Q1 2024 Omega Healthcare Investors Inc Earnings Call
Greetings and welcome to Omega Health care investors first quarter 'twenty 'twenty four earnings conference call.
Operator: Greetings. Welcome to the Omega Healthcare Investors first quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. After today's presentation, there will be a brief question and answer session. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Michele Reber.
At this time, all participants are in listen only mode.
After today's presentation there'll be a brief question and answer session.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to Michelle Reiber.
Michele Reber: You may now begin Michelle.
Michele Reber: Thank you and good morning with me today is Omega CEO Taylor Pickett C. O M P CFO, Bob Stephenson and Megan Kroll Senior Vice President of operations.
Michele Reber: Thank you and good morning. With me today is Omega's CEO, Taylor Pickett, COO, Dan Booth, CFO, Bob Stephenson, and Megan Krull, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, potential transactions, operator prospects, and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC.
Michele Reber: Comments made during this conference call that are not historical facts may be forward looking statements such as statements regarding our financial projections potential transactions, operator prospects and outlook generally factor.
Michele Reber: Factors that could cause actual results to differ materially from those in the forward looking statements are detailed in the company's filings with the SEC.
Michele Reber: During the call today, we will refer to some non-GAAP financial measures, such as NAVREAD FFO, Adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement. 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 Omega. I will now turn the call over to Taylor.
Michele Reber: During the call today, we will refer to some non-GAAP financial measures such as NAREIT at FIFO adjusted F. F O Fad and EBITDA reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles are available in the quarterly supplement in addition, certain operator coverage and financial information that we discuss.
Michele Reber: Based on data provided by our operators that has not been independently verified by Omega I will now turn the call over to Taylor.
Taylor Pickett: Thanks Michelle.
Taylor Pickett: Thanks, Michele. Good morning, and thank you for joining our first quarter 2024 earnings conference. Today I will discuss our first quarter financial results and certain key operating trends. First quarter FAD funds available for distribution of $0.65 per share were better than expected and should continue to improve as several portfolios are in the process of being transitioned, which will result in meaningful fad upside over the next few quarters. Our dividend payout ratio of 103% remains slightly elevated but should drop into the mid 90% range in the upcoming quarter.
Taylor Pickett: Good morning, and thank you for joining our first quarter 2024 earnings conference call.
Today, I will discuss our first quarter financial results and certain key operating trends.
Taylor Pickett: First quarter Fad funds available for distribution of 65 cents per share it was better than expected.
And should continue to improve as separate portfolios are in the process of being transitioned which will result in meaningful fad upside over the next few quarters.
Taylor Pickett: Our dividend payout ratio of 103%.
Taylor Pickett: Remains slightly elevated but should drop into the mid 90% range in the upcoming quarters.
Taylor Pickett: We continue to have a handful of cash basis operators.
Taylor Pickett: We continue to have a handful of cash basis operators, including Maplewood and LaVie, that will impact our go-forward AFFO and FAS, making full year 2024 FAD difficult to predict. However, longer term, we believe all these assets, but in particular Maplewood, are well positioned to generate reliable and growing cash flows and related rent. Although the first quarter AFFO of 68 cents per share was strong, we have elected to remain conservative with respect to our full year guidance, and accordingly, we are maintaining our 2024 AFFO guidance of between $2.70 and $2.80 per share.
Excluding maplewood and levee.
Taylor Pickett: Impact our go forward, so and fat.
Taylor Pickett: Making full year 2024, fad difficult to predict however.
Taylor Pickett: However longer term, we believe all of these assets, but in particular neighborhood.
We're well positioned to generate reliable and growing cash flows and related rent.
Taylor Pickett: Although first quarter <unk> 68 per share with strong we've elected to remain conservative with respect to our full year guidance and accordingly, we are maintaining our 2020 for a F. F O guidance between $2 70, and $2 80 per share.
Taylor Pickett: As Dan will discuss key tenant occupancy and rent coverage metrics continue to improve.
Daniel J. Booth: As Dan will discuss, key tenant occupancy and rent coverage metrics continue to improve. The under one times EBITDAR coverage operator metric moved up slightly, from 13.2% of total rent to 14.5% of total rent, due to a 3.3% operator that moved from slightly above 1.0 times coverage to slightly below 1.0 times coverage at 0.98 times EBITDAR coverage. We expect this operator to eventually move back above 1.0 times coverage due to state Medicaid rate increases, leaving a balance of 11.2% below 1.0 times coverage.
Taylor Pickett: The under one times EBITDAR coverage, operator metric moved up slightly.
Taylor Pickett: From 13, 2% of total rent.
To 14, 5% of total rent.
Taylor Pickett: Due to a 3.3% operator that moved from slightly above 1.0 times coverage to slightly below 1.0 times coverage at 0.98 times EBITDAR coverage.
Taylor Pickett: We expect this operator to eventually move back above 1.0 times coverage due to state Medicaid rate increases.
Taylor Pickett: Leaving a balance of 11.2% or below 1.0 times coverage operators.
Daniel J. Booth: In looking at the 11.2% balance of below one-time operators, we can break the 11.2% into a handful of buckets. Operators representing 6.2% of the 11.2% are strong credits, and therefore, payment of rent should not be an issue. Operators representing 2.2% have fourth quarter and January EBITDA coverage above 1.0 times or are benefiting from state rate increases and operational improvements that we expect to continue on a go-forward basis. That leaves operators representing just 2.8%, consisting of eight small operating relations.
Taylor Pickett: And looking at the 11, 2% balance of below one times operators.
Taylor Pickett: We can break the 11.2% into a handful of buckets.
Taylor Pickett: Operators, representing six 2%.
