Q1 2022 CareTrust REIT Inc Earnings Call

May 6, 2022

Good day my name is certainly that would be a coffee.

So operator for it to be at this time I would like to welcome everyone did characterize REIT first quarter 2020 earnings conference call.

I mean based on mute to prevent any background noise. After the Speakers' remarks, there'll be a question answer session to ask a question community session. We depressed star one on your telephone.

And then turning the conference you need to reach an operator, Please press star zero.

I'd now like to open your speaker for today.

You may begin.

Thank you and welcome to characterize REIT first quarter 2022 earnings call participants should be aware that this call is being recorded and listeners are advised that any forward looking statements made on today's call are based on management's current expectations assumptions and beliefs about characterize business and the environment in which it operates these statements may include projections.

Regarding future financial performance dividends acquisitions investments returns 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 care Trust 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 characters REIT and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.

During the call the company will reference non-GAAP metrics, such as EBITDA, SSO, and F&B or Fad and normalized EBITDA <unk> and F&B.

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 care Trust website at Www Dot care Trust REIT Dot Com a replay of this call will also be available on the website for a limited period.

On the call. This morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, and Mark Lamb, Chief Investment Officer.

I'll now turn the call over to Dave Sedgwick characterize <unk>, President and CEO David <unk>.

Thank you Lauren and good morning, everyone.

Today I will provide our first update on the progress of the plan to fortify the portfolio by repositioning 32 assets.

We will give you a brief update on the fundamentals of the operating environment and.

And I'll conclude with some work we're doing to position the company for accelerated growth in the future.

First last quarter's call, we announced plans to sell re tenant or repurpose 32 properties due to the lingering effects of COVID-19 are hitting the wall now or are anticipated to not be sustainable long term.

Of the 32, we're pleased to announce that we have signed leases with landmark recovery to repurpose three of our assisted living properties into substance addiction recovery centers.

Assuming the required regulatory boxes get checked during diligence redevelopment work should start this summer with rents commencing upon completion of redevelopment.

Another 27 assets are in the early stages of the sales process.

And the properties appears to be in line with our expectations, we may yet decide to retain and re tenant select facilities instead of selling them.

The remaining two assets of 32 have not been formally taken to market yet.

And we may end up retaining those if a solid gain on sale would not be expected.

And deals firm up we will provide updates along the way.

Should have much more meaningful update for the process next quarter.

Looking to the operating environment I'm also pleased to report approximately 95% of rent was collected in the quarter.

And for April we collected 93%.

So far our may collections appear to be in line with April .

Skilled nursing occupancy held stable from Q4 to Q1 <unk>.

Currently at 71, 4% compared to pre pandemic occupancy of 78% in.

And the low in January 'twenty, one of 67%.

For seniors housing occupancy.

It ticked up a 100 basis points currently at 77% compared to pre pandemic occupancy of 84%.

And the low watermark of 75% as recent as November of last year.

The tight labor market continues to put pressure on occupancy recovery and margins. There were operators currently report the worst appears to be behind them.

Finally, while reinforcing the foundation of the platform is job one this year equally important for us is to position ourself for accelerated growth for years to come.

I'll briefly touch on a few ways, we're doing that.

First as previously mentioned the behavioral health asset class.

<unk> not only provides us with a new tool for finding a higher and better use for our own underperforming assets, but it also opens up a high demand under supplied investment opportunity for growth.

We're certainly in the early innings of developing the operator relationships necessary for meaningful growth here, but we are excited about the potential for growth in this property type.

Second we've partnered with one of the leading bridge to HUD lenders in the skilled nursing space to participate in the growth of both operators, we know well and best in class operators wed like to form new relationships with.

Lending has always really been a relationship play for us.

Since given this more attention this year, we've been happy to see opportunities to build new relationships and put money to work at our historic range of deals.

Lastly, we've made some key personnel changes related to growth.

We hired Scott Grossman as our vice President of asset management the.

The addition of Scott with his deep experience in this space is not only perfect timing for executing on the repositioning work this year.

But it also allows us to invest more in the future growth by freeing up key talent from portfolio management duties to dedicate 100% of their time to building the operator, an investment pipeline with an emphasis on sourcing off market deals.

Skilled nursing and seniors housing has long been a story of winners and losers of different operating models and philosophies. The pandemic is certainly magnified operating strengths and weaknesses and then all of the noise. There are a lot of success stories.

We're better calibrated than ever to find and fuel the growth of the best in class operators, especially those who have proven themselves over the past couple of years.

With that I'll turn it over to Mark Thanks, Dave and good morning. In Q1, we are out of the gate with to tack on acquisitions with existing operating partners.

In February we closed on 155 beds skilled nursing facility in <unk>, Texas with the neural health care.

We purchased the facility for just over $8 9 million, which added just over 800000 rent to our master lease.

We purchased a skilled nursing and assisted living campus in Decatur, Illinois, We paid just under $13 1 million and increased our rent with W. Healthy management by approximately $1 2 million.

The M&A market continues to be a mixed bag for skilled nursing and seniors housing assets senior.

Seniors housing assets continue to flood the market the opportunities continue to be a wide spectrum of non stable and non strategic to class a and <unk> fit in a triple net structure, given where today's pricing.

Currently.

On the flip side, we are seeing more deals stable and noncash loans come to market and geographic areas that we have been strength of <unk>.

Icing in general continues to be excessively high.

And as Dave mentioned, we've beefed up.

Our investment team by moving over to members of our portfolio management team.

Former nursing home operators and we believe their ability to connect with operators will help us expand our pipeline of prospective tenants and work hand in hand with existing tenants in their respective regions to find off market deals where certainty of close is valued.

Our ability to strategically provide debt financing to existing partners as well as potential partners. We would like to do business with has yielded some interesting opportunities for us over the past few months.

Additionally, our announcement on the Q4 call.

About entrance into the behavioral health asset classes produced inbound interest from both brokers and operators that we believe will produce new investment opportunities for us.

We also suspect industry headwinds will force more and more undercapitalized operators to bring their properties to market factors such as.

Cms's recent announcement of the modest increase in Medicare funding.

Ongoing labor issues that continue to plague the industry.

And lastly, the eventual end of the public health emergency, which is providing continued benefits to operators, including the waiver of the three day qualifying stay as map in some states and sequestration to name a few.

