Q1 2024 National Health Investors Inc Earnings Call
Operator: Good morning, everyone, and welcome to the National Health Investors first quarter 2024 earnings webcast and conference call. At this time, all participants have been placed on a listen-only mode.
Good morning, everyone and welcome to the National Health Investors first quarter 2024 earnings webcast and conference call.
Operator: At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
Operator: We will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Dana Hambly. Sir, the floor is yours.
Operator: It is now my pleasure to turn the floor over to your host Dana Hambly, Sir the floor is yours.
Dana Rolfson Hambly: Thank you, and welcome to the National Health Investors Conference Call to review the results for the first quarter of 2024. On the call today are Eric Mendelson, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, Chief Financial Officer, and David Travis, Chief Accounting Officer.
Dana Rolfson Hambly: Thank you and welcome to the National Health Investors Conference call to review the results for the first quarter of 2024 on the call today are Eric Mendelsohn, President and CEO, Kevin Pascoe, Chief Investment Officer, John Spaid, 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.
Dana Rolfson Hambly: 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 was covered by the financial media. 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. All forward-looking statements represent NHI's judgment as of the date of this conference call.
Dana Rolfson Hambly: Yesterday in a press release Thats been covered by the financial media any statements in this conference call, which are not historical facts are forward looking statements.
Dana Rolfson Hambly: <unk> cautions investors that any forward looking statements may involve risks or uncertainties and are not guarantees of future performance.
Dana Rolfson Hambly: All forward 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 10-Q for the quarter ended March 31 2024.
Dana Rolfson Hambly: 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 March 31, 2024. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireet.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been filed on Form 8K 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.
Dana Rolfson Hambly: Copies of these filings are available on Sec's website at SEC Gov or on Nhi's website at NHI read Dot Com. In addition, certain terms used in this call are non-GAAP financial measures reconciliations of which are provided in nhi's earnings release and related tables and schedules, which has been furnished on form 8-K with the SEC.
Dana Rolfson Hambly: C.
Dana Rolfson Hambly: 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.
Eric Mendelson: Hello, and thank you to everyone for joining us today. We're off to a great start in 2024 as the first quarter results exceeded our expectations and represents the third straight quarter of outperformance. The general theme remains the same and is characterized by stable cash collections, steady deferral repayments, improving operator fundamentals, shop occupancy and revenue growth, and no unexpected rent concessions. Our excellent start coupled with good visibility for the rest of the year prompted us to raise our full-year guidance, which implies over 5% FAD growth at the midpoint. The increased FAD guidance is broad-based, with several factors contributing to the improved outlook. John will provide more details in a few minutes.
Eric Mendelson: Hello, and thank you to everyone for joining us today, we're off to a great start in 2024 as the first quarter results exceeded our expectations and represents the third straight quarter of outperformance. The general theme remains the same and is characterized by stable cash collections steady.
Eric Mendelson: Deferral repayments, improving operator fundamentals shop occupancy and revenue growth and no unexpected rent concessions.
Eric Mendelson: Our excellent start coupled with good visibility for the rest of the year prompted us to raise our full year guidance, which implies over 5% growth.
Eric Mendelson: Growth at the midpoint.
Eric Mendelson: The increased guidance is broad based with several factors contributing to the improved outlook John will provide more details in a few minutes as a reminder, our guidance does not include any new investment activity.
Eric Mendelson: As a reminder, our guidance does not include any new investment activity. We believe our portfolio is in great shape and positions NHI for strong organic growth through multiple channels, including deferral repayments, rent step-ups with select large tenants, significant NOI growth potential, and shop, and capital investment projects concentrated on the existing real estate portfolio. Our senior housing EBIDARM coverage moved higher for the 8th consecutive period to 1.45 times, with particular strength at Bickford and our other need-driven operators.
Eric Mendelson: We believe our portfolio is in great shape and positions NHI for strong organic growth through multiple channels, including deferral repayments rent step ups with select large tenants significant NOI growth potential in shops and capital investment projects concentrated on the <unk>.
Eric Mendelson: <unk> real estate portfolio.
Eric Mendelson: Our senior housing EBITDAR coverage moved higher for the eighth consecutive period to 1.45 times with particular strength at Bickford and our other need driven operators, we reached a favorable outcome with bickford on April 1st rent.
Eric Mendelson: We reached a favorable outcome with Bickford on April 1st, a rent reset, which increased the base rent by approximately 10% annually while preserving our ability to receive rent deferral repayments based on growing revenue in the Bickford leased portfolio. Strong revenue growth within our NHC portfolio during 2023 drove an increase in the percentage rent, which more than offset the scheduled reduction in base rent related to the sale of seven properties in 2022. As most of you on today's call are well aware, the NHC lease matures at the end of 2026, so we're actively working on creating a favorable outcome for our shareholders.
Eric Mendelson: Rent reset, which increase the base rent by approximately 10% annually, while preserving our ability to receive rent deferral repayments based on growing revenue in the bickford leased portfolio.
Eric Mendelson: Strong revenue growth within our LHC portfolio. During 2023 drove an increase in the percentage rent, which more than offset the scheduled reduction in base rent related to the sale of seven properties in 2022.
Eric Mendelson: As most of you on today's call are well aware the NH see lease matures at the end of 2026. So we are actively working on creating a favorable outcome for our shareholders for the record I need to state that the negotiations related to the NIH see lease are sensitive we understand the.
Eric Mendelson: For the record, I need to state that the negotiations related to the NHC lease are sensitive. We understand the importance of this lease to shareholders and our unique relationship to NHC, so we do plan to provide relevant information on the process where and when appropriate. Now, back to our results.
Eric Mendelson: The importance of this lease to shareholders and our unique relationship to NH C. So we do plan to provide relevant information on the process, where and when appropriate.
Eric Mendelson: The Senior Housing Operating Portfolio, or SHOP, increased NOI by 54.8% year-over-year to $2.9 million on over 13% revenue growth and 600 basis points of margin expansion. Sequentially, NOI increased by approximately 2%, which is encouraging as we typically expect seasonal weakness in the first quarter. Our guidance for 2024 NOI growth remains at 25-30%, though continued occupancy improvement coupled with lower move-in incentives have us optimistic that we'll be at the high end or above the current guidance range as the year progresses.
Eric Mendelson: Back to our results the senior housing operating portfolio or shop increased NOI by 54, 8% year over year to $2 9 million, an over 13% revenue growth and 600 basis points of margin expansion sequentially NOI.
Eric Mendelson: <unk> increased by approximately 2%, which is encouraging as we typically expect seasonal weakness in the first quarter.
Eric Mendelson: Our guidance for 2020 for NOI growth remains at 25% to 30%, though continued occupancy improvement coupled with lower move in incentives have us optimistic that we'll be at the high end or above the current guidance range as the year progresses.
Eric Mendelson: Also supplementing our organic growth is a $25 million NOI-producing CAPEX program targeted at our leased real estate portfolio. To date, we have committed $19 million at a weighted average yield of over 8%. We view this program as a low-risk investment into properties with good coverage and returns well above our cost of capital. The balance sheet, at just 4.4 times net debt to adjust the DBADA, continues to be one of the lowest levered among all REITs and positions us for significant external growth.
Eric Mendelson: Also supplementing our organic growth is a $25 million NOI producing capex program targeted at our leased real estate portfolio to date, we have committed $19 million at a weighted average yield of over 8%. We view this program as a low risk.
Eric Mendelson: Men enter properties with good coverage and returns well above our cost of capital.
Eric Mendelson: The balance sheet of just four four times net debt to adjusted EBITDA continues to be one of the lowest levered among all Reits and positions us for significant external growth, we have plenty of dry powder to execute our growth initiatives with over $970 million in capacity right now on the revolver and ATM.
Eric Mendelson: We have plenty of dry powder to execute our growth initiatives with over $970 million in capacity right now on the revolver and ATM. We've been advising sellers and borrowers for several quarters that the higher for longer rate environment could be a reality. It seems to be a certainty at this point, which has created a more active pipeline for us.
Eric Mendelson: We have been advising sellers and borrowers for several quarters that the higher for longer rate environment could be a reality it seems to be a certainty at this point, which has created a more active pipeline for us. Our pipeline is currently over $300 million and we have submitted LOI is on deals valley.
