Q3 2023 National Health Investors Inc Earnings Call

Greetings and welcome to the National Health Investors third quarter 2023 earnings call had started the presentation all lines will be in a listen only mode. Afterwards, we will conduct a question and answer session.

Speaker 1: Greetings and welcome to the National Health Investors third quarter, 2023 earnings call. At the start of the presentation, all lines will be in a listen only mode. Afterwards, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference, you need to reach an operator, please press star zero. S

At that time, if you have a question. Please press the one followed by the four on your telephone.

If at any time during the conference you need to reach an operator, Please press star zero.

As a reminder, too.

Speaker 1: We are recording the call today, Wednesday, November 8, 2023. I would now like to send the conference over to Dana Hambley. Please go ahead.

We are recording the call today Wednesday November eight 2023, I would now like to turn the conference over to Dana Hambly. Please go ahead.

Speaker 2: Thank you and welcome to the National Health Investors conference call to review the results for the 3rd quarter of 2023. On the call today are Eric Mendelson, President and CEO . Kevin Pascoe, Chief Investment Officer, John Spade, Chief Financial Officer and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this conference call were released after the market closed yesterday in a press release that's been covered by the financial media.

Thank you and welcome to the National Health Investors Conference call to review the results for the third quarter of 2023 on the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Chief Financial Officer, and David <unk>, Chief Accounting Officer.

The results as well as notice of the accessibility of this conference call were released after the market closed yesterday in our press release, let's think covered by the financial media.

Speaker 2: Any statements in this conference call, which are not historical facts, are forward looking statements. NHI cautions investors that any forward looking statements may involve risks that were uncertainties and are not guarantees a future performance.

Any statements in this conference call, which are not historical facts are forward looking statements NHI cautions investors that any forward looking statements may involve risks or uncertainties and are not guarantees of future performance.

Speaker 2: All four with looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's form 10Q for the quarter ended September 30th, 2023.

All forward looking statements represent any judgment as of the date of this conference call investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in Nhi's Form 10-Q for the quarter ended September 32023.

Speaker 2: Toppies of these filings are available on the SEC's website at SEC.gov or on NHIs website at NHIREET.com. In addition, certain terms used in this call are non- GAAP financial measures, reconcilations of which are provided in NHIs earnings release and related tables from schedules, which have been furnished on form 8K with the SEC. Listeners are encouraged to review those reconcilations provided in the earnings release together with all other information provided in that release. I'm now turning the call over to us.

Copies of these filings are available on the Sec's website at SEC Gov or on Nhi's website at NHI REIT Dot com and.

In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which I provided in Nhi's earnings release and related tables, and schedules, which have been furnished on form 8-K with the SEC listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release.

I'll now turn the call over to our CEO Eric Mendelson.

Speaker 3: Hello and thanks for joining us today. We're pleased to report a very strong quarter.

Hello, and thanks for joining us today, we're pleased to report a very strong quarter.

Speaker 3: with our funds available for distribution or FAD exceeding our expectations by increasing 22% year over year and 8% sequentially.

With our funds available for distribution or exceed.

Exceeding our expectations by increasing 2% year over year and 8% sequentially. These quarterly results were driven by a number of factors, including a stable cash collection rate record deferral repayments of $2 3 million discrete catch up payments of $1 million from.

Speaker 3: These quarterly results were driven by a number of factors, including a stable cash collection rate, record deferral repayments of 2.3 million, discrete catch-up payments of 1 million from two cash-basis tenants for past due rent, and no unexpected rent concession.

<unk> cash basis tenants for past due rent and no unexpected rent concessions on.

Speaker 3: Operating metrics in the real estate investment and shop segments continue to trend higher, which bolsters our confidence in the organic growth opportunities.

Operating metrics and the real estate investment in shop segments continue to trend higher which bolsters our confidence in the organic growth opportunities given.

Speaker 3: Given the outperformance in the third quarter and current visibility into the fourth quarter, we are increasing our FAD guidance for the year. John will provide more details in a few minutes.

Given the outperformance in the third quarter and current visibility into the fourth quarter, we are increasing our guidance for the year John will provide more details in a few minutes.

Speaker 3: The foundation for the higher results this quarter is the hard work of our operating partners who continue to make steady improvement in operating fundamentals.

The foundation for the higher results this quarter as the hard work of our operating partners, who continue to make steady improvement in operating fundamentals EBIT dorm coverage.

Speaker 3: keep the dorm coverage increased sequentially across all asset classes and largest tenants.

Increased sequentially across all asset classes and largest tenants Bickford for instance has pushed trailing 12 month rent coverage to 1.45 times and we're happy to see that their sales focus continue to drive average occupancy gains through the third quarter.

Speaker 3: Pickford, for instance, has pushed trailing 12-month rent coverage to 1.45 times, and we're happy to see that their sales focus continued to drive average occupancy gains through the third quarter, including 85.2% in September . The highest it spends.

Including 85, 2% in September.

The highest it's been since the start of the pandemic.

Speaker 3: Bitford repaid over 750,000 in deferrals during the quarter, and we expect a similar or higher amount in the fourth quarter.

Bickford repaid over 750000 deferrals during the quarter and we expect a similar or higher amount in the fourth quarter.

The portfolio's optimization, particularly within our needs driven senior housing portfolio. Excluding bickford continues to bear fruit with coverage improving for the seventh straight quarter to 1.19 times on a trailing 12 basis.

Speaker 3: The Portfolio's optimization, particularly within our needs driven, senior housing portfolio excluding Bigford, continues to bear fruit with coverage improving for the seventh straight quarter to 1.09 times on a trailing 12 basis.

Speaker 3: While this coverage is below our comfort level, we're generally encouraged by the trends. These operators repaid deferrals of approximately 1.4 million in the third quarter, which we believe is a good indication that operations continue to improve.

While this coverage is below our comfort level, we're generally encouraged by the trends.

These operators repaid deferrals of approximately $1 4 million in the third quarter, which we believe is a good indication that operations continue to improve.

Speaker 3: The entrance fee and skilled nursing portfolios, which contribute approximately 60% of our NOI, continue to generate great results. And this is our expectation for the foreseeable future.

The entrance fee in skilled nursing portfolios, which contribute approximately 60% of our NOI continue to generate great results and this is our expectation for the foreseeable future.

Our senior housing portfolio or shop has certainly had its fair share of challenges and is not generating the performance, we would've expected up to this point.

Speaker 3: Our senior housing portfolio or shop has certainly had its fair share of challenges and is not generating the performance we would have expected up to this point.

That said, we are starting to see more consistency with three straight quarters of operating and financial gains.

Speaker 3: We're very happy with the momentum in occupancy, which has now grown for seven straight months to 81.2% in September . That is an increase of over 600 basis points from the February low and the highest reported month since November of 2021.

We're very happy with the momentum in occupancy, which has now grown for seven straight months to 81, 2% in September.

That is an increase of over 600 basis points from the February low and the highest reported month since November of 2021.

Speaker 3: The preliminary October results show that occupancy continued to move higher as well.

Preliminary October results show that occupancy continued to move higher as well.

Speaker 3: Shop is an important vehicle for organic growth and serves as a platform for external opportunities. So we're committed to dedicating the resources necessary to make these communities best in class.

Sharp is an important vehicle for organic growth and serves as a platform for external opportunities. So we're committed to dedicating the resources necessary to make these communities best in class.

We announced last night that we are amending discovery senior Living's leases on eight properties and we continue to work closely with other tenants, particularly our cash basis tenants to optimize their cash flows.

Speaker 3: We announced last night that we are amending discovery senior living's leases on eight properties, and we continue to work closely with other tenants, particularly our cash-basis tenants, to optimize their cash flows.

Speaker 3: To that end, we completed the sale of three properties last week, and I've just one remaining property currently held for sale. I want to remind investors that two years ago, I said we would be selling up to 400 million of underperforming real estate assets. We're substantially complete with that process, and I point to our improved coverage as the positive results of these efforts.

To that end, we completed the sale of three properties last week and I have just one remaining property currently held for sale.

I want to remind investors that two years ago, I said, we would be selling up to $400 million of underperforming real estate assets, we're substantially complete with that process and I point to our improved coverage as the positive results of these efforts.

The balance sheet continues to position NHI for growth with leverage at just four four times and over $500 million and available liquidity, we have ample capacity to deploy without the immediate need for equity.