So as we sit here today, the pipe of the mix of Smith, and <unk> seniors housing assets spread spread across both our standard acquisition leaseback structure and also some debt investments we continue to be cautiously optimistic that we will source more bread and butter one offs like you saw from us in Q1 over the coming quarters.

Being said our pipeline is currently in the $150 million to $175 million range.

Please remember that when we quote our pipe we only quote deals we are actively pursuing under our current underwriting standards and then only if we have a reasonable level of confidence that we can lock them up and close them in the relatively near term and now I'll turn it over to bill to discuss the financials.

Thanks Mark.

As Dave previously mentioned as deals firm up in the financial picture becomes a little more clear I would expect that we would resume publishing guidance in the next couple of quarters in the meantime, we will be putting out announcements as we make material progress.

Now on to the quarter and a little color on the numbers.

For the quarter normalized <unk> grew by five 2% over the prior year quarter to $35 9 million and normalized Fad grew by four 8% to $37 9 million.

On a per share basis normalized <unk> grew by two 8% over the prior year quarter to 37 per share and normalized <unk> grew by two 6% to 39 per share.

Rental income for the quarter was $46 million compared to $49 1 million in Q4 2021.

The decrease of $3 1 million is due to the following three items.

One a $1 $7 million decrease in cash rents, which is made up of $2 2 million of unpaid rent offset by 500000.

Dollar increase in rent from CPI bumps and new investments.

Two.

I have a $1 million decrease in reimbursed property expenses.

And three our reserve for doubtful accounts of 977000 made up of 629000 from existing tenants.

225000 for a tenant no longer in our portfolio and 123 straight line rent receivable because we are now selling the buildings under that lease.

Yes.

We recorded an impairment charge of $59 7 million during the quarter based on what we believe the net proceeds from the sales of the assets will be as a result of the decision to sell 27 assets.

We also incurred $1 2 million of reimbursed property expenses related to properties that we are selling.

And lastly, we recorded a net $3 $8 million provision for loan losses made up of $4 6 million of new reserves, partially offset by a 750000 recovery of previously reserved loan made to a tenant who is no longer in our portfolio.

Cash collections for the quarter came in at 94, 8% of contractual cash rent and includes the application of $1 5 million of security deposits without the application of the security deposits cash collections.

It was 91, 8% of contractual cash rent.

April cash collections came in at 93, 2% of contractual cash rent with $0 coming from the application of security deposits.

We expect may collections to be similar to what April was zero dollars coming from the application of security deposits.

Our liquidity remains extremely strong with approximately $25 million in cash and $495 million available under our revolver.

Leverage also continued to be strong with a net debt to normalized EBITDA ratio of three nine times.

Our net debt to enterprise value was 27% as of quarter end and we achieved a fixed charge coverage ratio of eight three times.

And with that I'll turn it back to Dave Thanks Bill.

The discussion has been helpful and really grateful for your continued support with that we'll be happy to answer any questions.

Okay.

As a reminder to ask a question we depressed star one on your telephone to withdraw.

All your question press the pound again Thats Star then the number one on your telephone to ask the question.

First question comes from the line of Juan Sanabria from BMO capital markets. Your line is open.

Hi, good morning, Thanks for the time.

Just on the asset sales you took an impairment it seems like you have a good sense of what the dollar value.

Those 27 assets so just curious.

If you could share what that dollar range.

Proceeds may be in and.

And I guess from a modeling perspective, what <unk>.

Rents or NOI was booked against that.

That denominator to try to calculate our cap rate to try to model.

The dispositions, if and when they happen.

Hey, Juan this is Dave.

<unk>.

I think were in essentially the same position we were last quarter with respect to <unk>.

Giving guidance about proceeds.

The fact that we booked an impairment is really.

In accounting concept.

We had to do for.

For the Q, but.

It's still pretty early.

And we don't want to.

Give too much color on what the range might look like before bids start rolling in.

Can you provide what the.

The new.

Okay value is post the impairment.

I think that's in the queue.

Got it yes.

Yes.

And in.

In the 10-Q, you can find that I think in note three.

Okay I'll take a look and then bill while I have you.

A lot of moving pieces you outlined in your prepared script, but I guess.

With city sake.

And taking a $1 5 million as a security deposit applied in the first quarter, but that will go away from our first quarter second quarter any other.

Moving pieces, we should think about.

Just to model the second quarter.

And to make sure we have appropriate run rate stripping out one time items.

Yeah as it relates to rent we gave you some color on where contractual cash rents are.

Our coming in so far for April and May.

As it relates to one time costs.

That could be added back next quarter I can't.

Think of anything.

Right now unless some.

Property type expenses as a result of assets we are selling.

We ended up paying.

Okay and then just the last one for me do you guys think.

<unk> when it's all said and done.

It bottomed with occupancy kind of Flatlining are improving.

Said differently I mean, do you expect any incremental or new watch list tenants to emerge.

From here, we seem to work.

At this point.

Yes, I don't think we would expect any new additions to the watch list.

Like I said last quarter.

We've tried to be proactive in looking forward.

And coming up with this list of 32 operators in the list of tenants that we're working through right now.

So we are doing with the folks who have call it hit the wall already in.

We've tried to look forward to who we think might be having some difficulty in the future thats not to say.

That the.

The remaining operators in the portfolio are completely out of the woods, yet we certainly still do have some.

Folks who.

Need support from the provider relief funds from the government in some form.

When that goes away it might be difficult for them.

But no new additions that we can think of that would be added to the watch list.

Thank you guys. Good luck.

Thanks.

Next question comes from the last Jonathan Hughes from Raymond James Your line is open.

Hey, good morning out there have Friday.

I guess since you can't talk about the proceeds or yield on the 32 assets being repositioned can you just remind us the mix between sniffs in seniors housing I think it's mostly sniffs, but.

Would be helpful. If you could share that.

Yes, Jonathan I don't think we actually.

Itemized it out last quarter I will just tell you that the majority are actually seniors housing.

Skilled nursing.

Okay.

Vast majority or.

Minor majority.

The.

<unk> majority.

Okay. Okay.

I will tell you we have a portfolio of skilled nursing facilities.

We are.

Selling.

And then the rest are all seniors housing.

Okay.

And when I when I look at.

The current geographic exposure.

California, and Texas are almost half of your rents and obviously, that's where your biggest relationships are in an enzyme being one of them but.