Kevin Carlton Pascoe: Our pipeline is currently over $300 million, and we have submitted LOIs on deals valued at over $100 million, with initial yields of more than 8% on average. The improvement in our cost of capital is allowing us to become more competitive with other providers of capital. With seller expectations on cap rates adjusting higher and our cost of capital moving lower, we expect external growth to remain robust for the foreseeable future. Kevin will provide more details on the makeup of the pipeline.
Kevin Carlton Pascoe: <unk> added over $100 million with initial yields of more than 8% on average the improvement in our cost of capital is allowing us to become more competitive to other providers of capital.
Kevin Carlton Pascoe: With seller expectations on cap rates, adjusting higher and our cost of capital moving lower we expect external growth to remain robust for the foreseeable future Kevin will provide more details on the makeup of the pipeline.
Kevin Carlton Pascoe: We clearly see the momentum for NHI across several paths, including our multi-pronged organic growth strategy, significant external growth opportunities, and a favorable macro environment driven by slowing supply and growing demand. In sum, NHI is in a great position to capitalize on several initiatives and create a pathway for several years of exceptional growth. I'll now turn the call to Kevin to provide more details on our operations.
Kevin: We clearly see the momentum for NHI across several paths, including our multi pronged organic growth strategy.
Kevin: <unk> external growth opportunities and a favorable macro environment, driven by slowing supply and growing demand.
Kevin Carlton Pascoe: In sum NHI is in a great position to capitalize on several initiatives and create a pathway for several years of exceptional growth I'll now turn the call to Kevin to provide more details on our operations Kevin.
Kevin Carlton Pascoe: Thank you, Eric. As noted last quarter, we're starting to see more actual deal activity, and the volume of new inquiries has significantly increased over the last several months. We're looking at opportunities across the continuum of senior housing and skilled nursing and across multiple products, including loan, lease, and joint venture opportunities. We have currently submitted LOIs on deals valued at more than $100 million with yields of more than 8% on average. These are primarily senior housing focused with an approximate mix of 50-50 in loan to real estate acquisition. In the case of new loan investments, we continue to look for a path to future real estate ownership.
Kevin: Thank you Eric as noted last quarter, we're starting to see more actionable deal activity and the volume of new inquiries has significantly increased in the last several months.
Kevin Carlton Pascoe: We're looking at opportunities across the continuum of senior housing and skilled nursing and across multiple products, including loan lease and joint venture opportunities.
Kevin Carlton Pascoe: Currently have submitted LOI on deals valued at more than $100 million with yields of more than 8% on average.
Kevin Carlton Pascoe: These are primarily senior housing focused with an approximate mix of 50, 50 and loan to real estate acquisition.
Kevin Carlton Pascoe: In the case of new loan investments, we continue to look for a path to future real estate ownership.
Kevin Carlton Pascoe: As an example, during the first quarter, we funded a $15 million mortgage on an 80-unit assisted living and memory care property operated by Carriage Cross Seeds Senior Living, a well-respected and growing operator of nine properties in the Midwest and a new relationship for NHI. The 8.75% loan carries a five-year maturity, and NHI has a purchase option on the property after two years. Turning to asset management,
Kevin Carlton Pascoe: As an example during the first quarter, we funded a $15 million mortgage on an 80 unit assisted living and memory care property operated by carriage Krause senior living.
Kevin Carlton Pascoe: A well respected and growing operator of nine properties in the Midwest and a new relationship for NHI.
Kevin Carlton Pascoe: The 875% loan carries a five year maturity at NHI has a purchase option on the property after two years.
Kevin Carlton Pascoe: Turning to asset management.
Kevin Carlton Pascoe: We had another strong quarter with positive year-over-year adjusted NOI growth in the need-driven and discretionary senior housing operators, skilled nursing and specialty hospitals, and the SHOP portfolio. The need-driven operators again had positive coverage trends, with Epidarm at 1.35 times, representing the eighth straight period of sequential growth. The improvement was driven by both Pickford at 1.58 times and other need-driven operators at 1.16 times.
Kevin Carlton Pascoe: We had another strong quarter with positive year over year adjusted NOI growth from the <unk>.
Kevin Carlton Pascoe: Need driven and discretionary senior housing operators skilled nursing and specialty hospital in the shop portfolio.
Kevin Carlton Pascoe: The need driven operators again had positive coverage trends with EBITDA in the 135 times, representing the eighth straight period of sequential growth.
Kevin Carlton Pascoe: The improvement was driven by both Bickford at 158 times and other need driven operators at 116 times.
Kevin Carlton Pascoe: On April 1st, we reset the Bigford annual base rent to $34.5 million, which is an approximate 10% increase from the prior base rent of $31.4 million. On a pro forma basis, EBITDARM coverage under the increased base rent was 1.37 times for the trailing 12 months ended December 31st. This is still very healthy and well above Bigford's pre-pandemic coverage, so we're obviously pleased with the results of restructuring this portfolio. The next Bickford Reset is scheduled for April 2026 and is based on a defined leased coverage ratio with a floor determined by a range of CPI escalators.
Kevin Carlton Pascoe: On April one we reset the Bickford annual base rent to $34 5 million, which is an approximate 10% increase from the prior base rent of $31 4 million.
Kevin Carlton Pascoe: On a pro forma basis EBITDAR coverage under the increased base rent was 137 times for the trailing 12 months ended December 31.
Kevin Carlton Pascoe: This is still very healthy and well above bickford pre pandemic coverage. So we're obviously pleased with the results of restructuring in this portfolio.
Kevin Carlton Pascoe: The next Bickford reset is scheduled for April 2026, and is based on a defined lease coverage ratio with a floor determined by a range of CPI escalators.
Kevin Carlton Pascoe: At a minimum, the base rent will increase 4 to 6 percent in 2026 from its current level but could be higher if Bigford outperforms. As a part of the CapEx program that Eric described, we have committed approximately $8 million in NOI-producing investments to the Bigford portfolio, which should enhance property cash flow and coverage over the next couple of years. We also adjusted the deferral repayment formula, which we estimate results in quarterly repayments of approximately $1 million going forward, while continuing to align us with Bigford's improving fundamentals and revenue growth. Bickford's first quarter 2024 repayment, which is based on the older formula, was a record $1.5 million. Through March 31st, Bickford has repaid approximately $4 million.
Kevin Carlton Pascoe: At a minimum the base rent will increase 4% to 6% in 2026.
Kevin Carlton Pascoe: Our level, but could be higher bickford outperforms.
Kevin Carlton Pascoe: As a part of the Capex program that Eric described we have committed approximately $8 million in NOI producing investments to the bickford portfolio, which should enhance property cash flow and coverage over the next couple of years.
Kevin Carlton Pascoe: We also adjusted deferral repayment Formula, which we estimate resulted in quarterly repayments of approximately $1 million going forward, while continuing to align us with bickford is improving fundamentals and revenue growth Victor.
Kevin Carlton Pascoe: Victor its first quarter 2020 for repayment, which is based on the older Formula was a record $1 5 million.
Kevin Carlton Pascoe: Through March 31, Bickford has repaid approximately $4 million.
Kevin Carlton Pascoe: Our discretionary senior housing portfolio primarily includes our entrance fee portfolio, which has performed above our expectations since the pandemic began, and that continues to be the case. Coverage improved sequentially to 1.54 times from 1.41 times, driven by an uptick at SLC, our largest tenant, on another solid quarter of entrance fee sales. Discretionary coverage, excluding SLC, which largely reflects the performance of our other entrance fee communities, improves sequentially to 1.63 times from 1.38 times. However, as we have seen, the variability in CCRC coverage is higher due to the variability in entrance fee sales.
Kevin Carlton Pascoe: Our discretionary senior housing portfolio, primarily includes our entrance fee portfolio, which has performed above our expectations. Since the pandemic began and that continues to be the case.
Kevin Carlton Pascoe: Coverage improved sequentially to one 504 times from 141 times, driven by an uptick at SLC, our largest tenant on another solid quarter of entrance fee sales.
Kevin Carlton Pascoe: Discretionary coverage, excluding SLC, which largely reflects the performance of our other entrance fee communities improved sequentially to $1 six three times from 138 times as we've seen the variability and the CRC coverage is higher due to the variability in entrance fee sales, but overall our operators have dill.