Speaker 3: The balance sheet continues to position NHI for growth, with leverage at just 4.4 times and over 500 million in available liquidity, we have ample capacity to deploy without the immediate need for equity.

Speaker 3: Not surprisingly, the interest rate environment has had a clear impact on the financial markets. The dearth of capital and looming debt maturities should favor well capitalized reats like NHI.

Not surprisingly the interest rate environment has had a clear impact on the financial markets, the dearth of capital and looming debt maturities should favor well capitalized Reits like NHI.

Speaker 3: We will be patient and stay focused on our organic opportunities, including the monetization of our 34 million and outstanding deferral balances, and the significant upside in the shop portfolio.

We will be patient and stay focused on our organic opportunities, including the monetization of our $34 million in outstanding deferral balances and the significant upside in the shop portfolio.

Speaker 3: We know that many of our pipeline discussions over the last year has sellers perpetually about 100 paces points behind the changes everyone is seeing in the cost of capital.

We note that many of our pipeline discussions over the last year has sellers perpetually about 100 basis points behind the changes everyone is seeing in the cost of capital.

Speaker 3: That was the case this last quarter as the 10-year Treasury hit 5%.

That was the case this last quarter as the 10 year Treasury hit 5%.

Speaker 3: We think there is an ungrounded optimism that the cost of capital increases are temporary, and we're regularly advising customers to make sure they live to fight another day.

We think there is an ungrounded optimism that the cost of capital increases are temporary and we are regularly advising customers to make sure. They live to fight another day.

Speaker 3: They should be realistic about the higher for longer cost of capital and the growing ill liquidity in senior housing and carefully choose a partner that will work with them towards their success in the long run.

They should be realistic about the higher for longer cost of capital and the growing liquidity and senior housing and carefully choose a partner that will work with them towards their success in the long run.

Speaker 3: In some, we've made great strides to enhance the quality of our portfolio while maintaining our strong financial discipline. As industry fundamentals continue to become more favorable, NHIs in a great position to participate in what we expect to be many years of exceptional future growth. I'll now turn the call over to Kevin to provide more details on our operations. Kevin.

In sum, we've made great strides to enhance the quality of our portfolio, while maintaining our strong financial discipline as industry fundamentals continue to become more favorable NHI is in a great position to participate in what we expect to be many years of exceptional future growth.

Now I'll turn the call over to Kevin to provide more details on our operations Kevin.

Speaker 4: Thank you Eric. I'll concentrate my comments on investment and disposition activity, as well as the performance or major asset classes and operators.

Thank you Eric I'll concentrate my comments on investment and disposition activity as well as the performance of our major asset classes and operators.

Speaker 4: We closed on the sale of four properties for net proceeds of 8.3 million plus 1.6 million in seller financing in the third quarter and to date in the fourth quarter.

We closed on the sale of four properties for net proceeds of $8 3 million plus $1 $6 million in seller financing in the third quarter and to date in the fourth quarter.

Speaker 4: These underperforming properties were formerly leased by two cash-bases tenants, which now puts them in better financial health thereby improving coverage, limiting future rent concessions, and accelerating deferral repayments.

These underperforming properties were formerly leased by two cash basis tenants, which now puts them in better financial health, thereby improving coverage limiting future rent concessions and accelerating deferral repayment.

Speaker 4: We currently have one property held for sale, which we expect to sell by the end of 2023 or early 2024.

We currently have one property held for sale, which we expect to sell by the end of 2023 early 2024.

Speaker 4: During the third quarter, we amended a loan with CFG that increased the balance from $8.1 million to $25 million and increased the rate from 9% to 10%.

During the third quarter, we amended alone with PFG that increased the balance from $8 1 million to $25 million and increased the rate from 9% to 10%.

Speaker 4: We are reviewing several new and recycled pipeline deals that would be immediately accretive. As Eric noted, though, the interest rate environment has added more friction to the process. Fortunately, we are buyers today with plenty of capital to deploy and expect that our patients will be rewarded.

We are reviewing several new and recycled pipeline deals that would be immediately accretive as Eric noted, though the interest rate environment has added more friction into the process. Fortunately we are buyers today with plenty of capital to deploy and expect that our patients will be rewarded.

Shifting to asset management.

Speaker 4: Overall, we had a very successful third quarter with strong cash collections driven primarily by record deferral repayment.

Overall, we had a very successful third quarter with strong cash collections, driven primarily by record deferral repayments continued occupancy and margin gains across our real estate investments segment.

Speaker 4: continued occupancy and margin gains across the real estate investment segment and encouraging shop performers.

An encouraging shop performance.

Speaker 4: With industry trends steadily improving, we are seeing fewer tenant issues, which is allowing our team to shift more resources to the few remaining challenges.

With industry trends steadily improving we are seeing fewer tenant issues, which is allowing our team to shift more resources to the few remaining challenges.

Speaker 4: This is evident in the significant sequential improvement from the second quarter.

This is evident in the significant sequential improvement from the second quarter.

Yes.

Speaker 4: Reviewing the need-driven platform, which is 29% of annualized cash NOI, we again saw positive trends with coverage at 1.26 times, representing the sixth straight quarter of sequential growth.

Reviewing the need driven platform, which is 29% of annualized cash NOI. We again saw positive trends with coverage at 126 times, representing the sixth straight quarter of sequential growth.

Occupancy has been improving year over year and sequentially and our operators expect resident freight growth to remain above average in the 6% to 8% range.

Speaker 4: Occupancy has been improving year-over-year and sequentially, and our operators expect resident rate growth to remain above average in the 6% to 8% range.

Speaker 4: The coverage increase was driven in large part by Bigford at 1.45 times on a trailing 12-month basis.

The coverage increase was driven in large part by Bickford at 145 times on a trailing 12 month basis.

The bickford occupancy trends have been excellent.

Speaker 4: Third quarter average occupancy was up 220 basis points sequentially to 84.2% while September occupancy at 85.2% represents a 400 basis point gain from the April 2023 low.

Third quarter average occupancy was up 220 basis points sequentially to 84, 2% while September occupancy at 85, 2% represents a 400 basis point gain from the April 2023 low.

Speaker 4: Agency utilization is down significantly, which is helping to mitigate wage inflation and build company culture.

Agency utilization is down significantly, which is helping to mitigate wage inflation and build company culture.

Speaker 4: Bigford's EBITDARM coverage for the trailing 12 months, which better reflects the more recent performance, was 1.61 times in the third quarter.

Bickford EBITDAR coverage for the trailing 12 months, which better reflects the more recent performance was $1 six one times in the third quarter.

Big deferral repayments are based on achieving financial performance hurdles, which we think is a good alignment of interest and allows NHI to participate more directly in the company's recovery.

Speaker 4: Big deferral repayments are based on achieving financial performance deferrals, which we think is a good alignment of interest and allows NHI to participate more directly in the company's recovery.

Speaker 4: This has proved a successful strategy so far as Bigford's repayments have increased every quarter.

This has proved a successful strategy. So far has baked foods repayments have increased every quarter.

Speaker 4: We do have a scheduled rent reset on April 1st next year in our early stage discussions to amend the existing terms.

We do have a scheduled rent reset on April one next year in our early stage discussions to amend the existing terms.

Speaker 4: Regardless of the outcome, we expect that our Bigford-related rental income grows in 2024.

Regardless of the outcome, we expect that our bickford related rental income grows in 2024.

Aside from Vicksburg coverage is increasing across the other 37, new driven properties, we reported coverage at one nine times, which is the highest since the second quarter of 2020, and the seventh straight quarter of sequential improvement.

Speaker 4: Aside from Bigford, coverage is increasing across the other 37 need-driven properties.

Speaker 4: We reported coverage at 1.09 times, which is the highest since the second quarter of 2020 and the seventh straight quarter of sequential improvement.

Speaker 4: This is certainly encouraging, but some tenants continue to require some financial assistance. As described in our press release, we are in negotiations with affiliates of Discovery Senior Living related to our master lease on six properties that was scheduled to reset on November 1st and individual leases on two other properties.

This is certainly encouraging but some tenants continue to require some financial assistance as described in our press release, we are in negotiations with affiliates of discovery senior living related to our master lease on six properties that was scheduled to reset on November one and individual leases on two other properties.

Speaker 4: While still subject to change, we are currently expecting to delay the rent reset on the master lease and temporarily reduce rent on the other two properties, resulting in a 10 to 12 percent reduction in Discoveries 2024 base rent.