Taylor Pickett: The 11, 2% our strong credits and therefore payment of rent should not be an issue.
Taylor Pickett: Operators, representing 2.2%, our fourth quarter and January EBITDAR coverage above 1.0 times or are benefiting from state rate increases and operational improvements that we expect to continue on a go forward basis.
Taylor Pickett: That leaves operators, representing just two 8% consisting of eight small operating relationships.
Taylor Pickett: Lastly, the government has issued its final rule for skilled nursing facility minimum staff. Unfortunately, many of the constructive industry ideas and comments that include the use of technology and certain best practices were not included in the final rule, as there is a long lead time for the implementation of the final rule. We remain cautiously optimistic that the rule will be improved over the next couple of years. I will now turn the call over to
Taylor Pickett: Lastly, the government has issued its final rule for skilled nursing facility minimum staffing.
Taylor Pickett: Unfortunately, many of the constructive industry ideas and comments that include the use of technology in certain best practices were not included in the final rule.
Taylor Pickett: And so there's a long lead time for the implementation of the final rule.
We remain cautiously optimistic that the rule will be improved over the next couple of years.
Taylor Pickett: I'll now turn the call over to Bob.
Robert O. Stephenson: Thanks, Taylor and good morning.
Robert O. Stephenson: Thanks, Taylor, and good morning. Turning to our financials for the first quarter, revenue for the first quarter was $243 million before adjusting for certain non-recurring items compared to $218 million for the first quarter of 2023. The year-over-year increase is primarily the result of the timing and impact of operator restructurings, transitions, and revenue from new investments completed throughout 2023 and 2024, partially offset by asset sales completed during that same period.
Robert O. Stephenson: Turning to our financials for the first quarter.
Robert O. Stephenson: Revenue for the first quarter was $243 million before adjusting for certain nonrecurring items compared to $218 million for the first quarter of 2023.
Robert O. Stephenson: The year over year increase is primarily the result of timing and impact of operator, restructurings transitions and revenue from new investments completed throughout 2023, and 2024, partially offset by asset sales completed during that same period.
Robert O. Stephenson: Our NAREIT <unk> for the first quarter was $153 million or <unk> 60 per share as compared to $146 million or <unk> 60 per share for the first quarter of 2023.
Robert O. Stephenson: Our NARIC FFO for the first quarter was $153 million, or $0.60 per share, as compared to $146 million, or $0.60 per share, for the first quarter of 2023. Our Adjusted FFO was $176 million, or $0.68 per share for the quarter, and our FAD was $168 million, or $0.65 per share, and both exclude several items consistent with historical practices and outlined in our NARIC FFO, Adjusted FFO, and FAD Reconciliations to Net Income found in our earnings release, as well as in our First Quarter Financial Supplemental, posted to our website.
Robert O. Stephenson: Our adjusted <unk> was $176 million or <unk> 68 per share for the quarter and our fad was $168 million or <unk> 65 per share and both exclude several items consistent with historical practices and outlined in our NAREIT <unk> adjusted <unk> and Fad reconciliation.
<unk> to net income found in our earnings release as well as our first quarter financial supplemental posted to our website.
Robert O. Stephenson: Our balance sheet continues to remain strong in the first quarter, we completed $55 million in new investments, excluding capex and funded the investments with balance sheet cash and the issuance of $33 million in equity under our ATM program.
Robert O. Stephenson: Our balance sheet continues to remain strong. In the first quarter, we completed $55 million in new investments, excluding CapEx, and funded the investments with balance sheet cash and the issuance of $33 million in equity under our ATM program. In the first quarter, we repaid all of our outstanding HUD mortgages, totaling $42 million.
Robert O. Stephenson: In the first quarter, we repaid all of our outstanding HUD mortgages totaling $42 million.
Robert O. Stephenson: These repayments stem from the previously disclosed Levy Asset Sales and Transition. We ended the quarter with over $360 million in cash on the balance sheet and over $1.4 billion in credit facility borrowing capacity. Subsequent to quarter end on April 1st, we repaid our $400 million maturing bond using balance sheet cash, April 1st rent collections, and borrowing the remaining balance on the credit facility. At March 31st, 99% of our $5.1 billion in debt was at fixed rates, and our net funded debt to annualized adjusted normalized EBITDA was 5.03 times, and our fixed charge coverage ratio was 3.9 times.
Robert O. Stephenson: These repayments stemmed from the previously disclosed levee asset sales and transitions.
Robert O. Stephenson: We ended the quarter with over $360 million in cash on the balance sheet and over $1 $4 billion in credit facility borrowing capacity subs.
Robert O. Stephenson: Subsequent to quarter end on April one, we repaid our $400 million maturing bond using balance sheet cash April 1st rent collections and borrowing the remaining balance on the credit facility.
Robert O. Stephenson: At March 31st 99% of our $5.1 billion and debt was at fixed rates and our net funded debt to annualized adjusted normalized EBITDA was 5.03 times.
Robert O. Stephenson: Our fixed charge coverage ratio was three nine times.
Robert O. Stephenson: Turning to guidance, as Taylor mentioned, we affirmed our full-year adjusted FFO guidance of between $2.70 and $2.80 per share. To reiterate a few of the key assumptions from the last earnings call, we're assuming no change in our revenue related to operators on an accrual basis of revenue recognition. We're assuming Levy continues to pay at the existing rate of $1.5 million per month until completion of the portfolio restructuring. Additionally, in continued improvement in Maplewood's ability to pay contractual rent, we're assuming $82 million in asset sales related to the facilities classified as assets held for sale at the end of the first quarter.
Robert O. Stephenson: Turning to guidance as Taylor mentioned, we affirmed our full year adjusted <unk> guidance of between $2.70 and $2.80 per share.
