Q4 2023 CareTrust REIT Inc Earnings Call
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Operator: Thank you for standing by, and welcome to the CareTrust REIT fourth quarter and full year 2023 operating results call. I would now like to welcome Lauren Beale, SVP Controller, to begin the call. Lauren, over to you.
Thank you for standing by and work each of the care Trust REIT fourth quarter and full year 2023 operating results call.
I'd now like to welcome Lauren Beale SVP controller to begin the call Lauren over to you.
Lauren Beale: Thank you, and welcome to CareTrust REIT's fourth quarter 2023 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 CareTrust's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financing, 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.
Thank you and welcome to care Trust REIT fourth quarter 2023 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 care trust 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 Gov.
Metal 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 tries to 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 catch us 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 at F. O S a D or fad and normalized EBITDA <unk>.
Lauren Beale: 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 CareTrust's 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, CareTrust 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 During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD, or FAD, and normalize EBITDA, FFO, and FAD. When viewed together with GAAP results, the company believes these measures can provide a more complete understanding of a business, but cautions that they should not be relied upon to the exclusion of GAAP reports.
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.
In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by characterized.
Yesterday care Trust filed its Form 10-K, and accompanying press release and its quarterly financial supplement each of which can be accessed on the investor Relations section of the 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, James Callister, Chief Investment Officer.
I'll now turn the call over to Dave Sedgwick characterize <unk> President and CEO.
Good morning, everyone and thank you for joining us before I talk about our outlook for 2024, let me first thank the entire care trust team for their great work in 'twenty three it.
It was a year of growth for the company on several fronts internally.
The team is more capable and creative and collaborative than ever before.
It's a real privilege to work every day with this team.
I also want to thank our operators, who we consider by and large to be among the very best in the business.
It's their relentless dedication to their staff residents and patients that is making this world a better place and we're honored to help them expand their influence.
Now this time last year, we started a sense a window of opportunity open to return to external growth in a meaningful way.
The bulk of our repositioning work concluded and the credit markets tightened.
Lauren Beale: In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by CareTrust. Yesterday, CareTrust filed its Form 10-K, an accompanying press release, and its quarterly financial supplement. These reports can be accessed on the Investor Relations section of the CareTrust website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period.
Sellers and brokers prioritize the execution certainty that we bring to the table and deal flow picked up.
I'm very pleased to report $288 million of new investments last year at a blended stabilized yield of nine 8%.
And as good as those numbers are maybe more exciting is the fact that we ended the year with the full $600 million available on our line of credit and just under $300 million of cash on the balance sheet. We have never had this amount of dry powder one.
Because we expect 2020 for it to be a strong year of investments and we've positioned ourselves accordingly.
As we've reported we've kicked off the year with $63 million of new investments $52 million of that are secured loans, let me reiterate briefly our philosophy for lending.
Loans in this space are generally shorter term somewhere between two to five years, which can cause some lumpiness to earnings as paybacks occur.
David M. Sedgwick: On the call this morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, and James Kallister, Chief Investment Officer. I'll now turn the call over to Dave Sedgwick, CareTrust REIT's president and CEO. Dave?
So for us in order to land three criteria must be met first the investment will be run by a top shelf, operator, with whom we want to start or expand our relationship.
Second the investment meets our historic underwriting criteria and is accretive in year one.
And third the transaction provides for a path to future real estate acquisitions.
They are built into the deal directly or simply from the relationship.
David M. Sedgwick: Well, good morning, everyone, and thank you for joining us. Before I talk about our outlook for 2024, let me first thank the entire CareTrust team for their great work in 23. It was a year of growth for the company on several fronts. Internally...
Since 2022 and.
And not including the loans announced this week.
We've made about $170 million worth of loans each one meeting these criteria.
Now here's what's remarkable.
As we examine the real estate acquisitions made last year and those in our current pipeline.
We count over 300 million largely off market deals that are a direct result of the relationships with the investors borrowers and operators that we established from that strategic planning activity.
That is a virtuous cycle, we will continue to see.
James will give you more color on the investments in the quarter and year to date and on the current pipeline, which as we sit here today is about $250 million not including larger deals that we regularly review.
Now turning to the portfolio Youll see in the supplemental lease coverage slightly improved overall.
David M. Sedgwick: The team is more capable, creative, and collaborative than ever before. It's a real privilege to work every day with this team. I also want to thank our operators, who we consider, by and large, to be among the very best in the business. It's their relentless dedication to their staff, residents, and patients that is making this world a better place, and we're honored to help them spread their influence. Now, this time last year, we started to sense a window of opportunity open to return to external growth in a meaningful way as the bulk of our repositioning work concluded and the credit market tightened. Now, sellers and brokers prioritize the execution certainty that we bring to the table, and deal flow picks up.
Well occupancy for the quarter for both skilled nursing and seniors housing was basically flat compared to Q3.
And I wanted to follow up on a couple of operators the transition of two <unk> facilities to another operator.
Today is on track for a March one transition.
<unk> pro forma lease coverage, excluding those two facilities goes from just under one times to just north of it.
Also we are still under contract to sell the portfolio of 11 skilled nursing assets with negative EBIT Dar primarily in the Midwest Understandably financing has been challenging but the buyer continues to make good faith efforts that lead us to believe a deal will get done.
Finally, we're pleased to issue guidance again, Bill will walk you through our several assumptions that results in 2020 for normalized <unk> per share in the range of about 43% to above 45. Please.
Please remember that when we issued guidance we do not include assumptions for new investments for a couple of reasons.
First due to regulatory and licensing requirements that always accompany these transactions.
<unk> of deals can be tricky.
And second.
We do not set arbitrary growth targets.
So that we can retain our customary disciplined model for growth.
Now before I hand, it over to James to talk about investments, let me just summarize our outlook for 2024 like this.
We have a favorable cost of capital that allows for accretive investments.
We have a balance sheet that provides enormous flexibility in capacity.
And we have a macro environment that has opened a window of opportunity.
As long as the credit market remains challenging.
Which leads me to believe that 2024 should be a strong year for external growth for care Trust with.
With that James will talk to our recent investment activity and pipeline James.
Thanks, Dave Good morning, everyone. Since the end of Q3, we have closed on investments totaling over $106 million.