Is there a maximum state exposure threshold that might keep you from looking at a potential opportunity in an effort to try to limit any risk too.

State run Medicaid changes.

That's a really interesting question, but as we look at those states that we have concentration and we are not.

We are not concerned about growing with the best operators that we think we have in those states.

As long as we underwrite it for today's realities with.

With the best operators in those states, which we think we have.

You could certainly see us expand in California, and Texas, Mark do you want to add anything to that I would just say I'd just say.

It's interesting because California.

Some of the higher Medicaid rates in the country and then in Texas, you, obviously have some of the lower Medicaid rates in the country. So.

So from a exposure perspective, you pointed it out that's where we actually had bench strength.

The reality of us growing in those two states as really more of a function out of operator depth and less so of.

Maybe kind of.

Reimbursement.

We think text.

Texas is doing some interesting things on the flip side.

That is helping to supplement the quality operators that are providing great care.

In California, we are just not seeing much on the market.

Yes.

What about.

Other sunbelt markets like Florida, and I know you've had exposure a little bit higher exposure there in the past I think some of that with seniors housing, but the skilled nursing attractiveness of Florida is that something that's on the radar.

Yes.

We're constantly looking at opportunities.

Throughout the country, we don't actually see too much in Florida.

So there really is a function of.

We don't necessarily have anybody on Ireland operating bench today that is in Florida in a meaningful way.

But Florida is absolutely on the on the on the radar.

Okay.

One more for me.

Maybe give us any more details on that that bridge to HUD loan program I think Dave I heard you say that.

Yields will be done at similar yields to acquisitions, but being a bridge program.

It doesn't seem like that's a very long term I guess whats the plan for those investments once they do secure high debt.

Debt financing in an effort to try to minimize any future dilution from that being repaid.

Yes, that's a great question.

This is what I would say is we're not we're not going to take our exposure up.

Significantly on on the bridge to HUD program.

Whatever.

Is coming due.

We will do our best to match.

Funds coming in the door with funds going out the door.

There's been a.

The amount of interest a lot of deals that we have seen in the last couple of months back with operators that we know very well.

But.

I would say.

Using it from a relationship.

Ship perspective too.

Neither expand with existing tenants.

Tenants that we that we currently have or relays.

The relationships that we would like to develop on the sale leaseback side.

At some point in the future so.

<unk>.

We're not kind of going whole hog and expecting this to be our <unk>.

Thesis going forward and we will use.

This tool to deploy capital, where it makes sense on a relationship basis John .

Jonathan in addition to the relationship.

Angle, which really is the primary angle for it.

Dana given it a little bit more attention. This year has opened up some pretty interesting.

<unk> debt.

That.

Span beyond maybe that two to three year outlook.

And so just given it a little bit more attention and partnering with these guys I think.

What Mark said is right on it's not a.

A bit of a treadmill that you need to keep going on.

To not have that dilution, but.

But it could.

Here's to be presenting some interesting opportunities beyond the two to three year treadmill.

Alright, thats great color. Thanks for the time.

Thanks.

Your next question comes from the line of Steven Valiquette from Barclays.

Your line is open.

Yes, thanks for taking the question.

Just regarding.

Regarding the three properties, where you reached agreement with landmark recovery to convert.

The three senior housing facilities into the residential addiction recovery centers.

I apologize if I missed some of these details previously or are you kind of talked about this a little bit last quarter as far as some of the metrics, but just from an underwriting standpoint is there any color just on where those properties are expected to shake out from just the one from an EBITDAR rent coverage ratio once the addiction.

Covering operations hit maturity.

And then if you can just remind us what your landmarks assumption is for steady state occupancy within that particular business model once it hits maturity.

Thanks for the question Steve.

Yes, we're really excited about this space as you could tell by our prepared remarks, and what we talked about last quarter.

Really thrilled to have already signed three leases one of just.

Point out that.

There's still a little bit of regulatory box checking.

Go forward with before those.

Those leases commence formally and then rent is not going to start to be collected on that until the redevelopment work is done we're expecting a few million dollars approximately.

Redevelopment cost per facility.

And.

The underwriting thesis is that lease coverage stabilized lease coverage will be north of three times.

And occupancy should be.

In the nineties.

Talking with the landmark guys based on their track record here, they get there pretty quickly inside of <unk>.

Traditionally inside of six months.

So that's our expectation going forward we expect.

The development work, assuming that all of the regulatory boxes get checked.

<unk> commenced this summer.

And then rents to start coming in.

12 to 18 months after.

At that point.

Okay.

And then just remind us again the.

As far as some of those conversions is it easier to convert senior housing into addiction recovery versus neff.

Im just not sure if that was relegated to just stay on one side or the other or both types of facilities where are opportunities for that but just wanted to get the quick confirmation around that one way or the other thanks.

Yes, Steve So both property types are eligible for conversion.

Just so happens that as we looked at the properties that we felt.

We wanted to pursue with landmark they were assisted living actually we looked at a few skilled nursing facilities as well, but as we look at those together that for.

One reason or another they didn't work out for landmark to convert the skilled nursing facilities, but there is nothing inherently.

Unique about our sniff license or in assisted living license.

Both are eligible.

Okay got it okay. That's helpful. Thanks.

Alright. Thanks.

Your next question comes from the line of Michael Carroll from RBC Capital. Your line is now open.

Yes, Thanks, I wanted to ask Mark a couple of questions about the investment market.

Where do you see I guess valuations right now I know you've kind of highlighted there is still a little expensive.

I mean, it has the rising interest rates kind of affect that those valuations at all or how does that kind of play into where some of these valuations can trend over the next handful of quarters.

We haven't seen we haven't seen valuations affected by rising interest rates, although I was talking to a lender this week and said.

The HUD debt sort of spiked into the fours for the first time in years, so depending on where that bounces around over the next couple of quarters kind of high threes low fours.

Absolutely get effect.

It's going to affect pricing. So we haven't we haven't we haven't seen it currently.

And deals that are that have come out.

But I would expect to see it.

And in future quarters.

Just.

For obvious reasons.

I think.

The market was sort of a frenzy in Q1.

And I think it started.

Slow down a little bit.

Q2, and as we've seen more deals come to market. So I think it's probably a function of supply and demand.

Okay.

I mean, I guess, maybe this is kind of what you were just saying, but past few quarters, you were saying that the reason why valuations were so high this is because the lack of product available.