Kevin Carlton Pascoe: But overall, our operators have delivered steady results over a long period of time, and we do not see that shifting in the foreseeable future. SNF and Specialty Hospital Portfolio reported solid coverage at 2.83 times, which improved sequentially from 2.74 times. The coverage at NHC improved to 3.8 times from 3.54 times. However, remember that NHC's reported coverage represents corporate fixed charge coverage and is not comparable to the EBITDARM coverage reported for all other asset classes and operators.
Kevin Carlton Pascoe: Livered steady results over a long period of time, and we do not see that shifting in the foreseeable future.
Kevin Carlton Pascoe: Sniff and specialty hospital portfolio reported solid coverage of 283 times.
Kevin Carlton Pascoe: Which improved sequentially from 274 times.
Kevin Carlton Pascoe: The coverage at NAC improved to three eight times from three five to four times remember that Nic's reported coverage represents corporate fixed charge coverage and is not comparable to the EBITDA coverage reported for all other asset classes and operators for a point of reference and AC operates 91 properties.
Kevin Carlton Pascoe: For a point of reference, NHC operates 91 properties, of which 35 are owned by NHI, and our lease payment represents their only significant fixed payment obligation. As detailed in yesterday's filings, NHC's first quarter percentage rent increased to $3 million from $1.6 million in the prior year period. The increase in the percentage rent more than offset the scheduled decline in the base rent of approximately $363,000. Recall that in September 2022, we sold seven SNFs previously operated by NHC for net proceeds of $43.7 million and amended the master lease on the remaining portfolio, which effectively has NHC continuing to pay rent on the seven sold properties, but at a declining rate through the maturity of the lease.
Kevin Carlton Pascoe: Of which 35 are owned by NHI and our lease payment represents the only significant fixed payment obligation.
Kevin Carlton Pascoe: As detailed in yesterday's filings in the NFC first quarter percentage rent increased to 3 million from $1 6 million in the prior year period.
Kevin Carlton Pascoe: The increase in the percentage rent more than offset the scheduled decline in the base rent of approximately 363000.
Kevin Carlton Pascoe: Recall that in September 2022, we sold seven Smith previously operated by an agency for net proceeds of $43 7 million and amended the master lease on our remaining portfolio, which effectively has MHC continuing to pay rent on the seven sold properties, but at a declining rate through the maturity of the lease.
Kevin Carlton Pascoe: Separately, we are in the process of transitioning one SNF in Wisconsin to another operator that has a much greater presence in that state. This resulted in an $800,000 straight-line rent receivable write-off, which should not impact our cash rent this year.
Kevin Carlton Pascoe: Separately, we are in the process of transitioning one sniff and Wisconsin to another operator that has a much greater presence in that state. This resulted in an $800000 straight line rent receivable write off which should not impact our cash rent this year.
Kevin Carlton Pascoe: Lastly, in SHOP, momentum continues to build throughout the portfolio. First quarter NOI increased 54.8% year-over-year to $2.9 million. Resident fees increased by 13.3% on an approximate 1,000 basis point increase in occupancy to 85.3%.
Kevin Carlton Pascoe: Lastly in shop momentum continues to build throughout the portfolio first quarter NOI increased 54, 8% year over year to $2 9 million.
Kevin Carlton Pascoe: Net fees increased by 13, 3% on an approximate 1000 basis point increase in occupancy to 85, 3%.
Kevin Carlton Pascoe: Operating expenses increased 4.9%, leading to a 600 basis point year-over-year margin improvement to 22.2%. Our strategy continues to rely on using rates to drive occupancy growth, which is evident in the relatively flat quarterly REVPOR. Occupancy improved sequentially by 210 basis points, while the margin declined slightly by 10 basis points. Our first quarter is seasonally weak, so we were happy to see occupancy grow throughout the quarter, though our acquisition costs were higher, which weighed on the margin.
Kevin Carlton Pascoe: Operating expenses increased four 9% leading to a 600 basis point year over year margin improvement to 22, 2%.
Kevin Carlton Pascoe: Our strategy continues to rely on using rate to drive occupancy growth, which is evident in a relatively flat quarterly revpar.
Kevin Carlton Pascoe: Occupancy improved sequentially by 210 basis points, while the margin declined slightly by 10 basis points.
Kevin Carlton Pascoe: The first quarter is seasonally weak. So we were happy to see occupancy growth throughout the quarter. There were acquisition costs were higher which weighed on the margin as.
Kevin Carlton Pascoe: As we mentioned last quarter, we expect the quarterly NOI cadence to grow throughout the year, which would lead SHOP to be at the high end of the current guidance growth range of 25 to 30 percent. We also expect to invest approximately $10 to $12 million into the SHOP portfolio this year, which should help drive margin growth later in the year. A longer-term view that this portfolio can generate NOI dollars in the high teens on margins in the mid-30% range remains unchanged. I'll now turn the call over to John to discuss our financial results and guidance. John?
Kevin Carlton Pascoe: As we mentioned last quarter, we expect our quarterly NOI cadence to grow throughout the year, which would lead to shop to be at the high end of the current guidance growth range of 25% to 30%.
John: We also expect to invest approximately $10 million to $12 million into the shop portfolio. This year, which should help drive margin growth later in the year.
John: Our longer term view that this portfolio can generate NOI in the high teens on margins in the mid 30% range remains unchanged.
Kevin Carlton Pascoe: Now I'll turn the call over to John to discuss our financial results and guidance John.
John L. Spaid: Thank you, Kevin. And hello, everyone.
John: Thank you, Kevin and Hello, everyone as Eric and Kevin previously mentioned, our strategy continues to be to execute on our organic opportunities and pivot towards additional NOI growth from accretive investments or.
John L. Spaid: As Eric and Kevin previously mentioned, our strategy continues to be to execute on our organic opportunities and pivot toward additional NOI growth from creative investment. Our results today indicate to all of us that our strategy is on track. First quarter results were above our expectations, as primarily reflected in the percentage revenue rent results from NHC and Bigford. Our guidance reflects further improvement this year as compared to our February guidance. Kevin previously spoke about our improved pipeline.
John L. Spaid: Our results today indicate to all of us that our strategy is on track first quarter results were above our expectations is primarily reflected in the percentage revenue rent results from an HCC in Bedford.
John L. Spaid: Our guidance reflects further improvement this year as compared to our February guidance, Kevin previously spoke about our improved pipeline.
John L. Spaid: We believe that we are seeing an inflection point between seller cap rates and our improved cost of capital. I'll talk more about what this means for our guidance in a moment, but first, our results. For the quarter ended March 31st, 2024, our net income NARIT FFO and normalized FFO were diluted common shares for 71 cents, $1.10, and $1.12 per share, respectively. Our FAD was approximately $51 million, which is a 6.8% increase year over year. Compared to the prior year quarter, our net income and NAREED FFO for diluted common share declined by 10.1% and 5.2%, respectively.
John L. Spaid: We believe that we are seeing an inflection point between seller cap rates and our improved cost of capital I'll talk more about what this means for our guidance in a moment, but first our results.
John L. Spaid: For the quarter ended March 31, 2024, and net income NAREIT <unk> and normalized <unk> per diluted common share was <unk> 71, a barrel.
John L. Spaid: Ken and a $1 12 per share respectively.
John L. Spaid: RFID was approximately $51 million, which is a six 8% increase year over year.
John L. Spaid: Compared to the prior year quarter, our net income and NAREIT <unk> per diluted common share declined by 10, 1% and five 2% respectively.
John L. Spaid: <unk> per diluted common share improved by <unk>, 9%.
John L. Spaid: While NFFO, Purdue Leudicommon Share, improved by 0.9%, our results for the first quarter included a year-over-year net increase in NHC rent of $1.1 million, which was comprised of a $1.4 million increase in the percentage revenue rent for NHC, net of a $400,000 base rent decrease attributable to the scheduled Northeast 7 property disposition rent that occurred in 2022. Also recall that in the prior year's first quarter, we recognized $2.5 million in non-cash deferred rents associated with the acquisition of a high-performance Beckford property. Excluding those Bigford rents, deferred rent repayments were up $1.6 million year over year.