Robert O. Stephenson: To reiterate a few of the key assumptions from the last earnings call.
Robert O. Stephenson: We're assuming no change in our revenue related to operators on an accrual basis of revenue recognition.
Robert O. Stephenson: We're assuming levee continues to pay at the existing rate of $1.5 million per month until completion of the portfolio restructuring.
Robert O. Stephenson: And continued improvement in maplewood ability to pay contractual rent, we're assuming $82 million in asset sales related to the facilities classified as assets held for sale at the end of the first quarter.
Robert O. Stephenson: We've included the annual impact of our 2024 investments completed through May 2nd, as disclosed in the earnings release. We project our quarterly G&A expense to continue to run between $11.5 and $13.5 million per quarter. We assume no material changes in market interest rates as they relate to either the interest earned on balance sheet cash or interest expense charged on credit facility borrowing. Additionally, our 2024 Adjusted FFO Guidance does not include any additional new investments or asset sales as well as any additional capital transactions other than what was already mentioned.
Robert O. Stephenson: We've included the annual impact of our 2024 investments completed through May 2nd as disclosed in the earnings release.
Robert O. Stephenson: We project, our quarterly G&A expense to continue to run between 11, and a half and 13 and a half million dollars per quarter.
Robert O. Stephenson: We assume no material changes in market interest rates as they relate to either the interest earned on balance sheet cash or interest expense charge, one credit facility borrowings.
Robert O. Stephenson: Our 2024 adjusted <unk> guidance does not include any additional new investments or asset sales as well as any additional capital transactions other than what was already matching.
Robert O. Stephenson: As several operator transitions are still in negotiations and the precise timing is unknown, we continue to provide a wide range in our AFFO Guide, as stated in yesterday's earnings press release. In the first quarter, Levee paid approximately $4.4 million in rent, and in April, they paid $1.5 million in rent. In addition, in the first quarter, we recorded $100,000 in rent related to two Transition to Levee facilities and anticipate $300,000 in rent per quarter related to that transition. Turning to Guardians.
Robert O. Stephenson: As several operator transitions are still in negotiations and the precise timing is unknown. We continue to provide a wide range to our <unk> guidance.
Robert O. Stephenson: I stated in Yesterdays earnings press release in the first quarter levee paid approximately $4.4 million from rent and in April they paid $1.5 million from rent.
In addition in the first quarter, we recorded $100000 in rent related to two transitions Levine facilities and anticipate $300000 in rent per quarter related to that transition.
Robert O. Stephenson: Turning to the Guardian, we applied.
Robert O. Stephenson: We applied the remaining $60,000 in the security deposit in the first quarter, and no additional cash rent was received from Guardian, and the portfolio has been transitioned to an estimated annual rent of $5.5 million starting in mid-April with the potential to increase up to $12.4 million annually. And lastly, Maplewood paid $11.3 million in rent in the first quarter. In April, Maplewood paid $3.8 million in rent.
Robert O. Stephenson: The remaining $60000 in security deposits in the first quarter and no additional cash rent was received from Guardian and the portfolio has been transitioned with estimated annual rent of $5 5 million dollar starting in mid April with a potential to increase up to $12 $4 million annually.
Robert O. Stephenson: And lastly, maplewood paid $11.3 million in rent in the first quarter and April Maplewood paid $3 $8 million in rent.
Daniel J. Booth: Dan will provide additional color on these operators in his prepared remarks, and with that, I will turn the call over to Dan.
Dan will provide additional color on these operators in his prepared remarks, and with that I will turn the call over to Dan.
Daniel J. Booth: Thanks, Bob, and good morning, everyone. As of March 31st, 2024, Omega had an operating asset portfolio of 866 facilities with approximately 84,000 operating beds. These facilities were spread across 73 third-party operators and located in 42 states in the United Kingdom. Trailing 12-Month Operator EBITDA coverage for our core portfolio as of December 31, 2023, increased to 1.33 times versus 1.28 times for the trailing 12-month period ended September 30, 2023. During the fourth quarter of 2023, our operators cumulatively recorded approximately $13.5 million in federal stimulus funds, as compared to approximately $12 million recorded during the third quarter.
Dan: Thanks, Bob and good morning, everyone.
Dan: As of March 31st 2020 for Omega had an operating asset portfolio of 866 facilities with approximately 84000 operating beds.
Dan: These facilities were spread across 73 third party operators and located within 42 states and the United Kingdom.
Daniel J. Booth: Trailing 12-month Operator EBITDA coverage would have increased during the fourth quarter of 2023 to 1.28 times as compared to 1.21 times for the third quarter when excluding the benefit of any federal stimulus funds. EBITDA coverage for the standalone quarter ended December 31, 2023 for a core portfolio was 1.48 times including federal stimulus and 1.41 times excluding the $13.5 million of federal stimulus funds. This compares favorably to the stand-alone third quarter of 1.33 times and 1.27 times with and without the $12 million in federal stimulus funds, respectively.
Dan: Trailing 12 month, operator, EBITDAR coverage for our core portfolio as of December 31, 2023 increased to 1.33 times versus 1.28 times for the trailing 12 month period ended September 30th 2023.
Dan: During the fourth quarter of 2023, our operators cumulative ability recorded approximately $13 $5 million and federal stimulus funds as.
Dan: As compared to approximately $12 million recorded during the third quarter.
Dan: Trailing 12 month, operator, EBITDAR coverage would have been increased during the fourth quarter of 2023 to 1.28 times as compared to 1.21 times for the third quarter when excluding the benefit of any federal stimulus funds.