David M. Sedgwick: I'm very pleased to report $288 million of new investments last year at a blended stabilized yield of 9.8%. And as good as those numbers are, maybe more exciting is the fact that we ended the year with a full $600 million available on our line of credit and just under $300 million of cash on the balance sheet. We have never had this amount of dry powder.
Including the acquisition of two California skilled nursing facility that we discussed on our last earnings call with respect to our more recent investment activity.
In Q4, we closed on the funding of a $6 $3 million mortgage loan to one of our existing tenant relationships <unk> senior communities. The loan is secured by 26 unit assisted living facility located in Vista, California carries an interest rate of nine 9% and an initial term of 30 months.
David M. Sedgwick: Why? Because we expect 2024 to be a strong year of investments and we've positioned ourselves accordingly. As we've reported, we kicked off the year with 63 million in new investments. Fifty-two million of that are secured loans. Let me reiterate briefly our philosophy for lending. Loans in this space are generally shorter term, somewhere between two to five years, which can cause some lumpiness to earnings as paybacks occur.
<unk> facilitate <unk> ongoing growth in San Diego County, and helps further synergies with the nearby skilled nursing facility that we acquired in Q3 of last year, and least debate Shire and.
In January we closed on the joint venture acquisition of a 78 unit assisted living and memory care facility in San Bernardino, California.
Care Trust $10 $8 million of contributed capital constituted 97, 5% of the total required investment amount with an initial contractual yield of approximately nine 3%.
In connection with the acquisition the venture entered into a triple net lease agreement with Oxford Health Group, a midsized, California seniors housing operator.
<unk> provides for a 10 year initial term with four or five year extension options and 2% fixed annual rent escalators commencing with the third last year.
Also as announced earlier this week in late January and early February we closed on the funding of over $52 million in mezzanine loans secured by three portfolios of skilled nursing facilities in Virginia, Missouri in California.
David M. Sedgwick: So for us, in order to lend, three criteria must be met. First, the investment will be run by a top-shelf operator with whom we want to start or expand our relationship. Second, the investment meets our historic underwriting criteria and is accretive in year one. And third, the transaction provides for a path to future real estate acquisitions, which are either built into the deal directly or simply from the relationship. Since 2022, and not including the loans announced this week, we've made about $170 million worth of loans, each one meeting these criteria. Now, here's what's remarkable.
In connection with the Virginia, and Missouri loans characterize provided approximately $45 million in proceeds.
At a variable interest rate of sofa, plus 875% with a sofa floor of 6%.
We also funded a $7 $4 million mezzanine loan to a regional investor in healthcare real estate to acquire 130 bed skilled nursing facility in Pasadena, California as loan accrues interest at a fixed rate of 11, 5% and has a five year term.
As Dave indicated in his remarks, our investment pipeline remains active and primarily consists of skilled nursing facilities with a few assisted living and multi use campus opportunities nextgen.
Today, the pipeline is approximately $250 million made up largely of singles and doubles. The pipe were quoting today does not include some chunkier regional opportunities that we are evaluating.
David M. Sedgwick: As we examine the real estate acquisitions made last year and those in our current pipeline, we count over 300 million largely off-market deals that are a direct result of the relationships with the investors, borrowers, and operators that we establish from that strategic planning activity. That is a virtuous cycle we will continue to see. James will give you more color on the investments in the quarter and year to date and on the current pipeline, which, as we sit here today, is about $250 million, not including larger deals that we regularly review. Now turning to the portfolio, you'll see that the supplemental lease coverage is slightly improved overall. Occupancy for the quarter for both skilled nursing facilities and senior housing was basically flat compared to Q3.
Deal flow remains strong and at a level largely consistent with the past several quarters.
We expect to skilled nursing transaction market to become increasingly active with a continued bifurcation between assets that are cash flowing and distressed product pricing.
Pricing on stabilized or are close to stabilized Smith portfolios continues to hover at historical cap rates helped by increases in state Medicaid rates and some easing in labor challenges.
Many regional operators, if you're hungry to grow and that appetite for expansion is driving healthy acquisition demand.
In today's sniff market include owners with nonprofit affiliations moms and Pops fatigued by difficult years in the industry and looking to exit as well as regional owners operators are stabilized portfolios looking to sell and recycle capital into underperforming portfolios with upside potential.
Pricing on distressed skilled nursing product has softened slightly as we continue to see more offerings entering the market for sniff portfolios that are facing variable rate.
And maturity date risk on bridge to HUD and other similar loans. We expect this trend to continue and to lead to potential acquisition opportunities as performance fell short of that needed to be in a position for a HUD loan takeout.
David M. Sedgwick: And I wanted to follow up on a couple of operators. For example, the transition of two eduro facilities to another operator. Today is on track for a March 1st transition. Aduro's pro forma lease coverage, excluding those two facilities, goes from just under one time to just north of it. Also, we're still under contract to sell the portfolio of 11-scope nursing homes with negative EBITDA primarily in the Midwest. Understandably, financing has been challenging, but the buyer continues to make good-faith efforts that lead us to believe a deal will get done. Finally, we're pleased to issue guidance again. Bill will walk you through our several assumptions that result in 2024 normalized FFO per share in the range of $1.43 to $1.45. Please remember that when we issue guidance, we do not include assumptions for new investments for a couple reasons. First, due to the regulatory and licensing requirements that always accompany these transactions, timing of deals can be tricky. And second, we do not set arbitrary growth targets so that we can retain our customary disciplined model for growth.
Our balance sheet and dry powder together with opportunistic market dynamics have set the table for growth.
While always adhering to our disciplined underwriting approach, we are actively using our flexibility and creativity in sourcing and structuring transactions to pursue and execute on accretive investment opportunities.
With that I'll turn it over to Bill.
Thanks, James for the quarter normalized <unk> increased 17, 2% over the prior year quarter to $43 4 million and normalized <unk> increased by 16, 3% to $45 $4 million.
On a per share basis normalized <unk> decreased to 36 per share and normalized <unk>.
Decreased three to 37 per share.
As a result of our robust pipeline, we issued $643 8 million of equity under the ATM during 2023, resulting in us having $294 million of cash on the balance sheet at year end.
Since year end, we have used a chunk of that for investments and our dividend, leaving us with approximately $220 million as we sit here today.
In Yesterdays press release, we issued guidance for 2024 with our range for normalized <unk> per share of $1 43 to $1 45 and for normalized <unk> per share of $1 47 to $1 49.
This guidance includes all investments made to date.