John L. Spaid: Our results for the first quarter included a year over year net increase in NFC rent of $1 $1 million, which was comprised of a $1 $4 million increase in the percentage revenue rent for NFC net of a $400000 base rent decrease attributable to the scheduled northeast seven property.
John L. Spaid: Disposition rent that occurred in 2022.
John L. Spaid: Also recall than in the prior year first quarter, we recognized $2 5 million in noncash deferred rent associated with the acquisition of a high performing <unk> for property <unk>.
John L. Spaid: Excluding those bickford rents deferred rent prepayments were up $1 $6 million year over year.
John L. Spaid: Other significant items impacting the year-over-year results included the write-off of straight-line receivables of approximately $0.8 million associated with the planned transition of one property to a new operator, which Kevin previously discussed. Our strategy in our shop segment continues to be to increase occupancy, which we believe will result in additional NOI improvement. At the end of March, our shop occupancy results were ahead of budget, while our NOI is tracking our forecast and guidance. Our shop NOI this quarter, when compared to the same period last year, was up $1 million. Shop's sequential FAD contribution was essentially flat after including recurring CAPEX compared to the fourth quarter.
John L. Spaid: Other significant items impacting the year over year results.
John L. Spaid: <unk> the write off of straight line receivables of approximately <unk> 8 million associated with the planned transition of one property to a new operator, which Kevin previously discussed.
John L. Spaid: Our strategy on our shop segment continues to be to increase occupancy, which we believe will result in additional NOI improvements at the end of March our shop occupancy results were ahead of budget.
John L. Spaid: While our NOI is tracking our forecast and guidance our.
John L. Spaid: Our shop NOI this quarter when compared to the same period last year was up $1 million sharp sequential contribution was essentially flat after including recurring capex compared to the fourth quarter.
John L. Spaid: sequentially, from the fourth quarter, FAD improved $3.6 million, to which we attribute $3 million of this improvement to cash rents and interest income and $600,000 to changes in cash G&A. The $3 million improvement in cash rents included $1.7 million in a net increase in NHC rents. The remaining $1.3 million in cash revenue growth was attributable to annual rent escalators, increased interest income, and improved deferred rent collection. During the first quarter, we closed on a new investment mortgage loan for $15 million, yielding 8.75 percent. Subsequent to the end of the first quarter, we disposed of two small properties, and we continue to have one property in assets held for sale.
John L. Spaid: Sequentially from the fourth quarter.
John L. Spaid: Improved $3 $6 million to which we attribute $3 million of this improvement to cash rents and interest income and 600000 to changes in cash G&A the $3 million improvement in cash rents included $1 7 million in net increase in MHC rents the.
John L. Spaid: Meaning $1 3 million in cash revenue growth was attributable to annual rent escalators increased interest income and improved deferred rent collections.
John L. Spaid: During the first quarter, we closed on a new investment mortgage loan for $15 million, yielding 875% subsequent to the end of the first quarter. We disposed of two small properties and we continue to have one property in assets held for sale.
John L. Spaid: The impacts from the new investment, dispositions, and the previously mentioned transition property are all included in our updated guidance. Additionally, our Q1 2024 metrics, when compared to Q1 2023, saw further improvements. For the periods ended March, FAD payout and net debt-to-adjusted EBITDA ratios improved to 76.6% and 4.4 times, compared to 81.8% and 4.6 times, respectively, in the prior year. Last night, we raised our full-year guidance for 2024. Normalized FFO was raised to a range of $190.3 to $192.5 million, or a range of $4.37 to $4.43 per diluted share.
John L. Spaid: The impacts from the new investment dispositions and the previously mentioned transition property are all included in our updated guidance.
John L. Spaid: Q1, 2024 metrics when compared to Q1 2023 saw further improvements for the periods ended March F&B payout and net debt to adjusted EBITDA ratios improved to 76, 6% and four four times compared to 81, 8% and four six times.
John L. Spaid: <unk>, respectively in the prior year.
John L. Spaid: Last night, we raised our full year guidance for 2024.
John L. Spaid: Normalized <unk> was raised to a range of 193 to $192 5 million.
John L. Spaid: Or a range of $4 37 to.
John L. Spaid: To $4 43 per diluted share. This is a six cent midpoint raised when compared to our initial February guidance.
John L. Spaid: This is a six-cent midpoint raise when compared to our initial February guidance. We also increased our FAD guidance to a range of $196.7 to $199.2 million, which is a $5.3 million increase at the midpoint compared to February's guidance. FAD guidance also represents year-over-year growth of 5.4% at the midpoint and 6% at the high point compared to the full year 2023 results. Here are a few more comments regarding our guidance. Our guidance includes a recent amendment to the Bickford lease, which Kevin previously discussed. Commencing April 1st, Bickford's annual rent was increased to $34.5 million from $31.4 million.
John L. Spaid: We also increased our guidance to a range of 196 seven to $199 2 million.
John L. Spaid: Which is a $5 $3 million increase at the midpoint compared to February guidance.
John L. Spaid: Guidance also represents year over year growth of five 4% at the midpoint and 6% at the high point compared to the full year 2023 results.
John L. Spaid: And we continue to expect to see increasing Bickford cash rent from the additional collection of Bickford's remaining deferral balance. Our guidance includes the recent increase in NHC rent from the 2023 percentage revenue rent, and, as Eric previously mentioned, our guidance includes SHOP NOI growth of up to 30% year over year, which we view to be conservative. Eric mentioned we have $19 million committed already toward the new capital expenditure program. However, the timing of this activity is still uncertain, so future activity from this program is not yet in our guidance. We'll have more to say about this program in a future quarter. Finally, our guidance includes a new mortgage investment and the expected fulfillment of our commitments but does not include any unidentified new investment.
John L. Spaid: A few more comments regarding our guidance.
John L. Spaid: Our guidance includes the recent amendment to the Bickford lease, which Kevin previously discussed.
John L. Spaid: Since April one big first annual rent was increased to $34 5 million from $31 4 million and we continue to expect to see increasing bickford cash rent from the additional collection of Bickford remaining deferral balance.
John L. Spaid: Our guidance includes the recent increase in NAC ramp from the 2023 percentage revenue rent.
John L. Spaid: As previously mentioned our guidance includes shop NOI growth of up to 30% year over year, which we view to be conservative.
John L. Spaid: Eric mentioned, we have $19 million committed already toward the new capital expenditure program. The timing of this activity is still uncertain. So the future activity from this program is not yet in our guidance, we'll have more to say about this program in future quarters.
John L. Spaid: Finally, our guidance includes a new mortgage investment and the expected fulfillment of our commitments, but does not include any unidentified new investments.
John L. Spaid: Our balance sheet continues to be a source of strength for us. At the end of April, we had $228.5 million outstanding on our $700 million revolver, and only a single debt maturity this year for $75 million at the end of September. At the end of April, we continue to have ample liquidity of over $470 million in cash and revolver availability and the full $500 million available under our ATM program. Looking towards 2025, we have an additional $326 million in debt maturing.
John L. Spaid: Our balance sheet continues to be a source of strength for us at the end of April we had $228 $5 million outstanding on our $700 million revolver and only a single debt maturity. This year for $75 million at the end of September.
John L. Spaid: In April we continue to have ample liquidity of over $470 million in cash and revolver availability and the full $500 million available under our ATM program.
John L. Spaid: Looking towards 2025, we have an additional $326 million in debt maturity $200 million of this maturing debt as our term loan which does have at nhi's option the ability to extend the loan for up to one year.
John L. Spaid: As we announced last night, our board of directors declared a <unk> 90 per share dividend for shareholders of record June 28, 2024, and payable on August <unk> 2020 for.
John L. Spaid: $200 million of this maturing debt is our term loan, which does have, at NHI's option, the ability to extend the loan for up to one year. As we announced last night, our board of directors declared a 90 cent per share dividend for shareholders of record on June 28, 2024, payable on August 2, 2024. That concludes our prepared remarks today. So once again, thank you for joining us on this call. With that, Operator, please open the lines for questions.
Speaker Change: That concludes our prepared remarks today. So once again, thank you for joining our call with that operator, please open the lines for questions.
Operator: Certainly, everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while you're posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Rich Anderson from Webush. Your line is live.
