was that one so it was.
It was an investment we made a number of years ago with the intent of growing with this operator and they just hasn't come to fruition during the course of the pandemic.
<unk>.
You just don't see growth opportunities and we're looking at evaluating our portfolio and where.
There may not be growth as Wendy mentioned, we are looking for operators that want to grow.
So we have an opportunity to sell this our initial yield on this investment was seven 5%.
We are effectively selling at a 7% yield so it's an opportunistic situation, where we have an operator that we don't see growth with and we can sell it.
So it will be a premium recognize a gain and we're getting affected a better yield to redeploy the capital.
That makes sense and the timing on that one.
By the end of the second quarter same as the two in California.
Yes.
Okay, and then lastly, just on the on the continuing sort of deferrals and abatements.
Yes.
That are happening into the first quarter and the agreements already through March can you sort of give us a little bit of a sense.
Okay.
What type of tenant that age or what type of cancer.
Facilities that pertains to.
If there is light at the end of the tunnel.
Those to grow organically.
Well I would say as we've mentioned quarter over quarter to same subset of operators.
And its all private pay.
And as we focus we can include our transition for us as we.
We completed the transition of senior care to <unk> as you can probably imagine you were focused on this subset of operators to try to find a resolution and some capacity during.
During the course of 2022. So it is it is a focus of ours now too to.
To bring some type of resolution on this and move forward.
So we have new revenue on those assets.
We have we have no revenue for those assets in our our protections.
So.
Okay.
You are fully.
Youre deferring and debating all of the rent related to these assets.
A lot of caution.
Yes, a little bit.
Yes.
Yes.
But as they recover.
Yes.
As everybody else's recovery.
It's an upside for us.
Is there I mean are you getting information.
From the operator, it sounds like you said private pay so I assume those are seniors housing.
Operator.
Yes, it's all cooperative yes.
So can you give us a sense of what's happening with the occupancy.
Does.
Occupancy has been growing on boats.
As of recent so that's positive sign that there has been some upside on occupancy.
They are both covering there.
Is there a level.
In the seventies.
Right right.
I don't have the specific to broaden out but they are from a operational standpoint, the cash flow being generated at the property level is covering operating expenses.
Our management team.
Okay.
Okay. Thank.
Thank you.
Thank you.
Thank you.
Our next question.
I'm from Matteo <unk> Sanya from Credit Suisse. Your line is now open. Please go ahead.
Hi, Yes. Good morning, everyone I just wanted to continue on Jordan's line of questioning around the deferrals and abatements.
When we do take a look at the presentation.
February of about $6 4 million of deferrals I'm about five points.
Sure.
Are in reference to just one comment am I correct in that.
Thompson.
So kind of is that kind of uncertainty.
And the amount of deferrals.
As I said, it's a small subset of operators and I can appreciate wanting to us to provide the name, but providing a neighborhood operator I mean, let's just potentially causes more challenges on an operational level and we are actively engaged in trying to bring a resolution to the matter.
But it is a small subset of audit was absolutely.
Upfront and then was it a top time gentlemen.
No no no.
Okay, Alright, that's helpful.
Just indulge me a brief minute so there's a bunch of traction going on have the occupancy.
Losing.
Generally in the skilled nursing and senior housing portfolio rent coverage is a little tough.
At this point could you let us know what else you guys are both kind of the rent coverages are not the end all of your.
Could you, let us know what else you're kind of looking out to just from the Oxiclean tenant credit.
Makes you feel comfortable that you've kind of seen the worst and you shouldnt see another major tenant.
Tenant issue as Wendy alluded to earlier on.
Well, we're looking at the spot occupancy that we're providing.
On our calls and in our supplemental that that we have set over the past two years.
Something we're more focused on than coverage, which is historical I mean, we're talking about coverage from the third quarter and here. We are in February 2022. So.
Occupancy and then and then obviously talking to our operators.
Okay.
So just that alone.
Got it I'm sorry, Glenn.
So as far as let's say regarding staffing too because now we're coming out of Amazon.
And we haven't seen.
A new virus virus.
Variant that is taking place so that was the big challenges from a staffing standpoint, where people couldnt come into the buildings. So.
<unk>.
Step right now is we are moving into 2022, hopefully got staffing aspect helps to stabilize and if you have because we've heard some operators say staffing challenge led to a halt on admissions are slowing emissions. So if you don't have any challenge from.
The variant affecting stuff maybe that allows you to further increase occupancy is something that we're hopeful which really points to the second quarter of 2022 I think coverage.
The fourth quarter of 2021 is going to be I mean.
The trend and we know what happened in the fourth quarter and in the first quarter of this year also I mean that all the operators on both sides skilled nursing and assisted living or hit really hard with increases from temporary labor.
From using agency and normally you don't see a lot of agency and assisted living and we are hearing that from our assisted living operators. So it's just it was tough a tough first quarter, but given the occupancy increases you say, okay. If you can keep building on those and your cost rationalize more toward a more normal level of second quarter Youre looking pretty good.
Gotcha. Thank you.
Thank you.
Our next question comes from Michael Carroll of RBC. Your line is now open. Please go ahead.
Okay.
Yes, Thanks, I wanted to talk a little bit about HMD I wanted to see if you can provide some color on how that transition has gone so far and it looks like you have a little bit more clarity provided the.
The rent that you're kind of providing that you can receive in the second half of this year I mean is that a fair statement that.
They kind of stepped in and are doing a good job kind of taken over that portfolio.
The transition has gone very smooth cooperatively and there's little disruption, obviously, just with the variant and staffing initially but no overall.
<unk> has done a tremendous job of coming in they are really effectively having to build culture.