EBITDAR coverage for the stand alone quarter ended December 31, 2023 for our core portfolio was 1.48 times, including federal stimulus and 1.41 times, excluding the $13 $5 million of federal stimulus funds.
This compares favorably to the stand alone third quarter of 1.33 times, and 1.27 times with and without the $12 million in federal stimulus funds respectively.
Daniel J. Booth: During the second half of 2020, as the pandemic began to meaningfully impact our tenants' operations, the federal government began to provide relief in the form of direct stimulus payments to virtually all nursing home operators throughout the country. Knowing that the federal stimulus dollars were intended to offer short-term relief to cash-strapped operators, Omega began to report its coverage ratios on both a before and after stimulus basis. As federal stimulus dollars have essentially ceased, our coverage reporting beginning in the first quarter of 2024 will exclude any mention of federal stimulus.
Dan: During the second half of 2020 as the pandemic began to meaningfully impact our tenants' operations. The federal government began to provide relief in the form of direct stimulus payments to virtually one nursing home operators throughout the country.
Dan: Knowing that the federal stimulus dollars were intended to offer short term relief to cash strapped operators.
Dan: It began to report its coverage ratios on both a before and after stimulus basis as federal stimulus dollars have essentially ceased our coverage reporting beginning in the first quarter of 'twenty 'twenty four will exclude any mention of federal stimulus funds.
Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 'twenty 'twenty, 2% to 88% as of mid April of 2024 based upon preliminary reporting from our operators.
Daniel J. Booth: Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 2022 to 80.8% as of mid-April of 2024, based upon preliminary reporting from our operators. For comparative purposes, occupancy for our core portfolio was 83.2% for the fourth quarter of 2019, just prior to the onset of the COVID pandemic. Turning to portfolio matters, the Levee.
Dan: For comparative purposes occupancy for our core portfolio was 83, 2% for the fourth quarter of 2019, just prior to the onset of the Covid pandemic.
Turning to portfolio matters.
Daniel J. Booth: After a considerable number of divestitures in 2023 and the first quarter of 2024, Omega's remaining portfolio with Levee consists of 31 facilities, which include 13 facilities in North Carolina, 9 in Pennsylvania, 6 in Mississippi, 2 in Virginia, and 1 in Florida. We remain in ongoing discussions with LaVie on the best overall future for each of these remaining 31 facilities. Levy has paid approximately $1.5 million per month in rent for the last six months, including April of 2024. Mabelwood.
Dan: After a considerable number of divestitures in 2023, and the first quarter of 2020 for Omega three remaining portfolio with levee consistent 31 facilities, which include 13 facilities in North Carolina nine in Pennsylvania, six in Mississippi, two in Virginia, and one in Florida.
Dan: We remain in ongoing discussions with Liberty on the best overall feature of each of these remaining 31 facilities will be as paid approximately $1 $5 million per month in rent for the last six months, including April of 2024.
Daniel J. Booth: During the first quarter of 2024, Mabelwood paid $11.3 million in rent. In April of 2024, Mabelwood paid $3.8 million in rent. Maplewood continues to see strong performance across the portfolio, with 16 of the 17 facilities fully stable.
Dan: Maplewood during the first quarter of 'twenty 'twenty four.
Dan: We would paid rent of $11 $3 million in April of 'twenty, 'twenty, four maplewood paid $348 million in rent.
Dan: Maplewood continues to see strong performance across the portfolio with 16 of the 17 facilities fully stabilized.
Daniel J. Booth: Occupancy at Inspire New York City is currently at 66%, while the 16 stabilized Maplewood communities are currently at 93% Gordian. During the first four months of 2024, Omega released the remaining six facilities that were formerly Guardian assets to an unrelated third party. This concludes our restructuring of our Guardian portfolio and our relationship overall. In addition to the aforementioned restructurings and transitions, Omega is working with several other relatively small operators on various restructurings.
Dan: Occupancy and inspire New York City is currently at 66%, while the 16 stabilized Maplewood communities are currently 93%.
Speaker Change: Good morning.
During the first four months of 'twenty 'twenty four Omega released the remaining six facilities that were formerly guardian assets to an unrelated third party.
Speaker Change: This concludes our restructuring of our Guardian portfolio in our relationship overall.
Speaker Change: In addition to the aforementioned restructurings and transitions Omega is working with several other relatively small operators on various restructurings.
Daniel J. Booth: Turning to new investments, during the first quarter of 2024, Omega completed a total of $75 million in new investments, comprised of $41.2 million in real estate loans, $13.3 million in real estate acquisitions, and $20.5 million in CapEx investments. The new loans have a weighted average interest rate of 9.6%, and the new acquisitions have a weighted average annual yield of 9.8% with a 2.5% annual SQE. Subsequent to the first quarter of 2024, Omega closed on $165 million in new investment, comprised of $71.7 million in real estate loans and $93.7 million in acquisitions.
Speaker Change: Turning to new investments during the first quarter of 'twenty 'twenty four.
Speaker Change: <unk> completed a total of $75 million in new investments comprised of $41 $2 million in real estate loans $13 $3 million in real estate acquisitions and $25 million in Capex investments.
Speaker Change: The new loans have a weighted average interest rate of nine 6%.
The new acquisitions have a weighted average annual yield of nine 8% with 2.5% annual escalators.
Subsequent to the first quarter of 2020 for Omega closed on $165 million in new investments.
Speaker Change: Price of $71.7 million in real estate loans and $93.7 million in acquisitions.
Daniel J. Booth: The $71.7 million in loans were made to an existing UK operator and bear an interest rate of 10%. Subsequent acquisitions include Omega acquired 32 care homes in the UK and leased them back to a new operator at an initial cash yield of 10% with 2.5% escalators, and a $31 million sale-leaseback transaction whereby Omega acquired one facility in Michigan and leased it back to an existing operator at an initial cash yield of 11.5 percent with annual escalators of 2%. Year-to-date, Omega has closed on $240 million in new investment. I will now turn the call over to Megan.