While still subject to change we are currently expecting to delay the rent reset on the master lease and temporarily reduce rent on the other two properties, resulting in a 10% to 12% reduction in discovery's 2020 for base rent.

Speaker 4: Similar to the current Bigford Agreement, deferral repayments are expected to be tied to financial performance to better align NHI with improving fundamentals.

Similar to the current Bickford agreement deferral repayments are expected to be tied to financial performance to better align NHI with improving fundamentals.

Continuing with our discretionary senior housing portfolio.

Speaker 4: Continuing with our discretionary senior housing portfolio, this group accounts for 29% of adjusted NOI, including 26% from entrance fee communities.

This group accounts for 29% of adjusted NOI, including 26% from entrance fee communities.

Speaker 4: SLC, our largest tenant, increased coverage sequentially to 1.31 times from 1.28 times driven by another solid quarter of entrance fee sales.

SLC, our largest tenant increase covered sequentially to $1 three one times from one to eight times driven by another solid quarter of entrance fee sales.

Speaker 4: Discretionary coverage excluding SLC, which largely reflects the performance of our other entrance fee communities, improves sequentially to 1.5 times from 1.34 times. This was driven by strong entrance fee sales during the second quarter, which more than offset higher entrance fee refunds at a couple of properties that we mentioned in our last conference call.

Discretionary coverage, excluding SLC, which largely reflects the performance of our other entrance fee communities improve sequentially. The one five times from 134 times. This was driven by strong entrance fee sales during the second quarter, which more than offset higher entrance fee refunded a couple of properties that we mentioned in our last conference call.

The sniff and specialty hospital portfolio, which represents 35% of annualized adjusted NOI reported solid coverage at 262 times, which improved sequentially from $2 four eight times. The move higher was generally across the portfolio driven primarily by NHS coverage at 329 times.

Speaker 4: The SNF and specialty hospital portfolio, which represents 35% of annualized adjusted NOI, reported solid coverage of 2.62 times, which improved sequentially from 2.48 times.

Speaker 4: The move higher was generally across the portfolio, driven primarily by an HC's coverage of 3.29 times up from 3.02 times.

<unk> up from three two times.

The one snip operator that received a rent deferral has now fully repaid the bonds.

Speaker 4: The one SNF operator that received a rent deferral has now fully repaid the balance. We are communicating frequently with our SNF operators to better understand the potential impact of the proposed staffing mandate and action plan.

We are communicating frequently with significant raters to better understand the potential impact of the pros of staffing and date and action plan.

Speaker 4: The proposed rule, while still onerous, was better than feared, especially with the year time frame to prepare.

The proposals will while still onerous, but was better than me here, especially with the year timeframe to prepare.

Speaker 4: Give the wrong coverage and exceptional operators in our report portfolio that are constantly adjusted to adjusting to government relations. We did not expect this ruptured and that.

Given your strong courage and exceptional operators in our portfolio that are constantly adjusted adjusting tissue regulations, we didn't do not epics expect disruptive and staff and data.

Speaker 4: in our shop portfolio, we are generating sustained operating and financial improvement throughout the portfolio with our partners, Discovery and Merrill Gardens.

Late in our shop portfolio, we are generating sustained operating and financial improvement throughout the portfolio with our partners discovery and Merrill Gardens.

As detailed in the earnings press release monthly occupancy has been building momentum since February.

Speaker 4: As detailed in the earnings press release, monthly occupancy has been building momentum since February .

Speaker 4: The shop average third quarter occupancy increased 350 basis points at 79% and ended on a strong note with September occupancy at 81.2%.

The shop average third quarter occupancy increased 350 basis points to 79% and ended on a strong note with September occupancy at 81, 2%.

Speaker 4: This is setting up for a positive fourth quarter, as preliminary results indicate further gains in October occupancy to 82.2%.

This is setting up for a positive fourth quarter as preliminary results indicate further gains in October occupancy to 82, 2%.

The third quarter NOI margin improved sequentially by 90 basis points to 18, 8% driven by four 9% resident revenue growth.

Speaker 4: The third quarter NOI margin improved sequentially by 90 basis points to 18.8 percent, driven by 4.9 percent resident revenue growth and a 3.7 percent increase.

And a three 7% increase in operating expense.

Speaker 4: Our focus is ten years to be on driving on to the T-Tyre, which is as limited up for a road.

Our focus continues to be on driving occupancy higher which has limited up for growth.

Speaker 4: As the early effects of discount start to fall off, we expect the operating margin growth rate to give significant operating leverage in the independent living market.

As the early effects of did not start to fall off we expect our operating margin growth.

Inefficient and operating leverage in the independent living.

Speaker 4: Our term view is that Fort Boyd can generate NOI dollars on a high IT team on a margin where 30% range has remained unchanged.

Long term view of the portfolio to generate NOI dollar amount of high teens on margins in the 30% range remained unchanged.

Speaker 4: On that, I'll turn it all over to John to discuss the actual results of this. John . Thank you, Kevin. And hello, everyone.

I will now I will turn call over to John.

Scott actual results since John.

Thank you Kevin.

And Hello, everyone.

Speaker 3: For the quarter ended September 30th, 2023, our net income, Navy'd FFO, and normalized FFO or deleted common share were 68 cents, a dollar eight, and a dollar eight for share, respectively.

For the quarter ended September 32023, our net income NAREIT <unk> and normalized <unk> per diluted common share were <unk> 68.

$1, eight and $1 eight per share respectively.

For the third quarter, <unk> was $48 $2 million.

Speaker 3: For the third quarter, our FAB was $48.2 million.

Speaker 3: Our third quarter FAD increased by $3.6 million compared to the second quarter of 2023. When compared to the second quarter of 2023, third quarter FAD included $2.3 million of deferral repayments, which was an increase of $1.6 million.

Our third quarter F&B increased by $3 6 million compared to the second quarter of 2023, when compared to the second quarter of 2023 third quarter included $2 $3 million of deferral repayments, which was an increase of $1 6 million.

Speaker 3: The third quarter also benefited from a receipt of 1 million of discrete payments from two tennis on the cash basis of accounting. 800,000 in lower rent confessions and 300,000 in higher interest income.

Third quarter also benefited from the receipt of $1 million in discrete payments from two tenants on the cash basis of accounting.

800000, and Laura rent concessions and 300000 and higher interest income.

The shop portfolio NOI improved modestly to $2 3 million in the third quarter from $2 1 million in the second quarter of 2023.

Speaker 3: The shop portfolios and OI improved modestly to 2.3 million in a third quarter from 2.1 million dollars in the second quarter of 2023. The shop cap X increased by approximately 450,000 so the impact to FAD was a decrease of $200,000.

Shop Capex increased by approximately 450000, so the impact to <unk>.

It was a decrease of $200000.

Speaker 3: We also benefited from lower expected franchise tax expense, which is $250,000 lower in Q3 compared to Q2, and will continue to benefit our results through the end of the year.

We also benefited from lower expected franchise tax expense, which was 250000 lower in Q3 compared to Q2, and we will continue to benefit our results through the end of the year.

Yes.

Speaker 3: I want to mention two items today, which we'll be talking more about as we end the year and issue our 2024 guidance in February .

I want to mention two items today, which we'll be talking more about as we end the year and issue our 2024 guidance in February.

Speaker 3: First, we recognize rents from cash basis tenants as received, which include any repayments of deferrals.

First we recognize rents from cash basis tenants has received which include any repayments of deferrals.

Speaker 3: And which impact net income, FFO and FAD one collector.

Which impact net income SSO and F&B when collected.

Speaker 3: For all other tenants, rental income, including any outstanding deferrals collected, is recognized on a straight line.

For all other tenants rental income, including any outstanding deferrals collected is recognized on a straight line basis that means any repayment of deferrals collected in advance of when contractually owed will positively impact.

Speaker 3: That means any repayment of the furlce collected in advance of one contractually owned will positively impact FAD in the period received but have no effect on our net income or FFO metrics.

In the period received but have no effect on our net income or <unk> metrics remember.

Speaker 3: GAAP rental income generally remains consistent from period to period.

GAAP rental income generally remains consistent from period to period.

Speaker 3: So the increased cash collected is therefore offset by a corresponding decrease in the straight-line rent revenue component.

So the increased cash collected is therefore offset by a corresponding decrease in the straight line rent revenue component.

Speaker 3: Of the previously mentioned $2.3 million in Q3 deferral collections, approximately $1 million was collected in advance of when contractually owed, thus benefiting FAD but not net income or the FFO metric.