Diluted weighted average share count of 135 million shares and also relies on the following assumptions.
One no additional investments nor any further debt or equity issuances this year.
To CPI rent escalations of two 5%.
Our total cash rental revenues for the year are projected to be approximately $204 million to $206 million.
There is a range on rental revenues. This year as we have included a general reserve of 2% to 3%.
This reserve is not related to any specific operators rather it is a function of conservatism as we issued guidance for the first time in a while and we expect to refine that reserve as the year progresses.
Not included in this number is the amortization of a below market lease intangible that will total about $2 3 million, but this will be in the rental revenue as required by GAAP.
Three interest income of approximately $36 million the $36 million is made up $25 million from our loan portfolio and $11 million is from cash invested in money market funds.
David M. Sedgwick: Now, before I hand it over to James to talk about investments, let me just summarize our outlook for 2024 like this. We have a favorable cost of capital that allows for creative investment. We have a balance sheet that provides enormous flexibility and capacity.
For interest expense of approximately $33 million in our calculations, we have assumed an interest rate of six 5% for the term loan interest expense also includes roughly $2 4 million of amortization of deferred financing fees.
And five G&A expense of approximately 21% to $23 million and includes about $5 9 million of deferred stock compensation.
Our liquidity remains extremely strong we have approximately $220 million in cash today, and our entire $600 million available under our revolver.
James Kallister: And we have a macro environment that has opened a window of opportunity as long as the credit market remains challenged, which leads me to believe that 2024 should be a strong year for external growth for CareTrust. With that, James will talk about our recent investment activity and pipeline.
Average hit an all time low with a net debt to normalized EBITDA ratio of one four times, our net debt to enterprise value was nine 5% as of quarter end and we achieved a fixed charge coverage ratio of <unk> seven times.
I said last quarter that I wouldn't be surprised to see leverage tick further downward as we continue to fund our pipeline with equity, which had that now I would expect that leverage will begin to tick up as we deploy deploy the cash into accretive investments and with that I'll turn it back to Dave.
Great. Thanks, Bill, we hope our reports, but helpful and.
Thank you for your continued support and I'll be happy to answer your questions.
The floor is now opened for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
James Kallister: Thanks, Dave. Good morning, everyone. Since the end of Q3, we have closed on investments totaling over $106 million, including the acquisition of two California skilled nursing facilities that we discussed in our last earnings call. With respect to our more recent investment activity, in Q4, we closed on the funding of a $6.3 million mortgage loan to one of our existing tenant relationships, Bayshire Senior Communities. The loan is secured by a 26-unit assisted living facility located in Vista, California, carries an interest rate of 9.9%, and an initial term of 30 months. The loan facilitates Bayshire's ongoing growth in San Diego County and helps further synergies with the nearby skilled nursing facility that we acquired in Q3 of last year and leased to Bayshire.
We'll now take a moment to compile our roster.
Our first question comes from the line of Conor Seversky with Wells Fargo. Please go ahead.
Happy Friday. Thank you for the time. So quick question on these acquisition opportunities.
Some of the peer group is also moving in the direction of underwriting these loans and I'm wondering if you get the sense that this increased competition for that kind of instrument could lead to downward pressure on the associated yields or more broadly speaking how do you expect those return profiles to change over the course of the next year.
I think caught us a good question is James I would say that you see that a little bit right now on lower kind of dollar amount loans that we're looking at where there is more players kind of.
Knowledgeable about the sniff industry and willing to extend some of those loans, whether it be product or Mezz I think we've seen much less of that competition.
In the higher dollar loan amounts for mass and whatnot and that kind of.
Absence of experienced competition in that area seems to really.
To this point continuing to allow the yields to be pretty significant I think you see that in our mezz loans from last week. So I think it's.
<unk> too much change in the higher dollar loan amounts.
I think the lower amounts will continue to be.
James Kallister: In January, we closed on the joint venture acquisition of a 78-unit assisted living and memory care facility in San Bernardino, California. CareTrust's $10.8 million of contributed capital constituted 97.5% of the total required investment amount, with an initial contractual yield of approximately 9.3%. In connection with the acquisition, the venture entered into a triple net lease agreement with Oxford Health Group, a mid-sized California senior housing operator. The lease provides for a 10-year initial term with 4 or 5-year extension options and 2% fixed annual rent escalators commencing with the third lease year.
<unk>.
Stay close to where they are because that really that competition is already there.
Okay. Thanks for that and maybe just in your opinion, what do you think it takes to see the market for real assets start to open up again.
Yeah.
You know really done I think it takes you know.
More sellers entering the market of cash flowing facilities or close to I think thats.
Really going to be what it what it takes is more groups deciding to exit or recycled capital in assets that are.
Close to stabilization, where you can underwrite them a little closer to traditional underwriting.
Is kind of the value add that we look at a lot right now.
Okay.
Understood and then maybe quickly for Dave we have this CMS announcement that they look to finalize the minimum staffing ruling in short order.
Just wondering broadly speaking you're at a high level, how do you look at the labor market now compared to maybe this time a year ago.
Do you see any indication that the market or the availability of labor is improving or if there is still a very big discrepancy between urban and rural markets.
James Kallister: Also, as announced earlier this week, in late January and early February, we closed on the funding of over $52 million in Never Need Loans, secured by three portfolios of skilled nursing facilities in Virginia, Missouri, and California. In connection with the Virginia and Missouri loans, CareTrust provided approximately $45 million in proceeds at a variable interest rate of SOFR plus 8.75%, with a SOFR floor of 6%. We also funded a $7.4 million mezzanine loan to a regional investor in healthcare real estate to acquire a 130-bed skilled nursing facility in Pasadena, California. This loan accrues interest at a fixed rate of 11.5% and has a 5-year term.
Yes.
I would say that as we look at our data.
Clear.
The worst is behind us when it comes to labor.
And yet there is still quite a bit of opportunity for improvement in labor costs going forward.
Just taking one data point for example, looking at agency.
Third quarter 2002, our agency PPD and the portfolio was around $13.
Q3 of 'twenty, three it's down to eight.
But before the pandemic it was down in year three.
And so there's still quite a bit of.
Okay.
Fat.
Excess labor costs built in there.
That we hope will continue to decline as time goes on.
So that's it.
Actually pretty encouraging to know that there is some opportunity there going forward for our operators to continue to improve there.
Having said that it's still a difficult labor market.