Speaker Change: $71.7 million in loans were made to an existing U K, operator, and bear an interest rate of 10%.
Speaker Change: The subsequent acquisitions include.
Speaker Change: Ah $62.7 million sale leaseback transaction, whereby Omega acquired 32 care homes in the U K and leased them back to a new operator, and an initial cash yield of 10% with two 5% escalators.
Speaker Change: And a $31 million sale leaseback transaction, whereby Omega acquired one facility in Michigan and leased it back to an existing operator and at an initial cash yield of 11, 5% with annual escalators of 2%.
Speaker Change: Year to date Omega has closed on $240 million in new investments.
Speaker Change: I will now turn the call over to Megan.
Megan M. Krull: Thanks Dan, and good morning everyone. The staffing mandate was finalized in April despite the fact that a majority of facilities in the United States do not currently meet the requirements, and that CMS provided for no funding mechanism. Although there is a delayed implementation based on urban versus rural, other than a very limited waiver exception, no adjustments were made in the final rule to take into consideration the wide variability of access to staffing across geographic regions or the actual acuity level of residents at any given building.
Thanks, Dan and good morning, everyone. The staffing mandate was finalized in April despite the fact that a majority of facilities in the United States do not currently meet the requirement.
Megan M. Krull: And that CMS provided for no funding mechanism.
Megan M. Krull: And although there is a delayed implementation based on urban versus rural other than a very limited waiver exception no adjustments were made in the final rule to take into consideration the wide variability of access to staffing across geographic regions or the actual acuity level of residents at any given building.
Megan M. Krull: The rules stayed largely unchanged from what was initially proposed, despite calls for LPNs to be used to cover some of the proposed requirements and for the 24-7 RN requirement to be covered by telehealth or on-call RN support. Instead, the one change that was made was to increase the overall hours from 3 to 3.48, with the additional.48 added to be covered by any mix of RNs, CNAs, or LPNs. That overall number is to take effect in two years for urban facilities and three years for rural. Unchanged from the proposed rule were the 24-7 R.N.
Megan M. Krull: The rules stayed largely unchanged from what was initially proposed despite calls for L. P. M to be used to cover some of the proposed requirements and for the 24, seven RN requirement to be covered by telehealth or on call R&D support.
Megan M. Krull: Instead, the one change that was made was to increase the overall hours from three to 3.48 with the additional 0.48 added to be covered by any mix of Rins C. N. A S. R. L. P M.
Megan M. Krull: Overall numbers to take effect in two years for urban facilities and three years for rural.
Megan M. Krull: Unchanged during the proposed rule, where the 24 seven RN requirement going into effect in two years for urban facilities and three years for rural and the required 0.55, and 2.45 hours per resident day for our ends and nursing needs respectively going into effect in three years for urban facilities in five years.
Megan M. Krull: For rural.
Megan M. Krull: As a reminder, while there's obviously a longer term impact that this mandate could have on the industry. The impact is negligible in the near term given the delayed implementation a lot can happen in the two years until the first set of requirements is that to be enforced. In addition to bipartisan legislation that has already been introduced in Congress.
Megan M. Krull: requirement going into effect in two years for urban facilities and three years for rural, and the required.55 and 2.45 hours per resident day for R.N.s and nursing aides, respectively, going into effect in three years for urban facilities and five years for rural. As a reminder, while there is obviously a longer-term impact that this mandate could have on the industry, the impact is negligible in the near term given the delayed implementation.
Megan M. Krull: A lot can happen in the two years until the first set of requirements is set to be enforced. In addition to bipartisan legislation that has already been introduced in Congress and the potential for legal action, there is also the potential that additional rulemaking will change the mandate in the coming years. And irrespective of all that, at the end of the day, as has been the primary focus on reimbursement over the last couple of years related to inflation, the states, in this case, are really the ones that will need to step up in a meaningful way if this mandate remains as is.
Megan M. Krull: And the potential for legal action. There's also the potential that additional rulemaking will change the mandate in the coming years.
And irrespective of all of that at the end of the day as has been the primary focus on reimbursement over the last couple of years related to inflation.
Megan M. Krull: States in this case are really the ones that we need to step up in a meaningful way at this mandate remains as is.
Megan M. Krull: Notwithstanding the overhang, there remains positive momentum in the fundamentals of the business. We continue to hear from our operators that agency usage is down and in certain portfolios it has been eliminated entirely. However, the wide variation by market remains.
Megan M. Krull: Notwithstanding the overhang there remains positive momentum at the fundamentals of the business. We continue to hear from our operators that agency usage is down and in certain portfolios has been eliminated entirely however, the wide variation by market remains.
Operator: Occupancy continues its steady improvement, with a slight anticipated slowdown in the winter months. The number of core facilities recovered is now at 44%, up from the 42% reported in the third quarter. Additionally, 21% of core facilities that have not yet fully recovered are at or above 84% occupancy. I will now open the call up for questions.
Megan M. Krull: Occupancy continues its steady improvement with a slight anticipated slowdown in the winter months. The number of core facilities recovered is now at 44% up from the 42% reported in the third quarter.
Megan M. Krull: Additionally, 21% of core facilities that have not yet fully recovered or at or above 84% occupancy I will now open the call up for questions.
Thank you.
Operator: We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Speaker Change: We will now be conducting a question and answer session.