As I previously mentioned $2 3 million in Q3 deferral collections approximately $1 million was collected in advance of when contractually up thus benefiting <unk>.

And that net income or any <unk> metrics.

Speaker 3: Second, in the past, the company's new lease investment activity helped offset the eventual negative non-cash revenue impacts. The generally a per se leases in the second half of their lease.

Second in the past the Companys new lease investment activity helped offset the eventual negative noncash revenue impacts that generally occurs releases in the second half of their lease terms.

Speaker 3: Base cash rent collected in the second half of a customer's lease term will exceed the gap rental income amount, resulting in negative non-cash straight-line rental income.

Base cash rent collected in the second half of a customer's lease term will exceed the GAAP rental income amount, resulting in a negative noncash straight line rental income.

Speaker 3: For example, the straight line rents received as well as those you ever seen are living communities was approximately $40 million as a September 30.

For example, the straight line rents receivable associated with senior living communities was approximately $40 million as of September 30.

Speaker 3: Senior living communities, plus an increasing number of our leases, are entering the second half of their lease lives and will be generating increasingly more negative non-cash straight line rental income, which represents a reversal of the collection of a built-up straight line rent receivable.

Senior living communities, plus an increasing number of our leases are entering the second half of their lease lives and will be generating increasingly more negative noncash straight line rental income.

Which represents a reversal of the collection of adult up straight line rent receivables.

Speaker 3: absent lease modifications or new leasing activity with minimum rent escalators, we expect the company will have negative non-cash straight-line rental income resulting in a growing negative variance between our FFO and FAD metrics.

Absent. These modifications are new leasing activity with minimum rent escalators, we expect the company will have negative noncash straight line rental income, resulting in a growing negative variance between our SSO MFA metrics.

Turning to the quarter's dispositions during the third quarter, we sold one property for $2 9 million in net proceeds and a $600000 gain.

Speaker 3: During the third quarter, we sold one property for $2.9 million in net proceeds and a $600,000 gain.

Speaker 3: Subsequent to the end of the third quarter, we close on the sale of three additional properties for $5.4 million in net proceeds, plus $1.6 million in seller financing, yielding 9% on one of the transactions.

Subsequent to the end of the third quarter, we closed on the sale of three additional properties for $5 $4 million in net proceeds plus $1 $6 million in seller financing, yielding 9% on one of the transactions.

Speaker 3: And H.A. currently has one property classified as helper sale with a netbook value of $5 million and a contractual fourth quarter rent of approximately $300,000.

Hey, Chad currently has one property classified as held for sale with a net book value of $5 million and a contractual fourth quarter rent of approximately $305.

Last night, we updated our full year 2023 guidance our guidance reflects the repayment of prior deferral balances consistent with levels experienced in the first nine months of 2023 are approximately $1 million.

Speaker 3: Our guidance includes continuing asset dispositions and loan repayments, additional rent concessions, and continuing fulfillment of our existing commitments, but it does not include any additional unidentified investments.

Our guidance includes continued in asset dispositions and loan repayments additional rent concessions and continuing fulfillment of our existing commitments, but it does not include any additional identified investments.

Speaker 3: Finally, our guidance also includes the impacts due to the discovery lease amendments through the end of the year.

Finally, our guidance also includes the impacts due to the discovery lease amendments through to the end of the year.

Speaker 3: In February , we'll have more to say on these amendments when we issue our 2024 guidance.

In February we will have more to say on these amendments when we issue our 2020 for guidance.

Speaker 3: We increased our FAD guidance to a range of $186 to $187.6 million. This slight increase is driven primarily by higher-than-forecasted deferral repayments and collections from two gas-basis tenants, lower-than-expected rent concessions, and higher interest income, primarily from the amended CFG loan agreement, lower franchise tax expense, offset by higher interest.

We increased our <unk> guidance to a range of 186 to $87 6 million.

The slight increase is driven primarily by higher than forecasted deferral repayments and collections from two cash basis tenants or than expected rent concessions and higher interest income primarily from the amended CFC loan agreement Laura franchise tax expense offset by higher interest expense.

Speaker 3: We focus a great deal on our FAD results because we feel FAD provides a better picture into our operating cash flow, including routine capital expenditures, and our share of the cash flow is generated from our uncomsolidated activities, all of which support our dividends.

We focus a great deal on our GAAP results, because we feel F&B provides a better picture into our operating cash flow, including routine capital expenditures and our share of the cash flows generated from our unconsolidated activities all of which support our dividend.

Speaker 3: We also adjusted the range for our normalized FFO to a range of 185.6 to $187 million.

We also adjusted the range for our normalized <unk> to a range of $185 $6 million to $187 million on a per share basis. This equates to a midpoint of $4 30.

Speaker 3: On a per share basis, this equates to a midpoint of $4.30.

Speaker 3: The updated normalized FFO guidance reflects improved cash basis in deferred rent collections as well as a reduction in straight-line revenue due to the acceleration of contractual deferred rents collected early, and an increase in the credit loss reserve related to one non-performing loan.

The updated normalized <unk> guidance reflects improved cash basis, and deferred rent collections as well as a reduction in straight line revenue due to the acceleration of contractual deferred rents collected early <unk>.

And an increase in the credit loss reserve related to one nonperforming loan.

Remember, we recognize the expense and income due to changes in our credit loss reserves and all of our <unk> metrics metrics, which inc, which creates increased volatilities in these metrics from time to time.

Speaker 3: Remember, we recognize the expense and income due to changes in our credit loss reserves in all of our FFO remetra.

Speaker 3: which creates increased volatility in these metrics from time to time.

When compared to our initial February 2023 midpoint guidance for NAREIT, <unk> and normalized <unk> or November mid points provided last night, our <unk> and <unk> higher.

Speaker 3: When compared to our initial February 2023 midpoint guidance for NARATE FFO and normalized FFO, our November midpoints provided last night are 8 cents and 3 cents higher.

Speaker 3: While we saw some volatility in our guidance this year, we continue to be focused on overdelivery.

While we saw some volatility in our guidance. This year, we continue to be focused on over delivery.

Speaker 3: For the third quarter, our leverage ratio was 4.4 times net debt to adjusted EBITDA, a slight improvement from 4.6 times in the second quarter.

For the third quarter, our leverage ratio was four four times net debt to adjusted EBITDA, a slight improvement from four six times in the second quarter at.

Speaker 3: At the end of October , we had $194 million outstanding on our $700 million revolver, providing ample liquidity of over 500 million cash and revolver availability.

At the end of October we had $194 million outstanding on our $700 million revolver, providing ample liquidity of over $500 million of cash and revolver availability.

Speaker 3: We also have a full 500 million available under ATM program.

We also have a full $500 million available under our ATM program.

Speaker 3: On November 3rd, we paid off $50 million of maturity private placement notes using our revolver.

On November 3rd we paid off $50 million of maturity private placement notes using our revolver.

Speaker 3: As previously mentioned on prior calls and after this retirement, our variable interest rate debt today represents approximately 39 percent of our total debt capital stack.

As previously mentioned on prior calls and after this retirement.

Our variable interest rate debt today represents approximately 39% of our total debt capital stack.

Speaker 3: Our strategy continues to be to look to a new long-term debt issuance that will improve our average debt maturities in the next year.

Our strategy continues to be to look to a new long term debt issuance that will improve our average debt maturities in the next year.

Speaker 3: In the meantime, we are benefiting from our balance sheet's low leverage to offset the negative impacts from higher-than-longer short-term interest rates.

In the meantime, we are benefiting from our balance sheet low leverage to offset the negative impacts from higher than longer short term interest rates.

Speaker 3: Finally, a third quarter FAD payout ratio was 81.1%.

Finally, our third quarter Fad payout ratio was 81, 1%.

Speaker 3: As we announced last night, our Board of Directors declared a 90-cent-per-share dividend for shareholders of record December 29, 2023 and payable on January 26, 2024.

As we announced last night, our board of directors declared a <unk> 19 per share dividend for shareholders of record December 29, 2023 and payable on January 26 2024.

Speaker 3: That concludes our prepared remarks, so once again, thank you for joining our call today. With that, operator, please open the lines for questions.

That concludes our prepared remarks, so once again, thank you for joining our call today with that operator, please open the lines for questions.

Thank you.