Available and Theres, just a number of buyers I mean is that still true going on do you see more products hitting the market and if so will that kind of loosen up the valuations.

Yes, I think Thats I think thats.

You're exactly right I think.

As we as we start to see more sniff assets.

Cash flowing and non.

I think that will I think that'll normalize pricing.

We haven't seen a lot in Q4.

And.

Even going back to maybe as far as Q3 of last year. So.

When somebody did come to market, Okay got beat up pretty significantly.

And.

I think obviously, good good well positioned well positioned assets in certain states is always going to be paid up and theres going to be a significant auction process for that.

But in some of the smaller smaller markets and even secondary markets that some of our operators are in.

Yeah.

We're expecting pricing to kind of come back down and you're starting to see a little bit of that.

No.

Okay, and then is that true for both seniors housing and skilled nursing facility assets or is that kind of just tied to one of them.

Well I mean, we're.

What I would say, we're certainly more focused on skilled nursing pricing, just because obviously components, 80% to 85% of our current portfolio.

On the skilled nursing side or on the on the seniors housing cycle not as it tunes of where pricing is just because the.

A few operators that we actually want to grow with her in.

Such selected markets.

Don't really have.

A great pulse for.

Whats going on in the in the seniors housing space.

And a lot of and a lot of markets throughout the country.

Okay, Great and then just last question from me on on the portfolio optimization plan I think that what you.

Yes, 32 assets that youre kind of looking to reposition 'twenty sevens for sale three year transitioning the behavioral.

What do you know what you're going to do with the other two is that kind of been kind of thought yet.

We're still looking at that.

Sure.

They pay rent to current they wanted to stay in and.

Really the question is are we going to get a price.

That.

Sort of compel us.

Do it.

And we're just not far enough along in that analysis.

To pull the trigger.

Okay, great. Thank you.

You bet. Thanks, Mike.

We have a follow up question from Juan Sanabria.

Hi.

Curious if any of your patent assets.

Yes.

But over time as part of their.

Okay.

Thanks, Eric with some of their assets.

Yes three of them.

Okay great.

And then on the pipeline mix.

150 to 175 just curious.

On the mix of assets, there and kind of yields youre thinking.

Yes, so it is going to be.

Could it be.

Predominantly skilled nursing.

And the yield what I would say is kind of in that.

In the mid to high eights.

Great. Thank you very much.

Sure.

Again, if you would like to ask question Press Star then the number one on your telephone keypad.

We have a question from Austin <unk> from Keybanc capital markets. Your line is open.

Great. Thank you.

It seems like behavioral is becoming more attractive to you in some of your peers.

Basic understanding at this point is there are a few institutional quality operators are few with the track record at this point.

Land Mark has more than one that's certainly been highlighted a few times, but can you just help us understand the competitive landscape for this segment.

Yes.

Landscape is.

I would say very fragmented.

And.

Immature in terms of institutional quality.

Management.

And credit.

It feels like in some ways it feels like the skilled nursing business I don't know 30 40 years ago.

Both from a fragmentation and.

Professional management and regulatory scrutiny and sophistication.

So that does make it a little bit of a challenge to find great.

Operators to grow with.

We have confidence that they are there but.

It's going to take some work to find them.

And.

We do that work on the skilled nursing side.

And.

That goes to one of the reasons why we are allocating more talent to the investment side of the shop, so that we can be.

The boots on the ground and in conferences and in markets to try to find those.

Best in class operators across.

Our boxes of skilled nursing seniors housing and now behavioral health.

Sure.

So when all is said and done on those three that Youre repurposing, what's sort of the yield on your all in cost basis, including a few million dollars you mentioned on each facility.

Well if you.

If you look at net book value.

Plus the investment that will make I think across the board, we're expecting to be somewhere.

In the eights.

The aggregate of all three.

But thats before any impairment that might be considered on these assets. So it's kind of a nuanced discussion because you've got to think about what's the real value of some of these underperforming assisted living facilities.

And if you think about what they might set chip market.

Today versus.

Higher and better use here with behavioral it's a really easy decision. If you look at what we could re tenant what's the market rent for these today.

Look at what the rent is currently versus what the rent will be going forward.

In total dollars and yield we're better off repositioning these assets.

That's helpful and then and just whats the expectation for rent collections and I was curious if any of the delinquent rent for this year was associated with the 32 assets.

Tend to reposition.

Yes, so like I said earlier.

Pretty challenging given this this stage.

Stage of the process to really comment too much on how much of that rent that we have not collected will still be collected.

What I can tell you is that we believe that there is.

Collectible rent there that has that.

<unk>.

Not collected so far.

But.

Given where the negotiations are and how the workouts play out with timing and proceeds and.

Participation and cooperation of outgoing tenants Theres, just a lot of moving parts there to to give you.

Much more guidance than that.

Okay.

Well, thank you for the time.

Alright.

Again, if you would like to ask a question Thats Star then the number one on your telephone keypad.

Next question is from.

Tayo Okusanya from credit Suisse. Your line is open.

Hi, Yes. Good afternoon I just wanted to follow up in regards to Oxford question on the behavioral health sector I definitely you guys knew whether it's five years or 10 years, how do you expect that industry, so to kind of evolve.

And how does it kind of become much more institutionalized going forward.

That being that the U S government to be doing well.

Doing it already.

How does it make it a more.

Some smaller business.

And how quickly can you kind of.

This result, growing going forward, especially given.

Great.

There's a very strong focus on mental health within the United Healthcare.

Healthcare industry right now.

Yes, I think I think youre seeing part of the answer to your.

Your question in institutional cap.

Capital.

Going into this space now whether it would be.

Right.

Whether it be private equity bank.

Taking it more seriously and.

And they are looking.

For operators to partner with and so now.

Historically, it's a very young industry, if you look at it.

I think it was 2000.

Eight ish.

When president Obama with the stroke of a pen created a market.

That was at the time very under supplied.

When he mandated health.

Health care providers in Medicaid now support addiction.

Addiction recovery and mental illness.

And so it's early Tayo and I'd, just say that the money to support it is coming it's here where part of that.

And I think that alone will attract.

Hi.

Operators, who have maybe been more sophisticated in other parts of the health care spectrum.

Take it more seriously and expand into it.

But I don't.

It's really hard to predict how long that will take.