Speaker Change: To ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Jonathan Hughes: We ask that you please limit your questions to one question and one follow-up. One moment, please, while we poll for questions. Thank you. And our first question is from Jonathan Hughes with Raymond James. I'm pleased to see you with your question.
Speaker Change: We ask that you. Please limit your questions to one question and one follow up.
One moment, please we poll for questions.
Speaker Change: Thank you and our first question is from Jonathan Hughes with Raymond James. Please proceed with your question.
Taylor Pickett: Hi, good morning. Thanks for the prepared remarks and commentary. I was hoping you could share some details of what the investment pipeline looks like today in terms of size, fee simple acquisitions versus loans, and maybe opportunities in the UK since we've seen some more deals there by you recently.
Jonathan Hughes: Hi, good morning, Thanks for the prepared remarks and commentary.
Jonathan Hughes: I was hoping you could share some details of what the investment pipeline looks like today in terms of size a fee simple acquisitions versus loans in and maybe opportunities in the UK since we've seen some more deals there recently.
Speaker Change: Yeah good morning.
Taylor Pickett: Yeah, good morning. I would say that the pipeline today.., is about as active as we've seen it in many years that spread across, Really everything that's SNPS, that's senior housing, that's U.S., that's U.K. We don't really toggle a dollar amount to that, number of deals but it's substantial and quite frankly there's there's just a lot of deals flowing in at the moment so I'd say very active.
Speaker Change: I would say that the pipeline today.
Speaker Change: And it's about as active as we've seen it in many years.
Speaker Change: That spread across.
Really everything that snaps that senior housing that's you asked that's U K.
Speaker Change: We don't really talk about dollar amount to that.
Speaker Change: Number of deals, but it's substantial and quite frankly, there's just a lot of deals falling in at the moment.
Speaker Change: I'd say very active.
Speaker Change: Yeah.
Taylor Pickett: All right. And then maybe on the operator transition. There's our, those are a normal part of your business in the industry, and it was great to see Guardian completed. I guess, have you found it more challenging recently to find replacement operators, given some of the uncertainty facing skilled nursing on the regulatory and labor availability front, or maybe do transitions just take longer now because there might be more uncertainty? Just any color there on the transitions would be great.
Speaker Change: Alright.
Speaker Change: And then maybe on the operator.
Speaker Change: In addition.
Speaker Change: Those are I mean.
Speaker Change: Those are a normal part of your business in the industry and it was it was great to see Guardian completed.
Speaker Change: I guess have you found it more challenging recently to find replacement operators given some of the uncertainty facing skilled nursing on the regulatory and labor availability front or or maybe do transitions just take longer now because they're there might be more uncertainty.
Speaker Change: Just any color there and transitions would be great.
Speaker Change: Yeah.
Taylor Pickett: You know, I think it depends. Guardian was a restructuring that took place in three parts over several years, and what we were left with at the end was not probably the greatest assets in some difficult states. So those were challenging.
Speaker Change: You know I think it depends in the Guardian was restructuring took place in three parts over several years and what we were left with at the end was.
Taylor Pickett: But for the most part, what we are looking at, and what we've restructured over the course of the last several years, it hasn't really been all that challenging. Now, we've sold a number of assets, which is not our first choice. But, you know, that was the better thing to do, given the time. But right now, we're not in a big restructuring mode, with the exception of the remaining lobby portfolio. So we're not seeing a lot of that.
Speaker Change: Probably the greatest assets.
<unk> state so does more challenging.
Speaker Change: But for the most part what we are looking at and what we've restructured over the course of the last several years, it's not hasn't been really all that challenging now we've sold a number of assets, which is not our first choice, but you.
Speaker Change: Yeah.
Speaker Change: Better thing to do given the time, but right now we're in.
Speaker Change: Unfortunately were not enough.
Speaker Change: Restructuring.
Speaker Change: With the exception of the remaining won't be portfolio.
So we're not seeing a lot of that.
Taylor Pickett: Okay, that's great. And then maybe one more quick one. What's the timeline for The Guardian, your rent increase potential? I think I saw five and a half today, and it could go to 12. Is that possible, you know, over the next year or more like several years from now? So that could be this year.
Speaker Change: Okay. That's great and then maybe one more quick one what's the timeline for the Guardian.
Speaker Change: Rent increase potential I think I'd I saw their five and a half today and it could go to 12 is that possible you know over the next year or more like several years from now.
Speaker Change: So that could be this year.
Taylor Pickett: So that could be this year. It's really exciting.
Speaker Change: Really.
Taylor Pickett: It's a revenue-based kicker, if you will, so, You know, the operator that's in there today that just came in has been in there for 30 days. So it's too early to predict where they're going to come out in terms of, you know, increasing revenues. It could be a low point, a midpoint, a high point. It is just too early to say once again. But it is revenue-based. We do expect there to be some increase in the number over 2024.
Speaker Change: It's a revenue based.
Speaker Change: Kicker if you will so.
Speaker Change: The operator has been sitting there today that just came in its been there for 30 days. So it's too early to predict when they're going to come out in terms of.
Speaker Change: You know increasing revenues could be low point mid point I point, just too early to say once again, but it is revenue based we do expect it there.
Speaker Change: It would be some increase in the number.
Speaker Change: Over the 2024.
Speaker Change: Yeah.
Speaker Change: Alright, thanks for the time.
Speaker Change: Okay.
Speaker Change: Yeah.
Vikram L. Malhotra: Our next questions are from the line of Vikram Malhotra with Ms. Uho. Please proceed with your question.
Speaker Change: Our next questions are from the line of Vikram Malhotra with Mizuho. Please proceed with your questions.