Speaker 4: If you would like to register a question, please press the one-four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered, then you would like to withdraw your registration, please press the one, followed by the three. Once again, to register a question, please press the one-four on your telephone. One moment please, for the first question.

If you would like to register a question. Please press the one four on your telephone you will hear at <unk> problem to acknowledge your request.

Your question has been answered then you would like to withdraw your registration. Please press. The one followed by the three once again to register a question. Please press the one four on your telephone.

One moment please for the first question.

Speaker 5: This question comes from Juan Sanabria with BMO Capital Markets, please proceed.

Our first question comes from Juan Sanabria with BMO capital markets. Please proceed.

Speaker 3: Good morning, guys, just wanted to ask about discovery. Kevin gave some parameters on the potential decrease.

Good morning, guys.

Just wanted to ask about discovery.

Kevin gave some parameters on the potential decrease in.

Speaker 6: in rents. But you're curious how large the contractual in place rents are today. Is the lease and a couple of assets being discussed represent all of your tripplement exposure to discovery that's outlined in kind of the pie.

And rents.

But just curious how large the contractual in place rents are today.

Is the lease in a couple of assets being discussed represent all of your triple net exposure to discovery that's outlined in Canada.

Pi.

Speaker 6: And kind of a part two of this question is, can you quantify the potential other tenants in terms of size of rents that are being discussed as kind of the last drips and draps of dealing with some of the.

And.

Part two of this question is can you quantify the potential other.

Tenants in terms of size of rents that are being discussed.

Last drips and drabs.

Dealing with some of the Covid adjustments.

Speaker 4: Sure. Hey, Juan, this is Kevin. Just to make sure I understand your question. I mean, so as we said, we have eight buildings with them. They represent about 4% of revenues. We're looking at a modest reduction on the.

Sure Hey, Ron This is Kevin just to make sure I understand your question.

So as we said we have eight buildings with them they represent about 4% of revenues.

We're looking at a modest reduction on the.

Speaker 4: you know, on the cash pay side with some upside on revenues to, as they continue to improve, I think I would highlight as they have been able to improve both occupancy on our triple net and our shop side.

On the cash pay side with some upside on.

Revenues too.

As they continue to improve and the one thing I would highlight as they have been able to to improve both occupancy on our triple net and our shop side.

But again I want to make sure Im answering more specifically the question you had an order of magnitude was what again.

Speaker 6: But again, I want to make sure I'm answering more specifically. The question you had in order of magnitude was what again? No, I just wanted to make sure that the 10th is well percent reduction, you kind of highlighted was applicable to the full 4% of revenues that Discovery represents and not a subset. So that answers it. I guess the part B was...

I just wanted to make sure that the 10% to 12% reduction you've kind of highlighted was applicable to the four 4% of revenues that discovery represents.

So that answers and I guess, the part B was.

Speaker 6: I think there was an illusion to maybe some other smaller tent that may need to have some sort of reduction whether temporary or permanent. How big that potentially could be just to quantify the potential net impact from the third quarter run rate.

There was an illusion to maybe some other smaller tenants that may need to have some sort of reduction whether temporary or permanent how big that potentially could be.

Quantify the potential net impact from the third quarter run rate.

Speaker 4: I guess the way I would characterize that is more around looking at the coverage that was in place being at the 1.09 times exclusive of Bigford. While things have improved quarter over quarter, it's not exactly where we want things to be.

I guess the way I would characterize that as more around looking at the coverage that was in place being at the one nine times exclusive bickford.

Things have improved quarter over quarter.

Not exactly where we want things to be so while I would say that theres not one specifically that we're overly concerned about it as more of I would call an allowance for doubtful accounts, where you have a little bit of a reserve.

Speaker 4: So while I would say that there's not one specifically that we're overly concerned about, it's more of a, I'd call an allowance for doubtful accounts where you have a little bit of a reserve. We've seen that number come down significantly. As we talked about this quarter, we didn't have any unscheduled concessions.

Seen that number come down significantly as we talked about this quarter, we didn't have any unscheduled concessions.

So we're I think we're on the right trajectory. We're also just being cautious in the way, we're managing the portfolio and communicating with the street.

Speaker 4: So I think we're on the right trajectory. We're also just being cautious in the way we're managing the port polio and communicating with the street.

And then on the shop business just curious if you could talk about the rate environment.

Speaker 6: And then on the shop business, just curious, some if you could talk about the rate environment to drive the new customer volumes. It's a occupancy really ramp up in kind of how the two operatives discover in Merrill Garland, you're thinking about annual rate increases versus last year, just to give us a sense of again, how pricing is changing.

To drive the new customer volumes, its occupancy really ramp up and kind of how the two operators discovery Merrill gardens, you're thinking about annual rate increases versus last year, just to give us a sense of again, how pricing is changing.

Speaker 4: Sure. I mean, as we've highlighted, the priority has really been to get occupancy up. So if you look at our published materials, you see that the REVPOR is up slightly, but fairly flat. So it's been a push to get the occupancy. I would characterize the pricing that's been in place as...

Sure.

<unk> highlighted.

The priority has really been to get occupancy up. So if you look at our published materials you see that the Revpar is up slightly but fairly flat. So it's been a push to get the occupancy.

I would characterize the pricing thats been in place as more one time concessions to get those so we will still have our normal increases were in our budgeting process now I would expect on the whole that youll see something along the lines of what I mentioned in my prepared remarks in terms of in place.

Speaker 4: more one-time concessions to get those, so we'll still have our normal increases. We're in our budgeting process now. I would expect, on the whole, that you'll see something along the lines of what I mentioned in my prepared remarks in terms of in-place increases, but the fact of the matter is that we're still, again, trying to push that occupancy and using some

Increases, but the fact of the matter is is that we're still.

Again trying to push that occupancy and using some.

Speaker 4: one time incentives to get occupancy up which will I would think will keep Rev for a little bit flatish for the near term.

One time incentives to get occupancy up which will I would think we will keep rev for a little bit flattish for the near term.

Speaker 6: Okay, great. And then just one last one, if you wouldn't mind, Bigford, we talked about in the past with regards to their credit profile outside of NHGINs and stresses they've had. Any latest thoughts on how that stands and risks to the Yacht Co. Are giving again, debt outside of the NHGINs?

Okay, Great and then just one last one.

Bickford.

We've talked about in the past with regards to their credit profile outside of NHI and some stresses they've had any latest thoughts on.

On on how that storms and risk to the opco, given again that outside of DNA Charlie's.

Speaker 4: Sure, this is Kevin again. I think as we've articulated in prior halls.

Sure. This is Kevin again, I think as we've articulated in prior calls.

Speaker 4: They do have some owned properties that have bank financing on them. So...

They do have some owned properties that have.

Bank financing on them so.

Speaker 4: Again, as we've acknowledged the banking environment is difficult right now. Rates are going up that does put a little bit of pressure on the cash flow. But we've worked really hard to...

Again, as we've acknowledged the banking environment is difficult right now rates are going up that does put a little bit of pressure on the cash flow but.

We've worked really hard to effectively silo off our portfolio from those effects.

Speaker 4: Effectively, silo off our portfolio from those effects.

Speaker 4: There are some things that they're still working on in terms of the maturities they have over the next year or so. We'll need to work with their banking partners to extend and modify those loans. I know they're in those discussions right now. So stay tuned. That said, you know, I feel like as we can show in our information, they're on much better footing now and they're headed in the right direction.

There are some things that they are still working on in terms of some maturities. They have over the next year or so we will bill need to work with our banking partners to extend and modify those loans I know they are in those discussions right now so stay tuned that said I feel like as we can show.

Our information there on much better footing now and they're headed in the right direction.

Thank you very much.

Okay.

Speaker 7: Our next question comes from Richard Anderson with what bush. Please proceed. Thanks. Good morning.

Our next question comes from Richard Anderson with Wedbush.

Please proceed.

Good morning.

The situation with <unk>.

From the back.

Speaker 8: Okay. The situation with the discovery, both in the shop and the triple net categories, would you be able to draw a parallel in terms of how they're performing, and, you know, so the reasons why you're kind of giving back.

Okay.

Okay.

The situations discovery.

Both in the shops and the Triple net categories would you be able to draw a parallel in terms of how they're performing.

And so the reasons why you are kind of giving back some some some rent in the triple net space and also how shop is sort of not quite keeping up with the growth profile that you were hoping is it is it sort of a common knitting with discovery and specifically how.

Speaker 8: some rent in the triple net space and also how shop is sort of not quite keeping up.