And.
But I think during times like this you see the best operators really distinguished themselves by first becoming that operator that employer of choice. So that they can then become the provider of choice in their communities.
Okay, and if I may squeeze one more in there on labor.
Do you get the sense that over the course of 2023, we saw some significant rate hikes in both Medicaid and Medicare are some of these operators now April to push through those sites directly into wages such that maybe you get better retention.
James Kallister: As Dave indicated in his remarks, our investment pipeline remains active and primarily consists of skilled nursing facilities, with a few assisted living and multi-use campus opportunities mixed in. Today, the pipeline is approximately $250 million, made up largely of singles and doubles. The pipeline we are quoting today does not include some chunkier regional opportunities that we are evaluating.
Yes.
I think what happened actually Conor was or not.
Operators in this space really got ahead of those rate increases.
They really had to we lost so many employees in the skilled nursing space due to the pandemic.
That by and large the operators adjusted well before those rates caught up with them and so last last year's rate resetting and increases in activity by the state I think recognized that those costs had gone up significantly and because of that those states had a lot of.
Rationale for.
Making the adjustments made to those rates.
Okay. Thank you for the color I'll leave it there.
Our next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.
Hey, good morning out there.
<unk>.
Sticking with the loan activity of that economy was asking about.
I do appreciate the proposed remarks as to why Youre, making those investments.
Do you expect that investments to be a continuing part of your investment activity in future years or is this something thats a bit more temporary and when the capital markets normalize and banks returned to lending.
James Kallister: Dioflo remains strong and at a level largely consistent with the past several quarters. We expect the skilled nursing transaction market to become increasingly active with a continued bifurcation between assets that are cash flowing and distressed products. Pricing on stabilized or close-to-stabilized SNF portfolios continues to hover at historical cap rates, helped by increases in state Medicaid rates and some easing of labor challenges. Many regional operators appear hungry to grow, and that appetite for expansion is driving healthy acquisition demand. Sellers in today's SNF market include owners of non-profit affiliations, moms and pops fatigued by difficult years in the industry and looking to exit, as well as regional owners and operators of stabilized portfolios looking to sell and recycle capital into underperforming portfolios with upside potential. Pricing on distressed Gilmertine products has softened slightly as we continue to see more offerings entering the market for SNF portfolios that are facing variable rates and Maturidate Risk on Bridge to HUD and other similar loans.
Your investment activity would return to more just the equity ownership and acquisitions.
Yes, I think it's I think it's a fair assumption that if the banks come rushing back with cheap money that there'll be less need for us less opportunity coming our way.
And that.
Lending activity in the future.
Under that hypothetical scenario, we would be back to what it was before.
Before but even before.
The last couple of years, we have made some big loans.
And again, yes, there is.
Clear beliefs clear path.
To this relationship leading to real estate acquisitions in the future we will continue to do that.
Because a lot of times, what those those real estate acquisitions in the future.
Our off market deals, that's what we've seen and that we werent, we werent seen without doing that and building those relationships. So I think I would not be surprised to see.
More of it this year.
Opportunistically after.
If and when the banks ever come back with their free money.
Okay.
And can.
Can you talk about I don't know if this is for you or bill but.
Just the decision to settle the equity proceeds versus maybe leaving them outstanding on a forward basis, Okay can we interpret that as well.
Maybe there was a large deal that could close any day now and im fully aware that that's embedded in the pipeline.
Well, maybe there is the deal you're working on and you want the cash available to be able to move quickly and then what are you assuming is being earned on that cash until it's deployed.
Hey, Jonathan its bill I cannot I can take that one.
In our model we have assumed.
5% on the cash that is sitting on the balance sheet.
As for why we settled before words.
In December it was just a question now.
<unk>.
We weren't saving a lot on it there's not a lot of dilution as a result of keeping it out on the forward versus <unk>.
Having the cash on the balance sheet.
Okay.
And then one more quick one on those two are duro transitions that were they were referenced earlier I don't know if I heard but do you expect any change in rent post transition.
William M. Wagner: We expect this trend to continue and to lead to potential acquisition opportunities, as performance falls short of that needed to be in a position for a HUD loan takeout. Our balance sheet and dry powder, together with opportunistic market dynamics, have set the table for growth. While always adhering to our disciplined underwriting approach, we are actively using our flexibility and creativity in sourcing and structuring transactions to pursue and execute on a creative investment opportunity. With that, I'll turn it over to Bill. Thanks, James. For the quarter, normalized FFO increased 17.2% over the prior year quarter to $43.4 million, and normalized FAD increased by 16.3% to $45.4 million. On a per share basis, Normalized FFO decreased 2 cents to 36 cents per share, and Normalized FAD decreased 3 cents to 37 cents per share.
We don't expect right now any material impact to rent with the dura.
Okay, and you said coverage would be.
Pro forma coverage would go above one times for this operator taken under the street properties.
That's great.
No Im sorry.
It would be slightly north of one times for a duro.
Once those two properties are exited from the portfolio.
Not for the new upper right Okay.
Got it alright, thanks for the time.
You bet. Thanks, Tom.
Our next question comes from online of Austin were Smith with Keybanc capital markets. Please go ahead.
Great. Thanks, Good morning out there James you, Dave you mentioned in your prepared remarks that deal flow is pretty consistent with recent quarters, but despite the success you've had closing deals late in the year and early this year you've increased the size of the investment pipeline and I'm wondering is that a function of just the Ava.
<unk> of capital you have today or is it the quality of deals and operators. Your underwriting is improving and maybe some of that that work you've put in underwriting deals is now at a point, where youre seeing a path to potentially closing.
Yes.
<unk> has been pretty steady and James can clean up after me if needed but.
The difference is that we're just seeing some some stuff that's more actionable so deal flow consider pretty pretty steady from the last few quarters just more actionable.
<unk>.
Assets that we can that we can move on.
And I see the number of deals we're seeing Austin is pretty consistent I think it is just that.
<unk>.
William M. Wagner: As a result of our robust pipeline, we issued $643.8 million of equity under the ATM during 2023, resulting in us having $294 million of cash on the balance sheet at year-end. Since year-end, we have used a chunk of that for investments and our dividend, leaving us with approximately $220 million as we sit here today. In yesterday's press release, we issued guidance for 2024 with a range for normalized FFO per share of $1.43 to $1.45 and for normalized FAD per share of $1.47 to $1.49. This guidance includes all investments made to date, a diluted weighted average share count of 130.5 million shares, and also relies on the following assumptions. 1.