Speaker Change: Certainly everyone. At this time, we'll be conducting a question and answer session. If you have any questions or comments. Please press star one on your phone at this time.
Operator: We do asked about posing a question. Please pickup your handset if you're listening on speaker phone to provide optimum sound quality.
Operator: Once again, if you have any questions or comments. Please press star one on your phone.
Operator: Your first question is coming from Rich Anderson from Wedbush. Your line is live.
Richard Charles Anderson: Thanks. Good morning, everyone.
Richard Charles Anderson: Thanks, Good morning, everyone. So on Bickford I, just want to make sure I am clear the increase the $3 million increase which was not a part of the guidance increase is that correct like that was already presumed in your previous guidance.
Richard Charles Anderson: So on Bickford, I just want to make sure I'm clear. The increase, the $3 million increase, was not a part of the guidance increase. Is that correct? Or was that already presumed in your previous guidance?
John L. Spaid: No, it was this John, Rich. Hi. It was because there was an increase in our guidance associated with part of it.
Richard Charles Anderson: No. This is John Rich hi.
Rich: It was there was an increase in our guidance associated with part of it let's say that how about that alright.
Rich: Now when you have rebalanced, how they're paying you both from the standpoint of percentage rent that pays off the deferred balance and then the base rent how has that ratio changed with the April 1st reset is can you say like it's 80% base rent and 20%.
Rich: The deferral repayment.
John L. Spaid: How has that ratio changed with the new setup.
John L. Spaid: Let's say that. How about that? All right.
John L. Spaid: Hey, Rich this is Kevin so what we effectively did is baked in more base rent based on the performance that they've had over the last year than where they were currently operating and then lowered the percentage of revenue threshold or slightly increase the revenue threshold, because it's higher now and then.
Rich: Modified that percentage.
Speaker Change: So now youre going to have.
John L. Spaid: Extensively.
Kevin Carlton Pascoe: Now, when you have rebalanced how they're paying you, both from the standpoint of percentage rent that pays off the deferred balance and then the base rent, how has that ratio changed with the April 1st reset? Can you say, for example, it's 80% base rent, 20% deferral repayment, and how has that ratio changed with the new setup?
John L. Spaid: 90 ish percent of your rents being base rent and the balance would be more.
Kevin Carlton Pascoe: Variable in nature, we still would expect that to be a net increase over what we saw last year, but and then again, we still have another bite at the Apple where there'll be a rent reset in two more years, but given where we're at on their performance.
Kevin Carlton Pascoe: They are still doing some leasing up and then also with the Capex, we're putting out it seemed prudent to.
Kevin Carlton Pascoe: This interim step.
Speaker Change: Hey, rich.
Kevin Carlton Pascoe: Yes. This is John Spaid again.
Kevin Carlton Pascoe: Let me see if I can help you a different way if.
Kevin Carlton Pascoe: If you go to our.
Kevin Carlton Pascoe: Result of operations page.
Kevin Carlton Pascoe: You can kind of see in the three months ended March 31, 2024, what the results were.
Kevin Carlton Pascoe: If you annualize that number which is approximately $9 4 million.
Kevin Carlton Pascoe: And you compare it to the $34 5 million plus the annualized <unk> million dollars per quarter that Kevin just mentioned.
Kevin Carlton Pascoe: You can see we're signaling that there is a slight increase.
Kevin Carlton Pascoe: And what we're expecting.
Kevin Carlton Pascoe: So, but youre lowering the pace by which they payback deferred rent right youre willing to give that up in exchange for higher base rent I guess is that yes, that's right.
Speaker Change: Precisely what's happened here, Okay last question for me on the pipeline.
Kevin Carlton Pascoe: You mentioned 300 million.
Kevin Carlton Pascoe: <unk> a $100 million.
Kevin Carlton Pascoe: You said 50 50 debt is is there a risk though that even for a period of time, you kind of get overleveraged to being a lender versus a fee simple owner I mean, how much are you watching that to make sure you don't let those kind of that that ratio of loans to equity get too far out of whack even in the short term.
Kevin Carlton Pascoe: Hey, Rich, this is Kevin. So what we effectively did was baked in more base rent based on the performance that they've had over the last year and where they were currently operating and then lowered the percentage of revenue threshold or slightly increased the revenue threshold because it's higher now and then modified that percentage. So now you're gonna have, you know, ostensibly, 90-ish percent of your rent being base rent.
Kevin Carlton Pascoe: Hey, Rich this is Kevin again.
John L. Spaid: This is John Spaid again. Let me see if I can help you in a different way. If you go to our results of operations page, you can kind of see, for the three months ending March 31st, 2024, what the results were. You can, if you annualize that number, which is approximately 9.4 million, and you compare it to the $34.5 million, plus the annualized million dollars per quarter that Kevin just mentioned, you can see that we're signaling that there's a slight increase in what we're expecting.
Speaker Change: It is definitely a consideration.
John L. Spaid: But you're lowering the pace by which they pay back the deferred rent, right? You're willing to give that up in exchange for a higher base rent, I guess. Yeah, that's precisely what happened here. Okay. Last question for me on the pipeline.
John L. Spaid: The keys for us when we look at it alone versus ownership is trying to acquire relationships, making sure that we're at the right entry point.
Richard Charles Anderson: You mentioned $300 million and LOIs of $100 million. You said 50-50 debt. Is there a risk, though, that even for a period of time you kind of get over-leveraged to being a lender versus a fee-simple owner? I mean, how much are you watching that to make sure you don't let that ratio of loans to equity get too far out of whack, even in the short term?
Richard Charles Anderson: More stabilized property to put into a longer term view.
Richard Charles Anderson: A vehicle like a lease.
Kevin Carlton Pascoe: Hey Rich, this is Kevin again. It's definitely a consideration. You know, the keys for us when we look at a loan versus ownership are trying to acquire relationships, making sure that we're at the right entry point, and it's a more stabilized property to put into a longer-term vehicle like a lease. So I think you're spot on something that would be a consideration for us. We don't want to get out of our skis, but I think we have some capacity there.
Richard Charles Anderson: So I think youre spot on something that would be a consideration for us we don't wanted to get out over our skis, but.
Kevin Carlton Pascoe: I think we have some capacity there.
Kevin Carlton Pascoe: It's really going to be more the relationship acquisition and where, you know, built buildings are stabilizing versus, you know, are stabilized. But again, I think we have some room to run. Our preference is always going to be to acquire, and ultimately, that's what we're angling for, even in a lone scenario. So this is more of what we refer to as kind of a dating period where we get to have the new relationship, let them season the property a bit more, see if there's some more business that we can do together and then have a more long-term relationship, whether that be a lease or a joint venture or something else down the road.
Kevin Carlton Pascoe: Really going to be more the relationship acquisition and where.
Kevin Carlton Pascoe: Build buildings are stabilizing versus.
Kevin Carlton Pascoe: Our stabilized.
Kevin Carlton Pascoe: But again I think we have some room to run our preference is always going to be to acquire.
Kevin Carlton Pascoe: And ultimately that's what we're angling for even an all alone scenario. So this is more of what we refer to as kind of a dating period, where we get to.
Kevin Carlton Pascoe: Have the new relationship let it let them season, the property a bit more see if theres some more business that we can do together and then <unk>.
Kevin Carlton Pascoe: Have a more long term relationship whether that'd be a lease or a joint venture or something else down the road.
Richard Charles Anderson: Okay, great. I'll yield the floor. Thanks.
Speaker Change: Okay, great I'll yield before thanks.
Operator: Thank you. Your next question is coming from Eric Borden from BMO Capital Markets. Your line is live.
Richard Charles Anderson: Thank you. Your next question is coming from Eric <unk> from BMO capital markets. Your line is live.
Eric Borden: Hey, good morning, everyone. Just on the shop guidance, just with the big increase in occupancy, you know, just trying to Tayo, in your prepared remarks about the mix between driving occupancy and potentially pushing rates, should we expect rate to kind of start to accelerate, you know, as we look throughout the year? And then, you know, where are the risks and opportunities within the portfolio?
Eric Borden: Hey, good morning, everyone.
Eric Borden: Just on the shop guidance, just with the big increase in occupancy.
Eric Borden: Just trying to.
Eric Borden: Tie that tie in your prepared remarks about the mix between driving occupancy and potentially pushing rate should.