Speaker 8: growth profile that you were hoping, is it sort of a common knitting with discovery and specifically how they're operating the...

<unk> operating their assets.

Sure Hey, Rich this is Kevin So one thing for discovery I will note as they've they've seen occupancy improvement on both the triple net and the shop side, we've seen more velocity on the shop side. So far this year than we have on triple net.

Speaker 4: Hey, Ritchie, this is Kevin. So one thing for Discovery, I will note is they've seen occupancy improvement on both the triple net and the shop side. We've seen more velocity on the shop side so far this year than we have on triple net.

Speaker 4: that we also had one of our first amendments that we made during the pandemic was in this portfolio where we allowed for a reset. We needed a little more velocity to get to where that rent step up was gonna be. And frankly, the triple net portfolio just hadn't made it yet.

We also had one of our first amendment that we made during the pandemic was in this portfolio, where we allowed for a reset.

We needed a little more velocity to get to where that rent step up was going to be and frankly the portfolio. The triple net portfolio just haven't made it yet.

Speaker 4: So we're looking to just push out that step up for period of time Allow the momentum to continue to build on the

So we're looking to just push out that step up for a period of time.

Allow the momentum to continue to build on the.

Speaker 4: on the occupancy front and then we can reprise. But in the interim, like we did with Bigford, which has worked well, we'll be able to have some revenue participation over a threshold where we start to get some additional deferral repayments. So not what we wanted to see. The fact of the matter is I think some of it's timing. Some of it is just...

On the occupancy front and then we can re price, but in the interim like we did with Bickford, which has worked well we'll be able to have some revenue participation over a threshold, where we start to get some additional deferral repayments. So not what we wanted to see.

Fact of matter is I think some of it's timing some of it is just local markets.

Speaker 4: local markets. We've have seen a lot more occupancy improvement.

<unk> seen a lot more occupancy improvement out of the shop portfolio.

Speaker 4: out of the shop portfolio. I would say furthermore I mean I think Merrill and Discovery are doing a good job on shop.

I would say Furthermore, I mean, I think Maryland discovery are doing a good job on shop.

<unk>.

Speaker 4: You know, Merrill had similar challenges on the front end in terms of gaining occupancy within that portfolio. So...

Merrell had similar challenges on the front end in terms of gaining occupancy within the portfolio. So.

Speaker 4: There are some things we're focused on within that relationship. I don't think, at least as it relates to shop, they're an outlier in terms of their improvement when just benchmarking them against the other operating partner we have there. I think, you know, those properties needed a lot of time and attention to get going in the right direction, and we're finally getting there.

There are some things we're focused on within that relationship.

I don't think at least as it relates to shop. They are an outlier in terms of their improvement when just benchmarking them against the other operating partner we have there I think.

Those properties needed a lot of time and attention to get going in the right direction and we're finally getting there.

Speaker 8: Okay, good enough. So maybe an accounting question for John .

Okay good enough.

So maybe an accounting question for John.

Speaker 8: You mention SLC negative straight line rent and during the second half of their lease term.

You mentioned SLC negative straight line rent and during the second half of their lease term.

Speaker 8: But is that, is, did, you make a comment about negative straight line rent for, for all of the portfolio when you net it all together or just for, for SLC, and maybe a few of us?

Is that did you make any comment about negative straight line rent for all of the portfolio. When you net it all together or just for SLC and maybe a few others.

Speaker 3: No, I was making up a broader comment. But, you know, and...

No.

I was making a broader comment.

And I.

Speaker 3: I just wanted to mention that there's been maybe an assumption that straight line revenue is always positive. So the expectation going forward you should see it flip the negative.

I just wanted to mention that.

There has been maybe an assumption that straight line revenue is always positive so right. The expectation going forward you should see it flip to negative okay.

Speaker 8: Okay, that's good to know for modeling purposes. And then, just so I can recall correctly, you mentioned the $34 million outstanding deferred balance that remains after everything that's happened.

That's good to know for modeling purposes, and then just so I can recall correctly, you mentioned the $34 million outstanding deferred balance that remains after everything that's happened this past quarter I recall when you guys were going through this that you were not recognizing deferred rent in current period.

Speaker 8: Task order, I recall, you know, when you guys were going through this that you were not recognizing deferred rent in current period,

Quarterly results.

Speaker 8: And leaving open, excuse me, the opportunity that you might actually have like a doubling up scenario when you start to get deferred rents paid back in say

And leaving open excuse me the opportunity that you might actually have like a doubling up scenario. When you start to get deferred rents paid back in say third quarter of this year.

Speaker 8: quarter of this year on top of, you know, what present, present tense rent payments. Is that what's going on or did you flip that, that accounting treatment at some point along the way where you're not going to have a doubling up scenario on a go-forward?

On top of what present present tense rent payments is that what's going on or did you flip that that accounting treatment at some point, along the way where youre not going to have a doubling up scenario on a go forward basis.

Speaker 3: So we transitioned from the pandemic relief provisions provided to us.

So we transitioned.

The pandemic relief provisions provided to us.

Speaker 3: you know, to, to, typical Lisa amendment under 842. And so during 20,

Two typical lease amendment under a 42.

So during 2012.

Speaker 3: 22, the very beginning of the year, we started talking about how some of those modifications to the leases would mean that the deferrals were gonna be brought onto our balance sheet through straight line revenues.

<unk> to the very beginning of the year, we started talking about how some of those modifications to the leases.

It would mean that the deferrals are going to be brought onto our balance sheet through straight line revenues now.

Speaker 3: Now we had a lot of things happen at the very beginning of 2022, including the transition of Bickford to cash basis. So we didn't get an opportunity to more publicly sort of pronounce what was happening there. But I think given the results today, we wanted to come back and talk about that again. And basically, you know,

Now we had a lot of things happen at the very beginning of 2022, including the.

Transition of Bickford to cash basis, So we didn't get an opportunity to.

More publicly sort of pronounced what was happening there.

But I think given the results today, we wanted to come back.

And talk about that again and basically.

Speaker 3: Make sure you understand that we have two groups of the forals. We have the forals that we collect from our cash faces tenants.

Make sure you understand that we have two groups of deferrals.

The deferrals that we collect from our cash basis tenants.

Speaker 3: The ones that are sort of variable in nature, those flow through everything from net income to FAD, but we have the referrals that are, you know, a part of our gap revenues that are being brought into our straight line revenues that when we early received them, have no impact on net income or FFO metrics.

One's that are variable in nature those flow through everything from net income to <unk>.

But we have the deferrals that are <unk>.

Part of our GAAP revenues that are being brought into our straight line revenues that when we early received them have no impact on net income or <unk> metrics.

Speaker 8: So we felt like given our, you know, results, this is a great time to come back and readdress this situation and highlight it. And so that's the million that you got early, right? That's right. And then finally for anyone in the room, you know, just a broad question. You've had some success about occupancy lift and senior housing. But if you were to...

So.

We felt like given our results. This is a great time to come back and Readdress this situation and highlight it and so thats the $1 million that you got early right.

Right, Okay, and then finally for anyone in the room.

Just a broad question you have had some success about occupancy lift in senior housing, but if you were to recall, where how you were feeling a year and a half ago would you agree that the.

Speaker 8: a call where how you were feeling a year and a half ago, would you agree that...

Speaker 8: that the low-hanging fruit of occupancy recovery has happened, but it's been really difficult to sort of get back to where we were pre-pendemic. I know everyone talks about this high 80s occupancy level for senior housing. I don't know if there's anything magical about that, except for the fact that it happened be the number pre-pendemic. But do you think that the path to get back to some sort of stabilized number, whatever it is?

The low hanging fruit of occupancy recovery has happened, but it's been really difficult to sort of get back to where we were pre pandemic I know everyone talks about this high <unk> occupancy levels for senior housing I don't know if there's anything magical about that except for the fact that it happened to be the number pre pandemic, but do you.

Think that the path to get back to some sort of stabilized number whatever it is.

Speaker 8: is taking longer than you thought or anyone thought, or is it sort of tracking the way you expected it was going to track, you know, your

Is taking longer than you thought or any thought or is it sort of tracking the way you expected it was going to track a year or two ago.

Hey, Rich this is Eric good question.

Speaker 3: Eric, this is Eric. Good question. I agree there was kind of a head fake last December . When we were talking to our operators, they were sure that there would be a steady drum beat of increased occupancy all year. And if you recall, there was...