For it to kind of mature to a place like skilled nursing even skilled nursing.

Still very fragmented still a lot of moms and Pops still a lot of multi generational owners.

And I suspect that looking five years to 10 years from now behavioral health will continue to have.

Pretty healthy range.

The range of mom and Pops.

We're institutional.

Great. Thank you.

Thanks Tayo.

Okay.

There are no further question at this time presenters. Please continue.

Okay.

Looks like it concludes the call really appreciate everybody's interest and support.

If you have follow up questions, you know where to find US we will see many of you in June at NAREIT.

Hope you have a great weekend. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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<unk>.

Good day my name is thanks, Sir and that would be a conference operator for today at this time.

I would like to welcome everyone to characterize REIT first quarter 2020 earnings conference call.

The increase on mute to prevent any background noise.

Speakers remarks, there will be a question and answer session to ask a question community session. We depressed star one on your telephone.

And then turning the conference you need to reach an operator, Please press star zero.

I'd now like to welcome your speaker for today.

You may begin.

Thank you and welcome to characterize <unk> first quarter 2022 earnings call participants should be aware that this call is being recorded and listeners are advised that any forward looking statements made on today's call are based on management's current expectations assumptions and beliefs about <unk> business and the environment in which it operates these statements may include projections.

Regarding future financial performance dividends acquisitions investments returns.

Thanks, and other matters and may or may not reference 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.

These 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 the company will reference non-GAAP metrics, such as EBITDA, SFO, and F&B worked fad and normalized EBITDA SSO and F&B.

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.

<unk> of this call will also be available on the website for a limited period.

On the call. This morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, and Mark Lamb, Chief Investment Officer.

I'll now turn the call over to Dave Sedgwick characterize <unk>, President and CEO Dave.

Thank you Lauren and good morning, everyone.

Today I will provide our first update on the progress of the plan to fortify the portfolio by repositioning 32 assets.

I'll give you a brief update on the fundamentals of the operating environment and.

And I'll conclude with the work we're doing to position the company for accelerated growth in the future.

Of the 32, we're pleased to announce that we have signed leases with landmark recovery to repurpose three of our assisted living properties into substance addiction recovery centers.

Assuming the required regulatory boxes get checked during diligence redevelopment work should start this summer with rents commencing upon completion of redevelopment.

Another 27 assets are in the early stages of the sales process.

Interest in the properties it appears to be in line with our expectations, we may yet decide to retain and re tenant select facilities instead of selling them.

The remaining two assets of the 32 have not been formally taken to market yet.

So we may end up retaining those if a solid gain on sale would not be expected.

And deals firm up we will provide updates along the way and we should have much more meaningful update for the process next quarter.

Looking to the operating environment.

Also pleased to report approximately 95% of rent was collected in the quarter.

And for April we collected 93%.

So far may collections appear to be in line with April .

Skilled nursing occupancy held stable from Q4 to Q1.

Currently at 71, 4% compared to pre pandemic occupancy of 78% and.

And the low in January 'twenty, 167%.

For seniors housing occupancy that ticked up a 100 basis points currently at 77% compared to pre pandemic occupancy of 84%.

And the low watermark of 75% as recent as November of last year.

The tight labor market continues to put pressure on occupancy recovery and margins. There were operators currently report the worst appears to be behind them.

Finally, while reinforcing the foundation of the platform is job one this year equally important for us is to position ourselves for accelerated growth for years to come.

Touch on a few ways, we're doing that.

First as previously mentioned the behavioral health asset class not only provides us with a new tool for finding a higher and better use for our own underperforming assets, but it also opens up a high demand under supplied investment opportunity for growth.

We're certainly in the early innings of developing the operator relationships necessary for meaningful growth here, but we are excited about the potential for growth in this property type.

Lending has always really been a relationship play for us.

Since given this more attention this year, we've been happy to see opportunities to build new relationships and put money to work at our historic range of deals.

Lastly, we've made some key personnel changes related to growth.

We hired Scott Grossman as our vice President of asset management <unk>.

The addition of Scott with his deep experience in this space is not only perfect timing for executing on the repositioning work. This year, but it also allows us to invest more in the future growth by freeing up key talent from portfolio management duties to dedicate 100% of their time to building the operator and investment pipelines.

With an emphasis on sourcing off market deals.

Skilled nursing and seniors housing has long been a story of winners and losers of different operating models and philosophies. The pandemic is certainly magnified operating strengths or weaknesses and then all the noise. There are a lot of success stories.

We're better calibrated than ever to find and fuel the growth of the best in class operators, especially those who have proven themselves over the past couple of years.

With that I will turn it over to Mark Thanks, Dave and good morning. In Q1, we are out of the gate with to tack on acquisitions with existing operating partners. In February we closed on 155 beds skilled nursing facility in <unk>, Texas with the draw healthcare.

We purchased a facility for just over $8 9 million, which added just over 800000 rent to our master lease next we purchased a skilled nursing and assisted living campus in Decatur, Illinois, We paid just under $13 1 million and increased our rent with W. Healthy management by approximately $1 2 million.

The M&A market continues to be a mixed bag for skilled nursing and seniors housing assets.

Seniors housing assets continue to flood the market the opportunities continue to be a wide spectrum of non stable and non strategic to class a <unk> state in a triple net structure, given where today's pricing.

Currently.

On the flip side, we are seeing more deals stable and noncash flowing come to market and geographic areas that we have been strength of pricing in general continues to be excessively high.

And as Dave mentioned, we've beefed up our investment team by moving over to members of our portfolio management team their former nursing home operators and we believe their ability to connect with operators will help us expand our pipeline of prospective tenants and worked hand in hand with existing tenants in their respective regions.

The off market deals where certainty of close is valued.

Additionally, our announcement on the Q4 call.

About entrance into the behavioral health asset classes produced inbound interest from both brokers and operators that we believe will produce new investment opportunities for us.

We also suspect industry headwinds will force more and more undercapitalized operators to bring their properties to market factors such as <unk>.

Cms's recent announcement of the modest increase in Medicare funding.

Ongoing labor issues that continue to plague the industry.

And lastly, the eventual end of the public health emergency, which is providing continued benefits to operators, including the waiver of the three day qualifying stay as map.

Map in some states and sequestration to name a few.