Eric Borden: Should we expect greatest kind of start to accelerate as we look throughout the year, and then where the risks and opportunities within the portfolio.
Eric Borden: Sure Eric This is Kevin.
Kevin Carlton Pascoe: Eric, this is Kevin. We're going to continue to push on the occupancy piece until we crest that 90% mark, which is going to be more on a building-by-building basis than it will be on an aggregate basis. So each one is gonna be kind of fine-tuned for their specific markets, where we are with the CapEx program that we have in the leasing volume that they're having. So each one is going to be kind of tailor-made.
Kevin Carlton Pascoe: Yes, we're going to continue to push on the occupancy piece until we get when we crest kind of that 90%, Mark which is going to be more on a building by building basis than it will be on a.
Kevin Carlton Pascoe: And on an aggregate basis. So each one is going to be kind of fine tuned for their specific markets, where we're at with the Capex program that we have.
Kevin Carlton Pascoe: The leasing volume that theyre, having so each one is going to be kind of tailor made.
Kevin Carlton Pascoe: I believe, or we believe, that you're going to see the incentives that have been put in place start to fall off as the year progresses. You know, we're doing some more short-term incentives on the front end as those residents, As we have more residents stabilize into the building, then you're going to see that fall off again. That's going to... probably Wayne Moore once we crest that 90 percent mark. We're getting there on a few buildings.
Kevin Carlton Pascoe: I believe or we believe that youre going to see.
Kevin Carlton Pascoe: The.
Kevin Carlton Pascoe: Incentives that have been put in place.
Kevin Carlton Pascoe: To fall off as the year progresses.
Kevin Carlton Pascoe: Doing some more short term incentives on the front end as those residents.
Kevin Carlton Pascoe: As we have more residents stabilize into the building then youre going to see that fall off again thats going to <unk>.
Kevin Carlton Pascoe: Probably weighing more once we cross that 90% Mark we're getting there on a few buildings.
Kevin Carlton Pascoe: From a from a.
Kevin Carlton Pascoe: From a risk standpoint, I would tell you it's a matter of getting the capital deployed, making sure that we keep the cadence that we have right now on move-ins. That's been pretty steady so far. Over the last couple of years, it's been longer to get some of the CapEx projects done. I think Discovery and Merrill both are on top of that and doing the best they can to get the work done in these buildings, but getting the subcontractors and so forth lined up and performing the work, again, has taken a little more time than we probably would have liked.
Kevin Carlton Pascoe: Risk standpoint, I would tell you, it's a matter of getting the capital deployed making sure that we keep the cadence that we have right now on move ins that's been pretty steady so far over the last couple of years, it's been longer to get some of the capex projects done.
Kevin Carlton Pascoe: Discovery Merrill both are on top of that and doing the best they can to get the work done in these buildings, but getting the sub contractors and so forth.
Kevin Carlton Pascoe: Lined up and performing the work again has taken a little more time than we probably would have liked.
Kevin Carlton Pascoe: If there's a risk, I'd say it's more on that end, just getting it done, keeping the cadence. But so far, we're seeing good cadence. Good still leading indicators going into the second quarter here. So feeling positive.
Kevin Carlton Pascoe: So if theres a risk I'd say, it's more on that and just getting it done keeping the cadence.
Kevin Carlton Pascoe: But so far we're seeing good cadence.
Kevin Carlton Pascoe: Good still leading indicators going into the second quarter here, so feeling positive.
Eric Borden: That's helpful. And then on the pipeline, you know, is the board ready to look at incremental shop acquisitions, just given the occupancy recovery and the, you know, the potential to, you know, add, you know, external growth opportunities there?
Speaker Change: That's helpful and then on the pipeline is.
Eric Borden: Is the board ready to look at incremental shop acquisitions, just given.
Eric Borden: The occupancy recovery.
Eric Borden: The potential.
Eric Borden: AD.
Eric Borden: External growth opportunities there.
Eric Mendelson: Hey Eric, this is Eric. Yes, absolutely. We've had a bit of experience getting these holiday buildings turned around and assigned to different operators and the CAPEX program completed, but now that all that's done, they've really perked up nicely, and I think that the board has seen that this can be an avenue for growth going forward, and I certainly think that having that ability to do more shop will help Kevin and his people line up more acquisitions.
Eric Borden: Hey, Eric this is Eric.
Speaker Change: Yes, absolutely.
Eric Mendelson: We've had.
Eric Mendelson: A bit of a.
Eric Mendelson: Experience getting these holiday buildings turned around and assigned to different operators.
Eric Mendelson: And Capex program completed, but now that all that is done and they've really perked up nicely and I think the board has seen that this can be an avenue for growth going forward and I, certainly think that having that ability to do more shop will help Kevin and his people.
Eric Mendelson: Lineup more acquisitions.
Eric Borden: All right. Thank you very much. I'll leave it there.
Speaker Change: Alright, Thank you very much I'll leave it there.
Operator: Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone. Your next question is coming from Austin Wurschmidt from KeyBank Capital Markets. Your line is live.
Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press Star then one on your phone. Your next question is coming from Austin <unk> from Keybanc capital markets. Your line is live.
Austin Todd Wurschmidt: Yeah, thanks, and hello everybody. Piggybacking a little bit on that last question, I guess given the willingness to do more shops, would you look to do, you know, additional deals with the existing operators and scale up, or would you look to kind of enter into new relationships and sort of diversify the operator base on the shop portfolio?
Austin Todd Wurschmidt: Yes, Thanks, and Hello, everybody piggybacking, a little bit on that last question I guess, given the willingness to do more shop, I mean would you look to do.
Austin Todd Wurschmidt: Additional deals with the existing operators and scale up or would you look to kind of enter into new relationships and sort of diversify the upper operator based on the shop portfolio.
Eric Mendelson: This is Eric again. I'd be delighted to do both. If we're going to go with a new operator, the profile would be much the same as Merrill Gardens or Discovery, our current shop operators, and by that, I mean deep operating experience, a balance sheet so that they can co-invest with us as joint venture partners, and a great reputation. So those are kind of the criteria we look for when we're picking a new shop operator partner.
Eric: This is Eric again.
Austin Todd Wurschmidt: I'd be delighted to do both if we're going to go with the new operator, the profile would be much the same as Merrill gardens or discovery, our current shop operators and by that I mean.
Eric Mendelson: Deep operating experience.
Eric Mendelson: Our balance sheet, so that they can co invest with us as joint venture partners and a great reputation. So those are kind of the criteria. We look for when we're picking a new shop operating partner.
Eric Mendelson: No. That's helpful and then kind of a two parter here on just maybe market rent resets in general, but on the Bickford Formula clarification is the revised.
Austin Todd Wurschmidt: That's helpful. And then, kind of, a two-parter here on just maybe market rent resets in general. But on the Bickford formula clarification, the revised repayment formula – is there any cap on the amount that they would repay in any specific quarter? And then separately, I know Discovery isn't as sizable as a tenant as Bickford, but there's a market rent reset that was pushed into 25, I believe. I'm just curious, as you look out, what type of opportunity do you see emerging there? How would you kind of compare and contrast it versus the process for the Bickford rent resets and how it stacks up in terms of occupancy rent coverage and so forth?
Austin Todd Wurschmidt: Repayment Formula is there any cap on the amount that they would repay in any specific quarter and then separately.
Austin Todd Wurschmidt: No discovery isn't as sizable as a tenant bickford, but theres a market rent reset that was pushed into 'twenty five I believe and just curious as you look out what type of opportunity do you see emerging there.
Austin Todd Wurschmidt: Or would you kind of compare and contrast that versus the process for the bickford rent resets and how it stacks up.
Austin Todd Wurschmidt: Occupancy rent rent coverage and so forth. Thank you.
Kevin Carlton Pascoe: This is Kevin. On the Bickford reset, just to clarify your question, when you say a cap, are you referring to the base rent they would pay or the amount of deferred rent they paid at the beginning of the term? The deferred rent. Just in the deferred rent, you know, formula, you talked about how that was revised. I'm just curious if there's any amount with which that a quarterly payment... and H.I. We'll be back with more on the H.I. We'll be back with more on the H.I.
Austin Todd Wurschmidt: Sure. This is Kevin on the Bickford.