Taylor Pickett: Thanks for taking the question, just, you know, maybe building upon Guardian, I guess, just versus the other two restructurings with Guardian. The new rent level for those assets seemed to be a bit below expectation, at least on our side. I'm wondering, is there any read-across to the resolution of Levy or Maplewood, just given maybe still some industry headwinds and this minimum staffing, or are those two situations unique enough where you have maybe more visibility to the ultimate revenue collection or rent collection?
Vikram L. Malhotra: Thanks for taking the question just you know maybe building upon Guardian, I guess just versus the other two restructurings I guess with Guardian's.
Vikram L. Malhotra: New rent level for those assets was it seemed to be a bit below expectations at least on our site.
Vikram L. Malhotra: I'm wondering is there any read across to resolution of the V or maplewood, just given maybe skills some industry headwinds and the minimum staffing.
Or are those two situations unique enough where you will you are you have a maybe more visibility to the ultimate revenue collection of rent collection.
Speaker Change: Yeah, just as Taylor just.
Taylor Pickett: Yeah, just like Taylor, just a little more color. As Dan mentioned, Guardian was unique in that the bulk of those assets were in Pennsylvania, which is a very difficult state today. And I'll toggle over to LaVie, where we have very desirable states with meaningful cash flow. And our expectation is that the baseline rent we're collecting today, a million and a half a month, will increase substantially. And then Naplewood, I wouldn't even really call that a workout from our perspective; it's finalizing the issues with the estate, finalizing our business deal with the current master team, and just moving that forward and getting the noise away from that management team. You know, we expect that those cash flows will improve throughout the year, especially as a team is able to focus on its business and not extracting themselves from the process of the
Speaker Change: A little more color as Dan mentioned Guardian was.
Speaker Change: Unique and that the bulk of those assets are.
Speaker Change: Alright in Pennsylvania, which is a very difficult state today at.
Speaker Change: And a follow up then over to <unk>, where we have a very desirable states.
Speaker Change: With meaningful cash flow and our expectation is to be.
Speaker Change: <unk> signed rent we are collecting today a million and a half a month will increase substantially.
And then maplewood I wouldn't even really called out to work out from our perspective.
Speaker Change: Finalizing the issues with the estate finalizing.
Speaker Change: Our our business deal the current management team it.
Speaker Change: And just moving that forward in getting the noise away from that management team.
We expect that those cash flows will improve.
Speaker Change: Proved throughout the year.
Speaker Change: As a team is able to focus on their business and not extracting themselves from the.
Speaker Change: Process of the estate.
Speaker Change: Yeah.
Robert O. Stephenson: Okay, that's really helpful. And then just a second, I guess. Bob, perhaps you could clarify how we should think about the trajectory of FAD or FFO, you know, over this year, especially just trying to understand was the current Guardian Rent baked into somewhere in the guide and, you know, is this sort of the low point going forward?
Speaker Change: Okay. That's certainly helpful. And then just second I guess.
Speaker Change: You know Bob perhaps you could clarify was that how should we think about the trajectory of fad or S that fall.
Robert O. Stephenson: You know over this year, especially I'm just trying to understand what's the current <unk>.
Robert O. Stephenson: Guardian rent baked into at somewhere in the guide and you know is this sort of the low point going forward.
Robert O. Stephenson: Well a couple of things from a guidance standpoint, we gave a wide range $2 70 to two Lady.
Robert O. Stephenson: Well, a couple of things. From a guidance standpoint, you know, we gave a wide range, 270 to 280. And, you know, at the low end, you would have the one aspect of Guardian. At the higher end, it would be, you know, approaching that. And the same with Levee as well. That's how wide the range is so good.
Robert O. Stephenson: And at the low end you would have one aspect of Guardian at the higher end it might be.
Approaching that in the same but but but lumpy as well that's why the range is so well. In addition, we have a number of operators on a cash basis I would think the a.
Robert O. Stephenson: If you look at second corner give you all the components, but she's taken a look at what could impact second cooler it extremely well.
Robert O. Stephenson: In addition, we have a number of operators on a cash basis. I would think the, if you look at the second quarter, I can't give you all the components, but just taking a look at what could impact the second quarter, and it should grow from there and have the full impact of the $55 million of first-quarter acquisitions and $165 million of acquisitions we already announced in the second quarter. Dan already gave you a little update on Guardian.
Eric do you have the full impact of the 55 million in the first quarter acquisitions.
Eric: $65 million acquisitions, we already announced in the second owner.
Eric: Dan already gave you a little update on Guardian and then.
Eric: And then on the expense side, if you look at it we did pay off $400 million, though.
Eric: Bonds April.
Eric: April for Us and we paid off our remaining $42 million a ton in the last week of March.
Eric: But we have to fund the acquisitions with a combination of credit facility and more Atms you can all sit there and lastly in the press release you saw the AD.
Robert O. Stephenson: And then, you know, and then on the expense side, if you look at it, we did pay off $400 million of bonds April 1st, and we paid off the remaining $42 million of HUD in the last week of March. But we have to fund the acquisitions with a combination of a credit facility and or an ATM to get offset there. And lastly, under the pressure which you saw, we had $82 million of assets held for sale.
Eric: $82 million out of our assets held for sale.
Robert O. Stephenson: We did record $626,000 of FAD in the first quarter related to that. In the second quarter, around asset sales, assets over sale, three of those buildings have already sold for roughly $27 million in cash, so hopefully that helps you.
Eric: We did record 626000 of <unk>.
Eric: In the first quarter related to that.
Eric: In the second round of asset sales.
Eric: So actually all three of those buildings have already sold for roughly $27 million in cash so hopefully that helps you.
Robert O. Stephenson: Great. Thanks so much. That's very helpful.
Speaker Change: Great. Thanks, so much that's helpful.