So as we sit here today the pipe is a mix of Smith <unk> nephew seniors housing assets spread spread across both our standard acquisition leaseback structure and also some debt investments we continue to be cautiously optimistic that we will source more bread and butter one offs like you saw from us in Q1 over the coming quarters.

Being said our pipeline is currently the $150 million to $175 million range.

Please remember that when we quote our pipe we only quote deals we are actively pursuing under our current underwriting standards and then only if we have a reasonable level of confidence that we can lock them up and close to them in the relatively near term and now I'll turn it over to bill to discuss the financials.

Thanks Mark.

As David previously mentioned as deals firm up in the financial picture becomes a little more clear I would expect that we would resume publishing guidance in the next couple of quarters in the meantime, we will be putting out announcements as we make material progress.

Now onto the quarter and a little color on the numbers for the quarter normalized <unk> grew by five 2% over the prior year quarter to $35 9 million and <unk>.

<unk> grew by four 8% to $37 9 million.

On a per share basis normalized <unk> grew by two 8% over the prior year quarter to 37 per share and normalized <unk> grew by two 6% to <unk> 39 per share.

Rental income for the quarter was $46 million compared to $49 1 million in Q4 2021.

The decrease of $3 1 million is due to the following three items.

One a $1 $7 million decrease in cash rents, which is made up of $2 2 million of unpaid rent offset by 500000.

Dollar increase in rent from CPI bumps and new investments.

Two.

A half a million dollars decrease in reimbursed property expenses.

And three our reserve for doubtful accounts of 977000 made up of 629000 from existing tenants 225000 for a tenant no longer in our portfolio and 123 straight line rent receivable because we are now selling the buildings under that lease.

We recorded an impairment charge of $59 7 million during the quarter based on what we believe the net proceeds from the sales of the assets will be as a result of the decision to sell 27 assets.

We also incurred $1 2 million of reimbursed property expenses related to properties that we're selling.

Was 91, 8% of contractual cash rent.

April cash collections came in at 93, 2% of contractual cash rent with $0 coming from the application of security deposits we.

We expect may collections to be similar to what April was zero dollars coming from the application of security deposits.

Our liquidity remains extremely strong with approximately $25 million in cash and $495 million available under our revolver.

Leverage also continued to be strong with a net debt to normalized EBITDA ratio of three nine times.

Our net debt to enterprise value was 27% as of quarter end and we achieved a fixed charge coverage ratio of eight three times.

And with that I'll turn it back to Dave Thanks Bill.

We hope the discussion has been helpful and really grateful for your continued support with that we'll be happy to answer any questions.

Okay.

As a reminder to ask a question with the breast star one on your telephone to withdraw your question press. The pound again Thats Star then the number one on your telephone keypad to ask a question.

First question comes from the line of Juan Sanabria from BMO capital markets. Your line is open.

Hi, good morning, Thanks for the time.

Just on the asset sales you took an impairment it seems like you have a good sense of what the dollar value.

Those 27 assets so just curious.

If you could share what that dollar range of.

Proceeds may be in.

And I guess from a modeling perspective.

Rents or NOI was booked against that.

That denominator to try to calculate our cap rate to try to model the dispositions if and when they happen.

Hey, Juan this is Dave.

So the.

Think we're in essentially the same position we were last quarter with respect to giving guidance about proceeds.

Is that.

In fact that we booked an impairment is really an accounting concept.

We had to do for.

For the Q.

But.

It's still pretty early.

And we don't want to.

Really give too much color on what the range might look like before bid start rolling in.

Can you provide.

New book.

Value is post the impairment.

I think thats in the queue.

Yes.

In the in the 10-Q, you can find that I think in notes right.

I'll take a look at.

And then bill while I have you.

A lot of moving pieces you outlined in your prepared script, but I guess.

<unk> with Citi sake.

It seems like you have $1 5 million as a security deposit applied in the first quarter.

It will go away from the first quarter second quarter any other.

Moving pieces, we should think about.

Just to model the second quarter.

And to make sure we have.

Appropriate run rate stripping out one time items.

Yeah as it relates to rent we gave you some color on where contractual cash rents are coming in so far for April and May.

As it relates to one time costs.

That could be added back next quarter I can't.

Think of anything.

<unk>.

Right now unless some.

Property type expenses as a result of assets we are selling.

We ended up paying.

Okay and then just the last one for me do you guys think.

Copper when it's all said and done.

It bottomed with occupancy kind of flatline or improving.

Hey, Vikram.

Do you expect any incremental or new watch list tenants to emerge.

From here, we seem to work.

At this point.

Yes, I don't think we would expect any new additions to the watch list.

Like I said last quarter.

We've tried to be proactive in looking forward.

And coming up with this list of 32 operators in the list of tenants that we're working through right now.

So we're dealing with the folks who have call it hit the wall already in <unk>.

We've tried to look forward to who we think might be having some difficulty in the future thats not to say.

That.

The remaining operators in the portfolio are completely out of the woods, yet we certainly still do have some folks who.

Need support from the provider relief funds from the government in some form.

When that goes away it might be difficult for them.

But no new additions.

We can think of that would be added to the watch list.

Thank you guys. Good luck.

Thanks.

Next question comes from the last Jonathan Hughes from Raymond James Your line is open.

Hey, good morning out there Friday.

I guess since you can talk about the the proceeds or yield on the 32 assets being repositioned can you just remind us the mix between sniffs in seniors housing I think it's mostly sniffs, but that would be helpful. If you could share that.

Yes, Jonathan I don't think we actually.

Itemized it out last quarter I will just tell you that the majority are actually seniors housing.

Skilled nursing.

Okay.

Sure.

Vast majority or a minor.

A minor a majority.

The.

<unk> majority.

Okay. Okay.

We have we have one I'll tell you we have a portfolio of skilled nursing facilities.

We are.

Selling.

And then the rest are all seniors housing.

Okay.

And when I when I look at.

The current geographic exposure.

California, and Texas are almost half of your rents and obviously, that's where your biggest relationships are an enzyme being one of them but.

Is there a maximum state exposure threshold that might keep you from looking at a potential opportunity in an effort to <unk>.

Try to limit any risk too.

State, Brian Medicaid changes.

That's a really interesting question, but as we look at those states that we have concentration and we are not.

We are not concerned.

Growing with the best operators that we think we have in those states.

As long as we underwrite it for today's realities with with.

With the best operators in those states, which we think we have.