I agree there was kind of a head fake lamb.

Last December when we were talking to our operators. They were sure that there would be a steady drumbeat of increased occupancy all year and if you recall there was.

Speaker 3: Another variant more flu and the occupancy kind of lost steam. However, this path...

Another variance more flu and the occupancy kind of lost steam.

However, this past quarter.

Speaker 3: has made me a believer that there is pent-up demand. If you would have told me that we would have over 300 basis points of improvement in our shop portfolio and four or five points of improvement in Bickford in one quarter, I would have.

Has made me a believer that there is pent up demand. If you would've told me that we would have over 300 basis points of improvement in our shop portfolio.

Four five points of improvement in Bickford in one quarter I would have.

Speaker 3: and against that. So I would urge you to suspend your disbelief for another quarter and see what happens if this is a trend.

But against that.

So I would.

Urge you to.

Suspend your disbelief for another quarter and see what happens if this is a trend.

Speaker 8: Okay, suspend it. Thanks very much

<unk>.

Okay suspend it thanks very much.

You are welcome.

Our next question comes from Austin, where Schmidt with Keybanc capital markets. Please proceed.

Speaker 5: Our next question comes from Austin Worshmit with Keybank Capital Markets. Please proceed.

Great. Thanks, good morning, everyone.

Speaker 9: Thanks, good morning everyone. On the $34 million deferral balance, does that include the balance from tenants on a cash and gap basis or?

On the $34 million deferral balance does that include the balance from tenants on a cash and GAAP basis or just just.

Tenants on a cash basis.

So it was Austin Austin.

Speaker 3: So it was Austin, right? Yeah, Austin, hey, this was John again. It's everything.

Hey, this is John again.

It's everything.

That's everything can you give us the breakdown of what percentage that is between cash and GAAP based tenants.

Speaker 9: everything. Can you give us the breakdown of what percentage that is between cash and gap

Speaker 3: Let's work on that. We've been talking about doing just exactly that. But I'm not prepared yet to do that on the call.

Work on that we've been talking about doing just exactly that.

But I'm not prepared yet to do that.

On the call.

No that's fair.

Speaker 9: fair and then just wanted to check the math. So the 10 to 12% decrease in adjusted rent or in the rent for discovery is that about a million dollar decrease and then offset by any future deferral repayments.

And then just wanted to check the math, so the 10% to 12% decrease in adjusted rent and the rent.

For discovery is that about $1 million decrease.

And then offset by any future deferral repayments and then can you also share what the contractual increase was on the master lease with discovery that you intend to push out to a later period.

Speaker 9: And then can you also share what the contractual increase was on the master lease with discovery that you intend to push out to a later period?

Speaker 4: Sure, hey, Austin, this is Kevin. Your math is in the right ballpark there. And then the step up was significantly more hence why we're having to push it out for a period of time. You know, their original lease payment on the master lease portfolio was around. Pastry Bound??.

Sure Hey, Austin. This is Kevin your math is in the right ballpark there.

And then the step up was significantly more hence why we're having to push it out for a period of time.

Their original lease payment on the master lease portfolio was around.

Speaker 4: I believe is about three million dollars more. So I mean there's there's a there's a step up that would have to That was looming that you know, frankly the properties just weren't Ready for and you know, we want to make sure that they get

I believe is about $3 million more so I mean, there is there is a step up that would have to that was looming that frankly the properties just werent.

Ready for and we want to make sure that they get.

Speaker 4: and we're working with our operating partners in an appropriate fashion to get there. So we're looking to move that out for a period of time and let these continue to move on the occupancy front.

Healed and we're working with our operating partners in an appropriate fashion to get there.

So we're looking to move that out for a period of time, but these continue to.

Move on the occupancy front.

That's helpful and then just.

Eric.

Speaker 9: You'd highlighted the shop segment kind of serves as a platform for external opportunities and

You had highlighted the shop segment kind of serves as a platform for external opportunities and you are now a believer.

Speaker 9: you're now a believer uh... and i guess i'm just curious as you talk with the board i guess how close do you think you are to executing on in a shop uh... acquisitions and and

And I guess I'm just curious as you talk with the board I guess, how close do you think you are executing on shop Act.

Acquisitions, and do you feel like Youre able to complete and compete in the market.

Speaker 9: compete in the market for senior housing deals at kind of your existing cost.

For senior housing deals kind of your existing cost of capital.

Speaker 10: I think if we can have one more quarter of positive momentum, like we've demonstrated that that we can get the board there. They're very.

I think if we can have one more quarter of positive momentum like we've demonstrated that.

We can get the board they're very.

<unk>.

Speaker 10: very excited about what's been happening and some of them have even been visiting buildings. So there's an intense level of interest in this as a new growth avenue.

Very excited about what's been happening in some of them have even been visiting buildings.

So there is a.

<unk> level of interest and this is a new growth Avenue.

Yes.

And then can you just kind of comment on your ability to compete today and then also would you looked at new operators to the platform or just expanding with your existing partners and Thats all from me.

Speaker 9: just kind of comment on your ability to compete today and then also you know would you look to add new operators to the platform or just expanding?

Speaker 10: Both. You know, there's a lot of good operators out there that, you know, don't want to sign a lease and we're well aware of that. So if we can partner with them or joint venture with them on better product and better markets, I think that's an exciting way to...

Both.

There is a lot of good operators out there that.

Don't want to sign a lease and we're well aware of that so if we can partner with them our joint venture with them on better product and better markets I think that's an exciting way to.

The growth.

Speaker 5: Our next question comes from Conor Sierurski with Wells Fargo. Please proceed.

Our next question comes from Connor <unk> with Wells Fargo. Please proceed.

Speaker 11: Good morning guys, he's sues on for Connor this morning. Thanks for taking the question. So just on the asset acquisition side, activity for real asset acquisitions and developments has been muted over the past couple of quarters here. So.

Hey, Good morning, guys, Hey answer economy. This morning, thanks for taking the question.

So just on the asset acquisition side.

Activity for real asset acquisitions, and developments has been muted over the past couple of quarters here. So.

Speaker 11: Let's just talk about the more recent trends here, I think before you guys kind of highlighted that there was.

Just talk about the more recent trends I think before you guys kind of highlighted that there was.

Speaker 11: Difficulties in the supply chain kind of getting stuff moving so just

If I can.

Even though supply chain kind of getting stuff moving so just.

Speaker 11: Is that still kind of creating obstacles and just how should we think about you guys, second to foot on the guest pedal here is the end of fourth quarter and 2024?

Is that still kind of creating obstacles and just how should we think about you guys setting second the foot on the gas pedal here in the fourth quarter and 2024.

Sure This is Kevin.

The other issue is just been.

Speaker 4: The other issues have been, as Eric kind of highlighted, the cellars come to grips with.

<unk> kind of highlighted.

Sellers coming to grips with the new cap rate environment. Furthermore.

Speaker 4: the new cap rate environment. Furthermore,

Speaker 4: operations still frankly healing as people or as groups have continued to improve occupancy in a why has followed but I don't I wouldn't think where there's not as much in a why dropping to the bottom line with those incremental residents. So there's a little bit of a pro forma impact that I think a lot of people are wrestling with when they think about what is a community look like on a stabilized basis. So there's a lot of back and forth.

Operation still frankly healing as people are as groups have continued to improve occupancy.

<unk> has followed but I don't I, Wouldnt think where theres not as much NOI dropping to the bottom line with those incremental residents. So theres a little bit of pro forma impact that I think a lot of people are wrestling with when they think about what is our community look like on a stabilized basis, so theres a lot of back and forth.

Speaker 4: between buyer and seller about what the real value is and perspective value. I think we've effectively disabused people of...

Between buyer and seller about what the real value is in perspective value I think we've effectively disabuse people of <unk>.

Speaker 4: looking back to 2019 at this point, which is good, but there's still just some underwriting back and forth. One thing that we've looked at is maybe using some more debt as a vehicle to get into the building or into the deal, so to speak, and let it season a little bit. That way we have our foot in the door when they are ready to truly sell. So we're looking at some different ways to try and get in with some operating partners, both.

Looking back 2019 at this point, which is good but there's still.

Just some underwriting back and forth one thing that we've looked at as maybe using some more debt.

As a vehicle to get it into the building or into the deal so to speak and let it season a little bit.

We have our foot in the door when they are ready to truly sell so we're looking at some different ways to try and get in.

With some operating partners both.