There is more of that seem to be falling in areas that were more interested in with where we have better operator solutions.
And where we really like what the Medicare rate is done.
More of those coming in and become more actionable.
That's helpful.
One other one for me is just curious if you guys would consider acquiring and operating kind of long term care real estate under an operating lease structure through RIDEA or structuring more of the leases, where maybe youre able to participate in some of the recovery in operating cash flows.
Maybe kind of similar to what you did with links health care I think last year.
Yes.
Yes.
I'd say never say never.
We're a group of Av.
We have a group of former operators here that.
We think help us do a pretty good job of offsetting operators and opportunities.
We like the simplicity of our model.
We currently have.
An abundance of opportunities.
Our.
Typical bread and butter, but we're always looking for creative ways to expand that pipe.
That's fair and then last one for me I.
I guess, what's the likelihood that you think that you can continue to collect some rent on the 11 assets held for sale prior to.
Prior to that closing.
It's pretty good I would say the chances are pretty fair.
William M. Wagner: No additional investments, nor any further debt or equity issuances this year. 2. CPI rent escalations of 2.5%. Our total cash rental revenues for the year are projected to be approximately $204 to $206 million. There is a range for rental revenues this year, as we have included a general reserve of 2-3%. This reserve is not related to any specific operator.
One of the main reasons why we are selling to this particular buyers because we think that that gives us the best chance to collect some rents.
Until we close so.
That's that went into our decision.
Of who to sell to and under what terms.
Having.
<unk> being paid.
It was one of those terms.
I appreciate the time thank you.
Hey, guys.
Our next question comes from the line of beyond San Umbria with BMO capital markets. Please go ahead.
Hi, there.
Just a question on the pipeline.
There are a rough split you could talk to in terms of what's fee simple versus <unk>.
Loans.
Yes in the 251, I'd say that is predominantly made up of acquisitions.
William M. Wagner: Rather, it is a function of conservatism as we issue guidance for the first time in a while, and we expect to refine that reserve as the year progresses. Not included in this number is the amortization of a below-market lease intangible that will total about $2.3 million, but this will be included in rental revenue as required by GAAP. 3. Interest income of approximately $36 million. The $36 million is made up of $25 million from our loan portfolio, and $11 million is from cash invested in money markets. Interest expense of approximately $33 million. In our calculations, we have assumed an interest rate of 6.5% for the term loan. Interest expense also includes roughly $2.4 million of amortization of deferred financing.
Not loan activity.
Currently as we sit here today.
Great. Thank you and then just on the.
Just hoping you could talk a little bit to the watch list, how that's evolved and how youre thinking about that and how that influenced or not.
The conservative conservatism built in.
On the non rent payment factored into full year guidance.
Yes. The watch list is always kind of a fluid thing we've had operators on it in the past that have graduated off of it in a big way.
<unk>.
And so right now we have a few that are very very small relationships.
That have needed a little bit more.
Runway and time.
Turning some buildings.
So we watch those guys closely of course, everybody is looking at <unk> with their coverage that is.
Trended down.
Yes, I think what we've learned over the going on 10 years here is that.
There's probably always going to be a small handful of operators in any portfolio has watched.
Portfolio that you would call watch list.
The art here is just to manage that risk down as best we can and we think we do a pretty good job of that.
And so.
Setting guidance for the first time, yes, we're certainly cognizant of of our watch list.
William M. Wagner: 5. G&A spends approximately $21 to $23 million and includes about $5.9 million of deferred stock compensation. Our liquidity remains extremely strong. We have approximately $220 million in cash today and our entire $600 million available under our revolver. Leverage hit an all-time low with the Net Debt to Normalized Fee-to-Dollar Ratio of 1.4 times.
But more more so just wanting to do.
It'd be a little bit of conservative giving guidance for the first time in a number of years.
And then just the last one for me any dispositions other than the.
Midwest Trillium assets.
We should think of factor into our models.
Yes in the Sup, we list, what's what's held for sale right now.
In addition to the 11 I think there are.
One one more that has kind of held for sale that is pending.
Kind of coming close.
Besides that I think that's that's pretty much it.
Great. Thank you.
Thanks Mark.
Our next question comes from the line of Michael Carroll with RBC capital markets. Please go ahead.
Yes, Thanks, David I was hoping you can talk about of what Youre seeing on the investment side I know you have a pretty good pipeline. They keep on highlighting but you always highlight that there is portfolio deals that you normally will underwrite to.
William M. Wagner: Our net debt-to-enterprise value was 9.5% as of quarter end, and we achieved a fixed-charge cover ratio of 7 times. I said last quarter that I wouldn't be surprised to see leverage tick further downward as we continue to fund our pipeline with equity, which it did. Now I would expect that leverage would begin to tick up as we deploy the cash into accretive investment. And with that, I'll turn it back to Dave.
All active as that portfolio pipeline right now and are there interesting deals out there that you could complete in the next few quarters.
Oh man.
The problem is a terrible three point shooter.
Okay.
A more of an assist guy.
So these bigger deals are lower probability shots for us and always have been although when you look at our history the bigger the bigger years that we've had.
Has been weak.
We've always had to do it pretty chunky deal.
They get that big year done.
So right now as James said looking at the 250 that we've quoted.
There really isn't a chunky deal in there, but there are a couple that that we're evaluating.
David M. Sedgwick: Great. Thanks, Bill. We hope our report's been helpful, and thank you for your continued support, and I'll be happy to answer your questions. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number 1 on your telephone keypad.
We just can't.
Really put a number on it or a probability on it because.
Yes.
<unk> sat experience.
We've come close and missed on bigger deals in the past and they are just lower probability would be.
Very happy to.
The surprise you in the future and say, we've got a big one but at this point.
None of those are far enough along we don't have enough.
Confidence in it to included in our pipe.
And then when you say get a big one like what would you consider a portfolio deals at mic over $50 million over $100 million.
Operator: We'll now take a moment to compile our raw file. Our first question comes from the line of Connor Svirsky with Wells Fargo. Please go ahead. Hi. Happy Friday.
Yes, somewhere 75 plus.
And then just last one from me I mean, what about the competitive landscape.
The levered private buyers were pretty competitive going after some of those larger deals historically.