Kevin Carlton Pascoe: Just to clarify your question when you say cap are you referring to though.
Kevin Carlton Pascoe: The.
Kevin Carlton Pascoe: Base rent, they would pay or the amount of deferred rent they pay it and to get FERC. The deferred rent just in the deferred rent formula that you'd talked about how that was revised so I'm just curious if theres any amount with which that quarterly payment.
Kevin Carlton Pascoe: NHI would be would.
Kevin Carlton Pascoe: It would be capped out.
Kevin Carlton Pascoe: Okay, understood. Thanks for the clarification. No, there's not a cap on there.
Speaker Change: Okay I understood.
Speaker Change: Thanks for the clarification no there is not a cap on there what we're trying to do is keeping pace with revenue and as a REIT we cannot participate in the NOI on a lease. So that's why we're basing it off the revenue revenue Formula. We're trying to also keep it in line with where we see.
Kevin Carlton Pascoe: What we're trying to do is keep up with revenue, and, you know, as a REIT, we cannot participate in the NOI on a lease. So that's why we're basing it off the revenue formula. We're trying to keep it in line with where we see margins, but margins meaning that they still have some cash flow thereafter to continue to invest in the communities and in their operations. So again, no cap, but just more, moving the pieces around so we have the appropriate amount of base rent, but still allowing for a run rate that's in line with what we signaled to the market previously.
Kevin Carlton Pascoe: Yes.
Kevin Carlton Pascoe: Margins, but margins, meaning that they still have some cash flow thereafter to continue to invest in the communities and their operations.
Kevin Carlton Pascoe: So again, no cap, but just more.
Kevin Carlton Pascoe: Moving the pieces around so we have the appropriate amount of base rent, but still allowing for a while.
Kevin Carlton Pascoe: A run rate that's in line with what we signaled to the market previously.
Kevin Carlton Pascoe: On the discovery lease, that rent reset, it's comparable in that we modified the base rent and then added in the revenue participation component. That is still kind of fresh as compared to Bigford in terms of timing, so that was really just done in November. They started to pay a small amount as it relates to the revenue portion of it, but it's, again, small as it relates to that deal now. So we would expect that to ramp up over time, and then we would do some sort of pricing reset like we did with Bigford in 2025.
Kevin Carlton Pascoe: On the discovery.
Kevin Carlton Pascoe: Lease that rent reset, it's comparable and that we modified the base rent and then added in the <unk>.
Kevin Carlton Pascoe: Revenue participation component that is still kind of fresh.
Kevin Carlton Pascoe: As compared to Bickford in terms of timing. So that was really just done in November they've started to pay a small amount as it relates to the revenue portion of it but it's.
Kevin Carlton Pascoe: Again small as it relates to that deal now so we would expect that to ramp up over time, and then we would do some sort of pricing reset like we did with bickford.
Kevin Carlton Pascoe: So that's got a little bit more room to season before we're there. They've made progress on occupancy. Overall, I feel like the buildings are operating pretty well, but they just need to keep their move-ins going, which, you know, the underlying properties on those are not the same as what we've seen in SHOP, but we do have confidence in Discovery. You've seen what their progress has been on the SHOP side. They have similar teams that are focused on these buildings, so we have confidence in their ability to keep moving people in.
Kevin Carlton Pascoe: In 2025, so that's got a little bit more room to season before where there they've made progress on occupancy.
Kevin Carlton Pascoe: Overall feel like the buildings are operating pretty well, but they just need to keep.
Kevin Carlton Pascoe: They are new wins, which.
Kevin Carlton Pascoe: The underlying properties on those are not the same as what we've seen in shop, but we do have confidence in discovery <unk> seen what their progress has been on the shop side. They have similar teams that are focused on these buildings. So we have confidence in their ability to keep moving people.
Austin Todd Wurschmidt: That's all for me. Thank you.
Speaker Change: That's all for me thank you.
Operator: Thank you. Your next question is coming from Juan Sanabria from BMO. Your line is live.
Austin Todd Wurschmidt: Thank you. Your next question is coming from Juan Sanabria from BMO. Your line is live.
Juan Carlos Sanabria: Hi, good morning. I just wanted to use this time to ask about NHC. I know it's a kind of unique situation with the related parties involved, but with the percent rent reset at 23 percent, can you comment on how their revenue increased by 23 percent year over year and how that compares to pre-COVID levels?
Juan Carlos Sanabria: Hi, good morning.
Juan Carlos Sanabria: Just wanted to use the time to ask about LHC I know, it's kind of a unique.
Juan Carlos Sanabria: A unique situation with.
Juan Carlos Sanabria: <unk> parties.
Juan Carlos Sanabria: Involved with the percent rent reset with the strength in 'twenty three.
Juan Carlos Sanabria: Can you comment on how nhcd's lease or sorry, how their revenue increased 23 year over year and how that compares to pre COVID-19 levels.
Kevin Carlton Pascoe: Juan, this is Kevin. So the percentage rent increase was higher for sure this year than we've seen it in quite some time. Part of that, we think, is the payers catching up. As an example, specific to Tennessee, there's been some Medicaid rate increases. Some of them we're watching to make sure that they're going to be more long-term in nature. But the nature of it is that several of the states have made catch-up payments lately.
Juan Carlos Sanabria: Juan This is Kevin so the percentage of rent increase was higher for sure. This year than we've seen it in quite some time part of that we think is.
Kevin Carlton Pascoe: As the.
Kevin Carlton Pascoe: Pay or is catching up.
Kevin Carlton Pascoe: As an example specific to Tennessee Theres been some Medicaid rate increases some of our more watching to make sure that theyre going to be more long term in nature.
Kevin Carlton Pascoe: But the nature of it is that.
Kevin Carlton Pascoe: Several of the states have done catch up payments lately the rebounding from Covid, we've seen revenues increase clearly we've benefited from that on the rent side. So it's something we're watching closely making sure that these revenues are going to be sticky.
Kevin Carlton Pascoe: They're rebounding from COVID. We've seen revenues increase. Clearly, we've benefited from that on the rent side. So, it's something we're watching closely, making sure that these revenues are going to be sticky. So far, it looks like they are. So, I think that's good news, but something that we're still focused on. Hey, Juan, this is...
Kevin Carlton Pascoe: So far it looks like they are so I think thats good news, but something that we're still focused on hey, Ron This is John.
John L. Spaid: Hey Juan, this is John. I think there are records. And you got to remember that when you go to pre-COVID, you know, pre-COVID included the seven properties that we disposed of in 2022. So for the population that we have now, it's a record.
Juan: I think there were a record.
John L. Spaid: And you got to remember that when you go to pre Covid.
John L. Spaid: Pre COVID-19, we included the seven properties that we disposed of in 2022.
John L. Spaid: So for the population that we have now at the record.
Kevin Carlton Pascoe: And do you guys have any idea on how that margin would compare to that record in the Simster pool?
Juan: Do you guys have any visibility on how that margin would compare to that.
Kevin Carlton Pascoe: Record on the same store pool.
Kevin Carlton Pascoe: Well, I'll give more of a global response to that. I think we've seen with labor, margins have been pressured by a lot of operators. You can look at their filings and see what their kind of macro... margins are on their buildings.
Juan: Well I'll give more of a global response to that.
Kevin Carlton Pascoe: I think we've seen with labor.
Kevin Carlton Pascoe: Margins have been pressured by a lot of operators you can look at their filings and see what their kind of macro.
Kevin Carlton Pascoe: Margins are on their buildings. So there has been.
Kevin Carlton Pascoe: So there's been, You know, I wouldn't think we'd all agree there's been some pressure there, so probably a bit constrained compared to pre-COVID. So it's good to see that the additional revenue is there. So they are producing additional NOI for themselves. But there are some counterbalancing factors there.
Kevin Carlton Pascoe: I would think we would all agree theres been some pressure there.
Kevin Carlton Pascoe: So probably a bit constrained compared to pre COVID-19.
Kevin Carlton Pascoe: It's good to see that the additional revenue is there so there are producing.
Kevin Carlton Pascoe: Additional NOI for themselves, but it's.
Kevin Carlton Pascoe: There are some <unk>.
Kevin Carlton Pascoe: Balancing factors there.