Speaker 4: new and existing, working on different structures that might be appealing to them. There is still that push pull. I think operators are starting to come around to what the new dynamics are. We're also, as Eric Lutitou just being cautious on our underwriting and what the operating fundamentals are going forward.

New and existing.

We're working on different structures that might be appealing to them.

But there is still that push pull I think.

Operator or operators are starting to our sellers are starting to come around to.

What the new dynamics are but we're also as Eric alluded to just being cautious on our underwriting and what the operating fundamentals are going forward.

Speaker 11: Appreciate the call there. And just kind of switching focus to the SNF on the, it was a big lift on the coverage side. You guys are approaching 80% occupancy, although it's reported a normal quarter lag. Any moving parts or tenant specific situations that led such a healthy sequential improvement there? And what's the latest you're hearing from your operators in the skills side of the portfolio overall?

I appreciate the color there and just kind of switching focus to the Smith.

It was a big lift on the coverage side you guys are approaching 80% occupancy, although it's reported on a one quarter lag any moving parts or tenant specific situations that let such a healthy sequential improvement there and what's the latest you're hearing from your operators on the skilled side of the portfolio overall.

Sure. This is Kevin again.

Speaker 4: Sure, this is Kevin again. The biggest lift is going to be attributable to NHC, just because of their concentration in the portfolio and their, you know, how that factors into coverage. You know, good to see their coverage has been down a little bit for them anyway, but still very strong.

The biggest lift is going to be attributable to NFC, just because of their concentration in the portfolio in there.

How that factors into coverage.

Good to see either coverage has been down a little bit for them anyway, but still very strong.

Speaker 4: seeing occupancy improvements, seeing labor start to level out a little bit.

Seen occupancy improvements.

Labor start to level out a little bit.

Speaker 4: That's kind of been across the spectrum on both the sister or senior housing and skilled nursing. So also very good news.

Been across the spectrum on both assisted or on senior housing and skilled nursing. So also very good news. So I think those are the bright spots. There has been a few states that were we have communities that have seen some rate increases on both the federal and state level. So again good news there.

Speaker 4: So I think those are the bright spots. There's been a few states that we have communities in that have seen some rate increases on both the federal and state levels. So again, good news there. I think the overhang, and we addressed it a little bit in the comments, is just what's going to happen with the staffing mandates. I think our operators are devising plans and prepared for it, making comments during this comment period to make sure their voices are heard.

The overhang and we addressed it a little bit in the comments is just what's going to happen with the staffing mandates I think our operators are devising plans and prepared for its making comments. During this common period to make sure their voices are heard.

Speaker 4: So if there's a, again, an overhang, it would be just how do they prepare for that? By giving the coverages we have with particular two main operating partners, we're not overly concerned, but we are staying in touch with them and making sure we understand what they're seeing.

So if there is.

Again.

An overhang it would be just how do they prepare for that but given the coverages. We have with particular, our two main operating partners. We're not overly concerned, but we are staying in touch with them and making sure we understand what the what they're seeing.

I appreciate the color thanks, guys.

As a reminder to register a question. Please press the one four on your telephone.

Speaker 5: As a reminder, to register a question, please press the 1-4 on your telephone.

Our next question comes from Joe <unk> with Jefferies. Please proceed.

Speaker 5: Our next question comes from a Joe Dictine with Jeffries. Please proceed.

Speaker 12: Great, thank you for taking my question. Maybe just switch gears to shop op-X. It looks like it accelerated a bit this quarter, to roughly 9%. Maybe if you could just touch on labor costs and your operator is agency labor exposure.

Great. Thank you for taking my question.

Maybe just switch gears to shop Opex, it looks like it accelerated a bit this quarter.

Roughly 9%, maybe if you could just touch on labor costs.

Operators agency labor exposure that'd be great.

Sure. This is Kevin again, so you're asking specifically about the shop.

Speaker 4: Sure, this is Kevin again. So you're asking specifically about the shop and labor there? Yes, correct.

Labor there, yes correct.

Speaker 4: Yeah, fortunately for us in the independent living model, we don't have a ton of agency needs. We have seen a little bit of labor pressure in terms of having to pay some higher wages across the board in most positions. But given that there's not a level of care component, you know, we're not having to hire.

Fortunately for us.

In the independent living model, we don't have a ton of agency needs, we have seen a little bit of labor pressure in terms of having to pay some higher wages across the board.

And most physicians, but given that there is not a level of care component.

We're not having to hire.

Speaker 4: nurses or if somebody calls out of a shift, you know, there's ways to kind of reorganize.

Nurses or if somebody called out of a shift there is ways to kind of reorganize the labor pool that you have instead of having to get that agency labor. So its a pretty small number for us there and not really been a big headwind.

Speaker 4: The labor pool that you have instead of having to get that agency labor. So it's a pretty small number for us there and not really been a big headwind the headwind if there is one is really just having to

The headwind if there is one is really just having term to pay a little bit higher pay rates.

Speaker 4: to pay a little bit higher pay rate. But that said, I think our operating partners have done a good job of filling the open roles, making sure they have enough staff, revamping the teams where they need to be, which I think is what you're seeing in the occupancy improvement, is that they've gotten their sea legs and have the teams set. So I feel like we're...

That said I think our operating partners have done a good job of filling the open roles, making sure they have enough staff.

<unk> the teams, where they need to be which I think is what youre seeing in the occupancy improvement is that they've gotten their sea legs and have the teams set so feel like we're in a pretty good place. There Hey, Joe. This is John Spaid, maybe I can tapper, a better question here for Kevin on your behalf.

Speaker 3: We're in a pretty good place there. Hey, Joe, this is John Spade. Maybe I can tee up a better question here.

Speaker 3: for Kevin on your behalf. We've seen some dramatic improvements in labor elsewhere, and evidence of that is through the coverage ratios that you're seeing improve for Bickford. So maybe Kevin can talk more specifically there.

Sure.

We've seen some dramatic improvements in in.

And labour elsewhere, and Thats by and evidence of that is through the coverage ratios that you are seeing improve.

For Bickford, so maybe Kevin can talk.

Specifically there.

Sure.

Speaker 4: One specific item, I guess I can mention as it relates to Bigford, there was a point in time where we were looking at...

One specific item I guess I can mentioned as it relates to Bickford. There was a point in time, where we were looking at.

500 hours, a week or so of agency labor that's down to like a couple of hundred now I believe in the most.

Speaker 4: 1500 hours a week or so of agency labor that's down to like a couple hundred now. I believe in the most recent period where we we look at it almost every week with them. So we understand what's going on in their business. So

A recent period, where we've we look at it almost every week with them just so we understand what's going on in their business. So.

Speaker 4: dramatic improvement on the agency side there, you know, one week does not make a trend, but the overall trend is very positive. And I think that's a good proxy for what we've seen with some of our other operating partners is that the...

The dramatic improvement on the agency side, there one week does not make a trend, but the overall trend is very positive and I think thats.

A good proxy for what we've seen it with some of our other operating partners is that the.

Speaker 4: That agency usage has come way down. They're actually able to start recruiting Caregivers from the agencies instead of vice versa, which was a problem for a lot of our operators there for a while

The agency usage has come way down they're actually able to start recruiting caregivers from the agencies instead of vice versa, which was a problem for a lot of our operators there for a while.

Speaker 4: So it's seemingly settling down quite a bit.

So it's seemingly.

Settling down quite a bit.

Speaker 12: Great, and then just one more for me. The referral repaint increased 2.3 million from 700,000 last quarter. I actually be thinking about this on a go forward basis. Should be closer to that 2 million number or a kind of moderating lower.

Great and then just one more for me.

<unk>.

Prepayments increased to $2 3 million from 700000 last quarter.

Should we be thinking about this on a go forward basis should be closer to that 2 million number or kind of moderating lower.

Speaker 3: So I gave you a number in my prepared remarks for the fourth quarter of approximately a million dollars.

So I gave you a number in my prepared remarks for the fourth quarter of approximately $1 million.

Speaker 3: Um, you know, we're going to try to over deliver on that number, but that was in my prepared marks. Okay, thank you.

We're going to try to over deliver on that number but that was in my prepared remarks.

Okay. Thank you.

There are no further questions at this time.

Speaker 10: Thanks everyone for joining us today and we'll see many of you at NARI next week.

Thanks, everyone for joining us today, and we will see many of you at NAREIT next week.

Speaker 5: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day. Everyone.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.

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