Has that changed given what's going on at the capital markets are there or are you going up against.
Less competitors, taking down and bidding on some of those portfolio transactions.
Yes.
There is a pretty active.
Unnamed Speaker: Thank you for your time. So, a quick question on these acquisition opportunities. I've seen some of the peer group is also moving in the direction of underwriting these loans, and I'm wondering if you get the sense that this increased competition for that kind of instrument could lead to downward pressure on the associated yields, or more broadly speaking, how do you expect those return profiles to change over the course of the next year? I think, Connor, that's a good question.
You know private equity private buyer buyer pool out there right now Michael especially on the bigger stuff.
That is still very active I think that.
You definitely have an absence of smaller owner operators, who really can't get financing right now that works for them and they're really out.
But I think some of the larger players are still in and still competing and makes the.
$100 million in north deals still.
Really competitive because they can really execute on them.
But I think you've definitely seen that kind of smaller buyer pool more pronounced towards C.
$50 million in Dow kind of range.
Okay, great. Thank you.
Right.
Our next question comes from the line of Alex.
Fagan with Baird. Please go ahead.
Hi, Happy Friday, and thank you for taking my questions.
First one is kind of on the size of the loan book does characterize designate limit to the size of how big that can be based on a credit agreements or is there any self imposed limit that management would want to put on it.
James Kallister: James, I would say that you see that a little bit right now on the lower kind of dollar amount loans that we're looking at where there are more players, you know, kind of like www.caretrust.com Absence of experience competition in that area seems to really, up to this point, continue to allow the yields to be pretty significant, as you see that in our MES loans from last week. So I think I don't expect too much change in the higher kinds of dollar loan amounts. I think the lower amounts will continue to be competitive and stay close to where they are because, really, that competition is already there. Okay, thanks for that.
No Theres no limits.
Just take it.
Deal at a time.
Thank you.
As a.
These characteristics have our characters seems to have a large loss credit reserve of 2% to 3%.
Is this a historic level or is there anything specific about 2024.
It depends on what you'd look at.
So.
It's really just a function of as we've said conservatism given guidance for the first time after a number of years.
And I think as the.
Quarters go by you'll see us refine the.
Last one for me.
The quality of the assets that are in the market right now and kind of spoke a little bit about the portfolios in most of the.
Pipeline or singles or doubles, but is there any stark difference between the quality assets in our current pipeline and portfolio deals that characterize reviews.
I would say this I would say that if you if I were to generally characterize whats coming in these days I would say that probably.
75% to 80% of it is still.
Not cash flowing or barely cash flowing versus out.
20% or so kind of stable or getting to stable.
Unnamed Speaker: And, maybe just in your opinion, what do you think it takes to see the market for real assets start to open up again? Um... You know, really, Donnie, it takes more sellers entering the market for cash-flowing facilities, or close to it. I think that really going to be what it takes is more groups deciding to exit or recycle capital in assets that are post-stabilization where you can underwrite them a little closer to traditional underwriting versus kind of the value-add that we look at a lot right now. Okay, I understand. And then maybe quickly for Dave, you know, we have this CMS announcement that they are looking to finalize the minimum staffing ruling in short order.
And I think that's been that's probably creeping a little up in terms of.
The stabilized product, that's kind of coming onto the market right now.
<unk>.
But I think I think that's really the trend right now is at what stage of returning to positive cash flow is a seller wanting to put their buildings up for sale and some retired and want to get out.
Right as they turn the corner others are waiting a little longer to get more stable.
And then I'll turn the corner, so I think <unk> seen.
That trend continuing a little bit.
Got it that's all thank you for the time.
Okay.
Our final question comes from the line of Teo aka Sanya with Deutsche Bank. Please go ahead.
Hi, yes, good afternoon.
Congrats on the quarter on the large put full U.
Deal with that are out there I mean could you give us a general sense of what these things could look like.
It would kind of take for them to transact.
David M. Sedgwick: You know, I'm just wondering, broadly speaking, you're at a high level. How do you view the labor market now compared to maybe this time a year ago? Do you see any indication that the market or the availability of labor is improving? Or if there's still a very big discrepancy between urban and rural markets?
And then the effect if you can kind of talk about those without kind of giving away.
Secret sauce on negotiations or anything youre dealing with.
No.
I don't think so.
It's really difficult to give too.
Too much color on stuff that is so.
When we're shooting from 25 feet.
Gotcha, Okay, that's fair.
Second question, if you could indulge me.
The provisioning.
2024.
Again, I know you kind of a general provisioning, it's not related to any particular tenant but can you kind of just talked through.
David M. Sedgwick: Yeah, you know, I'd say as we look at our data, it's clear that the worst is behind us when it comes to labor. And yet, there's still quite a bit of opportunity for improvement in labor costs going forward. Just taking one data point, for example, looking at agency, um, third quarter 22, our agency CPD in the portfolio was around $13. Q3 of 23 is down to 8. But before the pandemic, it was down near three.
You know I mean last year, there was that one tenant that was kind of struggling to fill the ranks that was a big driver of the.
Of the provisioning last year I mean is there any kind of stimulus scenario like that that codes.
And up happening this year.
Well look we're in.
Still very much in a.
In a stage of recovery.
For the industry right.
Our operators.
In and out of our portfolio are still.
Recovering back to pre pandemic occupancy.
And coverage and so it's.
It's really more a function of conservatism, knowing what kind of stage of recovery we're in.
David M. Sedgwick: And so there's still quite a bit of fat, of excess labor costs built in there that we hope will continue to decline as time goes on. So it's actually pretty encouraging to know that there's some opportunity there going forward for operators to continue to improve their. Having said that, it's still a difficult labor market. And I think during times like this, you see the best operators really distinguish themselves by first becoming that operator, that employer of choice, so that they can then become the provider of choice in their community.
Then having a specific concern about one or two individual operators.
As we sit here today.
We don't see.
<unk>.
A similar experience or.
Performance by an operator like we had last year like Youre, referring to.
But because we're in the stage of recovery that we are or we felt like it was prudent to build in some some conservatism there for our guidance.
Gotcha Alright.
That's it for me thank you.
The weekend.
I would now like to turn the call over to Dave Sedgwick for closing remarks.
Well listen Thank you guys for your interest your questions and your continued support and hope you all have a wonderful weekend.
This concludes today's call you may now disconnect.