And these buildings the previous operator had a lot of different disruptions in front of them and.
So it's just part of that process of taking the <unk> culture.
And.
Working with the leadership teams at <unk>.
Facilities to be able to grow occupancy hiring processes and things like that so no. It's been it's been a very good process.
<unk> is doing a great job so far and obviously you can tell by the fact that we've given guidance on these buildings, which we've obviously worked with <unk> on what their thoughts as well. So we're communicating with their belief those and it's a cash flow lease. So obviously, we are hopeful as Wendy mentioned that there'll be more than what we've guided to but this is.
The level with <unk> feels like over the course of 2022.
They can achieve and the fact that occupancy has stayed flat we view as a positive because with the transition disruption that could have gone down and it didn't so we're that's a positive.
And then can you talk about what went into those rent assumptions in the second half of the year as does that just assume occupancy stays where it is today I mean is that achievable if that happened or is there some growth that's assumed in those numbers.
There is some occupancy growth in those numbers.
Reducing some of the cost although there was a high level of agency usage that was being utilized before <unk> came in there was some agencies as they had during.
The last few months, just because of the impact of the various blood really rationalizing and reducing.
The agency usage will be an expense.
Saving over the over 2022.
Okay, and then can you talk a little bit about the working capital loan.
It was the draw for.
The fourth quarter or is that just typical startup costs for them, creating a portfolio to their platform.
Sure well this is the purpose of the <unk> line.
Your line is there is typically a delay in Medicaid billing for the state of Texas.
Which is typical and you would typically have a lender that will provide that financing.
In this transition <unk> chose not to.
Bill for Medicare services, which you typically can deal with the previous operator, if you both parties agreed to do that but this case that was not a circumstance because <unk> didn't want the money going to senior care than having to get the money from senior care transfer of <unk>. So we've effectively financed all revenues.
For Medicare and Medicaid.
They have.
They've got their tie in notices are sort of building on some buildings for Medicare.
They are working with the managed care providers for Medicaid contracts. So we think that probably in the March to April timeframe, youre going to see a significant amount of funds flow both on Medicaid and Medicare.
To pay down that line, so thats really the purpose because theres no.
There is no reimbursement at the moment on this which we knew going in as we made the line available because to introduce a third party lender, who we were going through the settlement you just added too much complication.
Into the execution of the transition.
So yes, we expect to see pay downs in the March April timeframe to get back to a more normalized number and then at that point.
We can keep the line in place for a while or <unk> traditional third party.
ABL lending for the receivables.
Okay and then just last question I guess, Peter can you talk about how youre thinking about leverage today I know I heard your prepared remarks that with the.
The sale proceeds that you expect in the second quarter and also the rent recovery that number should drop fairly significantly I mean are you comfortable deploying capital now using debt or how much capacity do you think that you have before that would be a concern.
Yeah.
As we as we go through the year and we get more revenue from these assets and pay down debt with the sales proceeds we will get back to that more comfortable five times level, and which is still conservative.
We would still we would fund with debt like we typically do and then.
Personnel either through.
Sales in the ATM through equity issuances or.
We could term out and.
Long term debt take the short term debt long term debt.
Interest rates I'm not sure how much you want to have floating for a long period of time, but.
We look to.
<unk>, 30%.
Debt to equity ratio and we've crept a little bit over that so.
Our efforts this year are going to be focused on getting leverage back to more historical norm.
Okay, great. Thank you.
Yes.
Thank you.
Our loss.
Our last question is a follow up from Jordan.
Stop <unk> of Keybanc.
Okay.
Memory care facilities that are being transitioned so last quarter.
I think you mentioned that there were.
No other issues per se.
Your crystal ball and yet it seems.
We were using the security deposit.
This tenant could pay their rent. So can you maybe just tell us.
How it will play out over the last 90 days, because you to change course and re tenant the property.
While we were working with <unk>.
I'm sorry.
We're working with the operator and.
Trying to evaluate what their option was as far as if they wanted to stay in.
Or exit and that sort of became clear.
And as we got closer to.
At the end of 2021 that they decided they wanted to exit and.
These buildings do not are not a core geography for them.
We have learned over the course of the pandemic.
Operators that don't operate in their core markets can present challenges.
We have an operator, that's not committed to.
The buildings are in a certain market that it's not core to them.
Better sometimes just to move forward.
Take the lumps in.
Transition to an operator that does operate in those core markets and we had.
Fortunate to have an operating our portfolio, where we could do that so.
And just as a.
Okay.
From a modeling perspective, maybe this one's for Pam.
You booked.
$500000 from them in the fourth quarter.
And then Youre going to book zero in each of the first and second quarters.
And then 300.
<unk> and <unk> or how is it going to flow I think you said 600000 for 2022, and then you'll reset the rent for 'twenty, three but I just wanted to.
Correct kind of understand that.
Actually you said zero for the first four months.
So how does the 600000 come through and Digi booked 500 in the fourth quarter.
It ramps up a little bit so.
And we did book 500 in the fourth quarter.
So it'll be sort of.
It may through December .
It will ramp.
Yeah I mean.
Yes.
Gradual lift.
Good thing is we're seeing we're seeing some occupancy increase.
<unk> properties, which is actually positive and and so it'll be more towards the back.
Okay.
Okay. Thanks, guys.
Thank you.
Thank you as there are no additional questions waiting at this time I will pass the conference over to Wendy Simpson for closing remarks.
Thank you all for joining us today I hope you all have a great weekend and we look forward to talking to you very soon because the first quarter and shortly thank you bye bye.
This concludes today's conference call. Thank you for your participation.
You may now disconnect your lines.