You could certainly see us expand in California, and Texas, Mark do you want to add anything to that I would just say I'd just say it's.

It's interesting because California.

Some of the higher Medicaid rates in the country and then in Texas, you, obviously have some of the lower Medicaid rates in the country. So.

So from a exposure perspective, you pointed it out that's where we actually have bench strength.

The reality of us growing in those two states as really more of a function of operator depth and less so.

Maybe kind of.

Yes.

Reimbursement so we think.

Texas is doing some interesting things on the flip side that has helped helping to supplement the quality operators that are providing great care.

In California, we are just not seeing much on the market. So.

Yes.

What about.

Other sunbelt markets like Florida, I know you've had exposure a little bit higher exposure in the past I think some of that was seniors housing, but the skilled nursing attractiveness of Florida is that something that's on the radar.

Yes.

We're constantly looking at opportunities.

Throughout the country, we don't actually see too much in Florida.

So there really is a function of.

We don't necessarily have anybody on our operating bench today that is in Florida.

Meaningful way.

But Florida is absolutely on the on the on the radar.

Okay.

One more for me.

Could you maybe give us.

Any more details on that that bridge to HUD loan program I think Dave I heard you say that.

Yields will be done at similar yields to acquisitions by being a bridge program.

It doesn't seem like that's very long term I guess whats the plan for that those investments once they do secure hide that.

Debt financing in an effort to try to minimize any future dilution from them being repaid.

Yes, that's a great question.

This is what I would say is we're not we're not going to take our exposure up.

Significantly on on the bridge to HUD program.

Whatever.

Is coming due.

We will do our best to match.

<unk> is coming in the door with funds going out the door.

There has been a good amount of interest a lot of deals that we have seen in the last couple of months that are with operators that we know very well.

But I.

I would say.

Using it from a relationship perspective to.

Either expand with existing.

Tenants that we that we currently have or relationships that we would like to develop on the sale leaseback side.

At some point in the future so.

<unk>.

We're not kind of going whole hog and expecting this to be our main thesis going forward and we will use.

This tool to deploy capital, where it makes sense on a relationship basis.

Jonathan in addition to the relationship angle, which really is the primary angle for it.

<unk> given us a little bit more attention. This year has opened up some pretty interesting.

<unk> debt.

Expand beyond maybe that two to three year outlook.

And so just giving it a little bit more attention and partnering with these guys I think.

What Mark said is right on it's not a.

A bit of a treadmill that you need to keep going on.

To not have that dilution, but.

But it could make it appears to be presenting some interesting opportunities beyond the two to three year treadmill.

Alright, thats great color. Thanks for the time.

Thanks.

Your next question comes from the line of Steven Valiquette from Barclays.

Your line is open.

Yeah. Thanks for taking the question.

Just regarding the three properties, where you reached agreement with landmark recovery to convert.

The three senior housing facilities into the residential addiction recovery centers.

<unk> operations have maturity.

If you can just remind us what your landmarks assumption is for steady state occupancy within that particular business model once it hits maturity.

Thanks for the question Steve.

Yes, we're really excited about this space as you could tell by our prepared remarks, and what we talked about last quarter, we're really thrilled to have already signed three leases one.

Point out that.

There is still a little bit of regulatory box checking.

Go forward with before those.

Those leases commence formally and then rent is not going to start to be collected on that until the redevelopment work is done we're expecting a few million approximately.

Redevelopment cost per facility.

And.

The underwriting thesis is that lease coverage stabilized lease coverage will be north of three times.

And occupancy should be.

In the nineties.

Talking with the landmark guys based on their track record here, they get there pretty quickly inside of traditionally.

Traditionally inside of six months.

And.

So that's our expectation going forward we expect.

The development work, assuming that all of the regulatory boxes get checked.

It commenced this summer.

And then rents to start coming in.

<unk> to 18 months after.

At that point.

Okay.

And then just remind us again.

As far as some of those conversions is it easier to convert senior housing into addiction recovery versus Smith.

Just not sure if that was relegated to just stay on one side or the other or both types of facilities were opportunities for that but just wanted to get the quick confirmation around that one way or the other thanks.

Yes, Steve So both property types are eligible for conversion.

What happened is that as we looked at the properties that we felt.

We wanted to pursue with landmark they were.

Just as living actually we looked at a few skilled nursing facilities as well.

But as we look at those together for.

One reason or another they didn't work out for landmark to convert the skilled nursing facilities, but there is nothing inherently.

Unique about our sniff licenser in assisted living license.

Both are eligible.

Okay got it okay. That's helpful. Thanks.

All right Steve Thanks.

Your next question comes from the line of Michael Carroll from RBC Capital. Your line is now open.

Yeah. Thanks, I wanted to ask Mark a couple of questions about the investment market I mean, where do you see I guess valuations right now I know you've kind of highlighted there is still a little expensive.

Has the rising interest rates kind of affect that those valuations at all or how does that kind of play into where some of these valuations can trend over the next handful of quarters.

We haven't seen we haven't seen valuations affected by rising interest rates, although I was talking to a lender this week and said.

HUD debt sort of spiked into the fours for the first time in years. So.

Lending on where that bounces around over the next couple of quarters kind of high threes low fours, that's absolutely going to effect.

It's going to affect pricing. So we haven't we haven't we haven't seen it.

Currently.

And deals that are that have come out.

But I would expect to see it.

In future quarters.

Just.

For obvious reasons.

I think.

Thank you.

The market was sort of a frenzy in Q1.

I think it started to.

The slowdown a little bit in Q2, and as we've seen more deals come to market.

It's probably a function of supply and demand.

Okay.

I mean, I guess, maybe this is kind of what you were just saying, but past few quarters youre, saying that the reason why valuations were so high this is because the lack of product available.

Available and Theres, just a number of buyers I mean is that still true going on do you see more products hitting the market and if so will that kind of loosen up the evaluations.

Yes, I think Thats I think thats.

You're exactly right I think.

As we seek as we start to see more sniff assets.

Cash flowing and non.

I think that will I think that'll normalize pricing.

Yes, we haven't seen a lot from Q4.

And.

Even going back to maybe as far as Q3 of last year and so.

When when Sunday did come to market, Okay got beat up pretty significantly.

And.

Okay.

Obviously, good good well positioned well positioned assets in certain states is always going to be bid up and theres going to be a significant auction process for that.