John L. Spaid: Juan, this is John again. You know, we have a lot of limitations in terms of the information we're getting. For NHC, the best we can do is watch the same sort of public information that you see. So, you know, I think we're continuing to see improvements in their total revenues, on an aggregate basis. We can't completely relate that to our portfolio, but we're a big piece of them, right?
Kevin Carlton Pascoe: Juan This is John again.
John L. Spaid: We have a lot of limitations in terms of the information we're getting.
John L. Spaid: From NH C.
John L. Spaid: First we do can do is watch the same sort of public information that you see.
John L. Spaid: So.
John L. Spaid: I think we are continuing to see improvements of their total revenues.
John L. Spaid: Brigade basis.
John L. Spaid: So.
John L. Spaid: We can't completely relate that to our portfolio, but we are a big piece of them right.
Juan Carlos Sanabria: Thank you, that's helpful. And just the last question, John, you referenced, or maybe it was not John, the expected deferral repayment from Bickford going forward. And is that the amount we should be thinking about? I think it was about a million dollars, correct me if I'm wrong, per quarter. We should be assuming it is built into guidance. Has that been recast with this quarterly result?
Juan: Thank you that's helpful and just the last question I think John you referenced.
Speaker Change: Or maybe it was not John.
Juan Carlos Sanabria: The expected deferral repayment from Bickford going forward and is that the amount we should be taking I think it was about $1 million correct me if I'm wrong per quarter, we should be assuming is built into guidance.
Juan Carlos Sanabria: Been recast this quarterly result.
Juan Carlos Sanabria: So.
John L. Spaid: So, let me let me let me let me answer it this way: Yes and no.
Speaker Change: Let me let me let me, let me answer it this way, yes and no.
John L. Spaid: You know, I haven't really told you a lot about what we're also assuming on the concessions front as well. We're not thinking about any concessions. I'm Bickford, and we're trying to be conservative in our guidance. So, what I'd like to tell you is that we have reason to believe that we're going to see a lot better than what Kevin mentioned, but I may not have answered it really well. Kind of the best answer I can give you.
John L. Spaid: I haven't really told you a lot about while we're also assuming on the concession front as well, we're not thinking about any concessions.
John L. Spaid: On Bickford, and we're trying to be conservative in our guidance. So what I'd like to tell you is we have reason to believe that we're going to.
John L. Spaid: See a lot better.
John L. Spaid: And what Kevin mentioned, but thats.
John L. Spaid: I may not have answered it really well kind of the best answer I can give you.
Speaker Change: Okay. Thank you very much.
Juan Carlos Sanabria: Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone. Your next question is coming from Rich Anderson from Webbush. Your line is live.
Speaker Change: Thank you once again, everyone. If you have any questions or comments. Please press star then one on your phone.
Juan Carlos Sanabria: Your next question is coming from Rich Anderson from Wedbush. Your line is live.
Operator: Sorry to keep it rolling, but I guess we should ask, you know, on the record, I'm assuming you're prepared, like the whole board commentary from Land and Buildings, do you have anything to say about that at this point, or is that a... This is a medically sensitive situation that you can't comment on today.
Richard Charles Anderson: Sorry to keep the rolling but I guess I should we should ask.
Operator: On the record I am assuming your prepared like on the whole board commentary from land and buildings do you have anything to say about that at this point or is that a.
Operator: Equally sensitive situation that you can't comment on today.
Richard Charles Anderson: We have some scripted answers we can give you, Rich. We've had constructive dialogue with Landon Buildings to better understand their views and share ours, and as appropriate, we'll continue to engage with them.
Speaker Change: We have some scripted answers we can give you rich.
Richard Charles Anderson: We've had constructive dialogue with land and buildings to better understand their views on share ours and as appropriate we will continue to engage with land and buildings.
Kevin Carlton Pascoe: Okay, and then the other thing I just got across my wire was a letter from some of the progressive caucus, Senator Warren Sanders, to the operators of skilled nursing facilities, sort of comparing their executive salaries to their inability to meet the minimum staffing requirements. I don't know if you saw something similar or saw that, but do you have any comment now on minimum staffing and, maybe, the political elements to it?
Richard Charles Anderson: Okay.
Richard Charles Anderson: And then.
Kevin Carlton Pascoe: Other thing I, just something came across my wire on.
Kevin Carlton Pascoe: A letter from some of the Progressive Caucus center warrants Sanders to the operators of skilled nursing sort of comparing there.
Kevin Carlton Pascoe: Theyre executive salaries to their inability to meet the minimum staffing requirements I don't know if you saw something similar.
Kevin Carlton Pascoe: All that I should say, but do you have any comment now on minimum staffing and maybe the political elements to it.
Kevin Carlton Pascoe: So we did see the letter and read it and understand maybe why there's a question and also understand our skilled nursing partners and why they're pushing back on the issue. I think there is probably a thoughtful approach to delivering care. When we look at our portfolio, particularly the star ratings are pretty good and stack up really well against it, and think that our operating partners are delivering good care in their buildings.
Kevin Carlton Pascoe: Rich this is Kevin so we did.
Kevin Carlton Pascoe: See the letter and read it and understand.
Kevin Carlton Pascoe: Maybe why there is a question.
Kevin Carlton Pascoe: Also understand our skilled nursing partners and why they are pushing back on.
Kevin Carlton Pascoe: On the issue I think there is probably a thoughtful approach to delivering care. When we look at our portfolio, particularly the star ratings are pretty good and stack up really well against it and I think that our operating partners are delivering good care in their buildings.
Kevin Carlton Pascoe: Again, I think there's probably a more thoughtful way to do it than just applying aggregate hours and saying that that's what it should be for everybody, and then also how that gets applied versus RNs and CNAs.
Kevin Carlton Pascoe: Yeah, and I think there's probably been theres, probably a more thoughtful way to do it and then just applying aggregate hours in saying that thats, what it should be for everybody.
Kevin Carlton Pascoe: And then also how that gets applied versus rns and CNA.
Kevin Carlton Pascoe: I think the biggest issue that we have is just the ability to get labor. It's not so much that they don't want to care for residents, it's that they need to be able to attract and retain talent, and it's not there, especially when you look at the RNs that are available. We see that in our markets where it's kind of a trickle-down effect where the hospitals get first pick and then the skilled nursing facilities, you know, they're scrambling to get nurses, and then it flows down to even into senior housing where they're struggling to keep nurses.
Kevin Carlton Pascoe: I think the biggest issue that we have is just the ability of ability to get labor. It's not so much that they don't want to care for residents that they need to be able to.
Kevin Carlton Pascoe: Attract and retain talent and it's not there, especially when you look at the <unk>.
Kevin Carlton Pascoe: That are available.
Kevin Carlton Pascoe: We see that in our markets, where it's kind of a trickle down effect, where the hospitals get first pick and then.
Kevin Carlton Pascoe: The skilled nursing.
Kevin Carlton Pascoe: They are scrambling to get nurses and then it flows down to even into the senior housing where they're struggling to keep nurses. It's just not available it doesn't matter how much you pay them. They don't have people to be able to staff. So again I think there is there is a more thoughtful approach.
Kevin Carlton Pascoe: It's just not available. It doesn't matter how much you pay them. They don't have the people to be able to staff it. So again, I think there's a more thoughtful approach that's likely out there. I'd like to think that there can be a compromise, and it seems like there's going to be more work to be done on this.
Kevin Carlton Pascoe: Lay out there.
Kevin Carlton Pascoe: I'd like to think that there can be a compromise and it seems like theres going to be more work to be done on this.
Richard Charles Anderson: Okay, good enough. Thanks, Culler. I appreciate it. Thanks, Rich.
Speaker Change: Okay. Good enough thanks for that color I appreciate it.
Speaker Change: Thanks Rich.
Operator: Thank you. That concludes our Q&A session. I'll now hand the conference back to Eric Mendelson for closing remarks.
Richard Charles Anderson: Thank you that concludes our Q&A session I will now hand, the conference back to Eric Mendelson for closing remarks. Please go ahead.
Eric Mendelson: Thanks for attending, everyone, and we'll look forward to seeing you at NARI in June.
Eric Mendelson: Thanks for attending everyone and we'll look forward to seeing you at NAREIT in June.
Operator: Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Eric Mendelson: Thank you everyone. This concludes today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.