David M. Sedgwick: Okay, and if I may squeeze one more in there on labor, do you get the sense that over the course of 2023, we saw some significant rate hikes in both Medicaid and Medicare, are some of these operators now able to push those hikes directly into wages, plus that being you get better retention? Yeah, I think what happened actually, Connor, was our operators in this space really got ahead of those rate increases. They really had to try it.
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Unnamed Speaker: We lost so many employees in the skilled nursing space due to the pandemic that, by and large, the operators adjusted well before those rates caught up with them, and so last year's rate resetting and increases in activity by the state, I didn't recognize that those costs had gone up significantly, and because of that, those states had a lot of rationale for, you know, making the adjustments they did to those rates. Okay, thank you for the color. I'll leave it be. Our next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead. Hey, good morning out there.
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David M. Sedgwick: Just sticking with the loan activity that Connor was asking about, and I do appreciate the prepared remarks as to why you're making those investments. Do you expect debt investments to be a continuing part of your investment activity in future years, or is this something that's a bit more temporary, when the capital markets normalize and banks return to lending, your investment activity would return to more just equity ownership and equity? Yeah, I think it's a fair assumption that if the banks come rushing back with cheap money, there will be less need for us, less opportunity coming our way, and that lending activity in the future, under that hypothetical scenario, would be back to what it was before. But, you know, even before the last couple years, we had made some big loans. And again, if there is a clear belief, a clear path, to this relationship leading to real estate acquisitions in the future, and we'll continue to do that, because a lot of times, those real estate acquisitions in the future are off-market deals. That's what we've seen. And we wouldn't have seen it without doing that and building those relationships.
Yes.
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David M. Sedgwick: So I think I would not be surprised to see more of it this year and opportunistically after if and when the banks ever come back with their free money. Okay, and can you talk about, I don't know if this is for you or Bill, but it's a decision to settle the equity proceeds versus maybe leaving them outstanding on a forward basis. Can we interpret that as... And maybe there's a large deal that could close any day now, and I'm fully aware that that's not embedded in the pipeline. But maybe there's a deal you're working on, and you want the cash available to be able to move quickly. And then the award you're receiving is being earned on that cash until it's deployed. Hey Jonathan, it's Bill.
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William M. Wagner: I can; I can take that one. In our model, we have assumed 5% of the cash that is sitting on the balance sheet. As for why we settled on the four words, in December, it was just a question of them not being We weren't saving a lot on it; there's not a lot of dilution as a result of keeping it out on the forward versus having cash on the bounce. Okay. And then one more quick one. On those two Aduro transitions that were referenced earlier, I don't know if I've heard this, but do you expect any change in rent post-transition? We don't expect right now any material impact on rent with the Bureau.
Okay.
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Unnamed Speaker: And you said coverage would be, you know, pro forma coverage was above one times for this new operator taking over this new property. No, I'm sorry. It would be slightly north of 1 times 4 at Duro once those two properties are exited from the portfolio. Not for the new office. Right. Got it. All right, thanks for the time.
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Unnamed Speaker: You bet. Thanks, Thomas. Our next question comes from the line of Austin Wershman with KeyBank Capital Markets. Please go ahead. Great, thanks. Good morning out there.
Okay.
David M. Sedgwick: James and Dave, you mentioned in your prepared remarks that deal flow is pretty consistent with recent quarters. But, you know, despite the success you've had closing deals late in the year and early this year, you've increased the size of the investment pipeline. And I'm wondering, is that a function of just the availability of capital you have today? Or is it, you know, the quality of deals and operators, your underwriting is improving, and maybe some of that work you've put in underwriting deals is now at a point where you're seeing a path to potentially closing? Yeah, the deal flow has been pretty steady, and James can clean up after me if he has to, but I think the difference is that we're just seeing some stuff that's more actionable.
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David M. Sedgwick: The deal flow has been pretty steady over the last few quarters, just more actionable assets that we can move on. And I see the number of deals we're seeing, it's pretty consistent. I think it's just that there are more that seem to be falling in areas that we're more interested in, with where we have better operator solutions and where we really like what the Medicaid rate has done. So it's just more of those coming in that are becoming actionable. That's helpful.
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David M. Sedgwick: And one other one for me is curious if you guys would consider, you know, acquiring and operating kind of long-term care real estate under an operating lease structure, you know, through RIDEA, or structuring more of the leases where maybe you're able to participate in some of the recovery and operating cash flows, maybe kind of similar to what you did with Lynx Healthcare, I think, last year. Yeah, I mean, I'd say never say never. We're a group of, of, uh... We have a group of former operators here that, we think, help us do a pretty good job of vetting operators and opportunities. We like the simplicity of our models, and we currently have an... abundance of opportunities for our typical bread and butter, but we're always looking for creative ways to expand that pipeline. That's fair. And then last one for me, I guess, what's the likelihood that you think that you can continue to collect rent on the 11 assets held for sale prior to prior to that closing? You know, it's pretty, and I'd say the chances are pretty fair.
Yes.
Okay.
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David M. Sedgwick: One of the main reasons why we're selling to this particular buyer is because we think that that gives us the best chance to collect some rent. Until we close, so. That went into our decision of who to sell to and under what terms; having the rent paid was one of those terms. I appreciate the time. Thank you. Thank y'all.
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David M. Sedgwick: Our next question comes from the line of Jan Sanabria with VMO Capital Marks. Please go ahead. Hi there. Just a question on the pipeline. Is there a rough spot you could talk to in terms of what's fee simple versus loans?
James Kallister: Yeah, in the 251, I'd say that it is predominantly made up of acquisitions, not Lonex. Great, thank you. And then just on the... Just hoping you could talk a little bit about the watch list, uh, how that's evolved and how you're thinking about that and how that influenced or not the, uh, the conservative, conservative isn't built in, on the non-retainant factor into four-year guidance. Yeah, you know, the watch list is always kind of a fluid thing. We've had operators on it in the past that have graduated off of it in a big way. And so right now, we have a few that are very, very small relationships that just needed a little bit more. The runway in time.
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David M. Sedgwick: Can we watch those guys closely? Of course, everybody's looking at Aduro with their coverage that is trended down. So, yeah, I think what we've learned over the going on 10 years here is that, um, there's probably always going to be a small handful of operators in any portfolio that you would call a watch list. The art here is just to manage that risk down as best we can, and we think we do a pretty good job of that. Uh, And so. Setting guidance for the first time, yeah, we're certainly cognizant of our watch list, but more so just wanting to be a little bit conservative, giving guidance for the first time in a number of years. And then just the last one, for me, any dispositions other than those. Midwest Trillium assets that we should think of factoring into our models. Oh yeah, and stuff.