But in some of the smaller smaller markets and even secondary markets that some of our operators are in.

Yeah.

We're expecting pricing to kind of come back down and youre, starting to see a little bit of that.

Now.

Okay, and then is that true for both seniors housing and skilled nursing facility assets or is that kind of just tied to one of them.

Well I mean, we're.

I would say, we're certainly more focused on skilled nursing pricing, just because obviously composes 80% to 85%.

Portfolio.

On the skilled nursing side or on the on the seniors housing side will not as it tends to where pricing is just because.

A few operators that we actually want to grow with our in sight.

<unk> selected the markets.

Not really have.

Great pulse for.

What's going on in the seniors housing space.

And a lot of and a lot of markets throughout the country.

Okay, Great and then just last question from me on the portfolio optimization plan I think that what you have 32 assets that you are kind of looking to reposition 27 first sale three are transitioning to behavioral.

What do you know what youre going to do with the other two is that kind of been kind of thought yet.

We're still looking at that.

Sure.

They pay rent to current they want to stay in.

And.

Really the question is are we going to get a price.

That.

Would compel us.

To do it.

And we're just not far enough along in that analysis.

To pull the trigger.

Okay, great. Thank you.

You bet. Thanks, Mike.

We have a follow up question from Juan Sanabria.

Yes.

Hi.

Curious if any of your patent assets.

Got it.

Move over to Ensign as part of their.

Okay.

Changes the face masks, Eric but some of their assets.

Yes three of them.

Yes, that's a good thing.

And then on the pipeline mix.

150 to 175 just curious.

The mix of assets, there and kind of yields youre thinking.

Yes, so it is going to be.

Could it be.

Predominantly skilled nursing.

And the yield what I would say is kind of in that.

In the mid to high eights.

Great. Thank you very much.

Sure.

Again, if you would like to ask question Press Star then the number one on your telephone keypad.

We have a question from Austin, where Schmidt from Keybanc capital markets. Your line is open.

Great. Thank you.

It seems like behavioral is becoming more attractive to you in some of your peers.

Basic understanding at this point is there are a few institutional quality operators are few with the track record at this point.

Landmark has been one that has certainly been highlighted a few times, but can you just help us understand the competitive landscape for the segment.

Yes.

Thanks, Keith is.

I would say very fragmented.

And.

Immature in terms of institutional quality management and credit.

It feels like in some ways it feels like the skilled nursing business I don't know 30 40 years ago.

Both from a fragmentation and.

Professional management and regulatory scrutiny and sophistication.

So that does make it a little bit of a challenge to find great.

Operators to grow with.

We have confidence that they are there but.

It's going to take some work to find them.

And.

We do that work on the skilled nursing side.

And.

That goes to one of the reasons why we are allocating more talent to the investment side of the shop, so that we can.

The boots on the ground.

In conferences and in markets to try to find those best in class operators across.

Our boxes of skilled nursing and seniors housing in our behavioral health.

Yes.

So when all is said and done on those three that Youre repurposing whats sort of the yield on your all in cost basis, including the few million dollars you mentioned on each facility.

Well if you.

If you look at net book value.

Plus the investment that will make I think across the board, we're expecting to be somewhere.

In the eights.

Aggregate of all three.

But thats before any impairment that might be considered on these assets.

So it's kind of a nuanced discussion because you've got to think about what's the real value of.

Some of these underperforming assisted living facilities.

And if you think about what they might search market.

Today versus.

The higher and better use here with behavioral it's a really easy decision if you look at.

What we could re tenant what's the market rent for these today. If you look at what the rent is currently versus what the rent will be going forward.

In total dollars and yield we're better off repositioning these assets.

That's helpful. And then just what's sort of the expectation for rent collections and I was curious if any of the delinquent rent for this year was associated with the 32 assets.

Do you intend to reposition.

Yes, so like I said earlier.

It's pretty challenging given this.

This stage of the process to really comment too much on how much of that rent that we have not collected will still be collected.

What I can tell you is that we believe that there is.

Collectible rent there that has.

We have.

Not collected so far.

But.

Given where the negotiations are and how the workouts play out with timing and proceeds in.

Participation and cooperation of outgoing tenant Theres, just a lot of moving parts there too to give you.

Much more guidance than that.

Okay I appreciate that thank you for the time.

Alright.

Again, if you would like to ask a question Thats Star then the number one I wonder if any for any key pad.

Next question is from Tayo.

Tayo Okusanya from credit Suisse. Your line is open.

Hi, Yes. Good afternoon I just wanted to follow up in regards to the occupancy question on the behavioral health sector.

I guess when you guys look out whether it's five years or 10 years, how do you expect in that industry.

<unk> kind of ball.

No.

And how does it kind of become much more institutionalized going forward.

The other thing that the U S government need to be doing or they are doing already some kind of making a more institutionalized business.

And how quickly can you kind of the industry itself growing going forward.

Thank you.

Okay.

It's a very strong focus on mental health within the United States.

The industry right now.

Yes, I think I think youre seeing.

Part of the the answer to your question in institutional cap.

Capital.

Going into this space now whether it would be.

Right.

Whether it be private equity bank.

Taking it more seriously.

And they are looking.

For operators to partner with and so now.

Historically, it's a very young industry, if you look at it.

I think it was 2000.

Ish.

When president Obama with the stroke of the pen created a market.

That was at the time very under supplied.

He mandated health.

Health care providers in Medicaid now support addiction.

Addiction recovery and mental illness.

And so it's early Tayo and I would just say that.

To support it is coming it's here where part of that.

And I think that alone will attract.

Sure.

Operators, who have maybe been more sophisticated in other parts of the healthcare spectrum.

Take it more seriously and expand into it.

But I don't.

It's really hard to predict how long that will take.

For it to kind of mature to a place like skilled nursing even skilled nursing.

Still very fragmented still a lot of moms and Pops still a lot of multi generational owners.

And I suspect that looking five years to 10 years from now behavioral health will continue to have a pretty healthy range.

The range of mom and Pops.

Institutional.

Great. Thank you.

Thanks Tayo.

Okay.

There are no further question at this time presenters. Please continue.

Okay.

Looks like it concludes the call really appreciate everybody's interest and support.

If you have follow up questions, you know where to find US we will see many of you in June at NAREIT.

Hope you have a great weekend. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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