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David M. Sedgwick: We list what's held for sale right now. In addition to the 11, I think there is... One more that has kind of helped the sale, which is, I think I'm gonna close. Thank you. Besides that, I think that's pretty much it.
David M. Sedgwick: Great, thank you. Take one. Our next question comes from Alana Michael Carroll with RBC Capital Markets. Please go ahead.
Okay.
Okay.
Yes.
David M. Sedgwick: Yeah, thanks, Dave. I was hoping you could talk about what you're seeing on the investment side. I know you have a pretty good pipeline that you keep on highlighting, but you always highlight that there are portfolio deals that you normally would underwrite too. I mean, how active is that portfolio pipeline right now? And are there interesting deals out there that you could complete in the next few quarters? Oh, Maronite. The problem is, I'm a terrible three-point shooter, and I'm more of an assist guy.
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David M. Sedgwick: So, these bigger deals are lower probability shots for us than they always have been. Although, when you look at our history, the bigger years that we've had..., have been, we've always had to do a pretty chunky deal to get that big year done. So, right now, as James said, looking at the 250 that we've quoted... It really isn't a comfortable deal in there, but there are a couple that we're evaluating, um, we just can't. Really put a number on it, or a probability on it, because... It's a sad experience.
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David M. Sedgwick: We've come close to and missed on bigger deals in the past, and there's just a lower probability. We'd be very happy to... I don't want to surprise you in the future and say we have a big one, but at this point... None of those are far enough along, and we don't have enough confidence in them to include them in our pipeline. And then when you say get a big one, like, what would you consider a portfolio deal? Is it like over 50 million, over 100 million? Yeah, you know, somewhere around 75 million plus.
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David M. Sedgwick: And then just last one for me. I mean, what about the competitive landscape? I mean, I know leveraged private buyers were pretty competitive going after some of those larger deals historically. But, has that changed given what's going on with the capital markets? Are you going up against fewer competitors taking down and bidding on some of those portfolio transactions? Um, you know, there's a pretty active private equity, private buyer, buyer pull out there right now, especially on the bigger stuff, that is still very active. I think that you definitely have an absence of smaller owner-operators who really can't get financing right now that works for them, and they're really out, but I think some of the larger players are still in and still competing, which makes the, you know, 100 million in Northfields still really competitive because they can, you know, really execute on them, but I think you definitely see that kind of smaller buyer pool more pronounced towards the......
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David M. Sedgwick: Thank you. Our next question comes from the line of Alec. Fagan was there.
Unnamed Speaker: Please go ahead. Hi, happy Friday. Thank you for taking the questions. First one is kind of on the size of a loan book. Does CareTrust have any limit to the size of how big that can be? Do they face any credit agreements? Or is there any self-imposed limit that management would want to put on it?
Okay.
Unnamed Speaker: No, there's no limit. We'll just take it. See you later. Cool, thank you. Second, does CareTrust have, or CareTrust seems to have, a large lost grant reserve of two to three percent? Is this a historic level, or is there anything specific about 2024? Depends on what you're looking at.
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William M. Wagner: So, it's really just a function of, as we've said, conservatism, giving guidance for the first time after a number of years. And I think as the... As quarters go by, you'll see us refine that. And the last one for me is the quality of the assets that are in the market right now. We kind of spoke a little bit about the portfolios and how most of the pipeline are singles or doubles, but is there any stark difference between the quality assets in the current pipeline and the portfolio deals that CareTrust produced?
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James Kallister: No, I would say that if I were to generally characterize what's coming in these days, I would say that probably 75 to 80% of it is still not cash flowing or barely cash flowing versus, you know, 20% or so kind of stable or getting to stable. And I think that's been, you know, it's probably creeping a little up in terms of single-eye products that're kind of coming onto the market right now. But I think, you know, I think that's really the trend right now: at what stage of returning to positive cash flow is a seller wanting to put their buildings up for sale? You know, some people are retired and want to get out. Right as they turn the corner, others are waiting a little longer to get more stable and then will turn the corner.
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James Kallister: So I think you see that trend continuing a little bit. That's all. Thank you for your time. Our final question comes from the line of Teo Acasanya with Deutsche Bank. Please go ahead. Oh, yes. Good afternoon. Congratulations on the quarter. On the large portfolio deals that are out there, could you give us a general sense of what these things could look like?
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Unnamed Speaker: What would it kind of take for them to try and draft this? Again, if you can kind of talk about it without kind of giving away any, you know, secret sauce or negotiations or anything you're dealing with? Uh, no. I don't think so. I think it's really difficult to give too much color on stuff that is so, You know, when we're shooting from 25 feet.
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Okay.
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David M. Sedgwick: Gotcha. Okay, gotcha. Second question, if you could indulge me. The provisioning in 2024, again, I know you kind of said it's a general provisioning and it's not related to any particular tenant, but could you kind of just talk through, You know, um, last year, there was that one tenant that was kind of, you know, struggling to pay the rent that, you know, was a big driver of the, uh, provisioning last year I mean, is there any kind of similar scenario like that that could happen?
Okay.
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Okay.
Okay.
Yes.
Thank you.
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Okay.
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Unnamed Speaker: end up happening this year. Well, look, we're in a... we're still very much in a stage of recovery, www.caretrustreitinc.com, in and out of our portfolio are still. Recovering Back to Pre-Pandemic Occupancy and InCoverage. And so it's, It's really more a function of conservatism, knowing what kind of stage of recovery we're in, then having a specific concern about one or two individual operators.
Okay.
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David M. Sedgwick: As we sit here today, we don't see, you know, a similar experience or performance by an operator like we had last year, as you're referring to. But, because we're in the stage of recovery that we are, we felt like it was prudent to build in some conservatism there for our guidance. Gotcha. All right. That's it for me.
Okay.
Yes.
Yes.
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Unnamed Speaker: Thank you. Have a good weekend, Tyler. I would now like to turn the call over to Dave Sedgwick for closing remarks. Well, listen, thank you guys for your interest, your questions, and your continued support. I hope you all have a wonderful weekend. This concludes today's call. You may now disconnect.
Yes.