Speaker Change: Our next question is from the line of Michael Griffin with Citi. Please proceed with your question.
Michael Anderson Griffin: Our next question is from the line of Michael Griffin with Citi. Please proceed with your question.
Robert O. Stephenson: Great, thanks. I just wanted to get a little more color on the acquisitions that you've done so far this year and your expectations, maybe throughout the balance of the year. Should we, is it fair to assume that these are immediately accretive to earnings? I mean, I know you don't provide speculative acquisitions in your guidance, but just trying to see how you might get to the midpoint or above of the guidance, just given where the annualized FAD was.
Michael Anderson Griffin: Great. Thanks.
Michael Anderson Griffin: I just wanted to get a little more color on the acquisitions that you've done so far this year and expectations maybe throughout the balance of the year should should we is it fair to assume that these are immediately accretive to earnings I mean, I know you don't provide speculative acquisitions in your guidance, but just trying to see how you might get to.
Michael Anderson Griffin: The midpoint or above of the guidance, just given where the annualized up bad was this quarter.
Speaker Change: Sure Yeah, we would expect them to be immediately accretive.
Robert O. Stephenson: Sure. Yeah, we would expect them to be immediately acquisitive. We're quoting 10% yield numbers as the starting point, and that's, I believe, what you'll see going forward. Once again, it is quite active in it. Even though we did a couple of loan deals in the first quarter and subsequent to the first quarter, the lion's share of our deals in our pipeline are, in fact, our normal bread and butter, which is acquisitions of fee simple property.
Speaker Change: Well, 10% yield numbers.
Speaker Change: As the starting point.
Speaker Change: I believe what you'll see going forward once again it is.
Speaker Change: Even though we did a couple of loan deals in the first quarter and subsequent to the first quarter.
Speaker Change: The lion's share of our deals in our pipeline are in fact, our normal bread and butter, which is acquisitions a few some properties.
Speaker Change: Great that's helpful and Megan I appreciated your comments around the minimum staffing rolling in your prepared remarks can you just maybe highlight and again I realize it's early days, but maybe some initiatives that the industry is looking to undertake to kind of kind of line up against the mandate.
Robert O. Stephenson: Great, that's helpful. And Megan, I appreciated your comments around the minimum staffing ruling in your prepared remarks. Can you just maybe highlight, and again, I realize it's early days, but maybe some initiatives that the industry is looking to undertake to kind of line up against the mandate?
Megan M. Krull: Well I mean, I think first of all you have got the congressional legislation. That's already been introduced right I think people feel pretty good about that.
Megan M. Krull: Well, I mean, I think first of all, you have the congressional legislation that's already been introduced.
Megan M. Krull: And I think people feel pretty good about that. The Congressional Budget Office has come out and said that the mandate is actually going to cost the federal government 18 billion dollars. So that's helpful that they feel that way because they feel like several of the states will step up from a rate perspective, and the federal government will have to match. There's also a belief that, you know, CMS really did not have the right to do this role because there are already statutes on the books related to staffing.
Congressional budget office has come out and said that mandates actually can across the federal government.
Megan M. Krull: So that's helpful, but they feel that way because they feel like.
Megan M. Krull: All of this April step up from a rate perspective.
Megan M. Krull: Yes.
Megan M. Krull: <unk>.
Megan M. Krull: There's also a belief that.
Megan M. Krull: That's really did not have the right to do this for all the.
Megan M. Krull: Alrighty statutes on stocks related to staffing and so there is the legal route that can be.
Megan M. Krull: And so there is the legal route that can be gone through, and I think a lot of folks are looking at that currently. And then, look, at the end of the day, this thing doesn't kick in for another two years. And even CMS, in their fact sheet, basically said they're going to continue looking at the rule, continue seeing what's going on in the industry, and potentially will change the rule before that two years.
Megan M. Krull: And I think folks are looking at that correctly.
Megan M. Krull: And then if you look at the end of the day, that's thing doesn't kick in for another two years and even CNS and Theyre Factsheet basically said, they're going to continue.
Megan M. Krull: And what's going on in the industry and potentially jumpstart what Keith we're not two years.
Megan M. Krull: Yeah.
Operator: Great, that's it for me. Thanks for the time. Our next question is from...
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: Our next question is from the line of Tayo Okusanya with Deutsche Bank. She was here with your questions.
Operator: Our next question is from the line of Tayo Okusanya with Deutsche Bank. Let's just see if there are any questions. Excuse me, Tao, please proceed with your question. Our next question is from the line of Juan Sanabria with BMO Capital Markets. Please receive your question.
Speaker Change: Yeah.
Omotayo Tejumade Okusanya: Hi, excuse me Tayo. Please proceed with your questions.
Omotayo Tejumade Okusanya: Okay.
Omotayo Tejumade Okusanya: Our next question is from the line of Juan Sanabria with BMO capital markets. Please proceed with your questions.
Juan Carlos Sanabria: Hi, good morning, Thanks for the time.
Juan Carlos Sanabria: Hi, good morning. Thanks for the time. I just wanted to follow up on the guardian question and the issues in Pennsylvania and see if there's any implications for Labib. I think you said there were nine assets there and the prospects of transitioning or selling those assets, given your comments around the difficulty operating in that state.
Juan Carlos Sanabria: Just wanted to follow up on the kind of the Guardian question and the issues in Pennsylvania and.
Juan Carlos Sanabria: And see if there's any implications for them would be I think you said theres nine assets there in the.
Juan Carlos Sanabria: The prospects are transitioning or selling those assets given your comments around the difficulty operating in that state.
Juan Carlos Sanabria: Yeah.
Daniel J. Booth: Yeah, it's a good question, Juan. So there are nine assets, but will the assets actually do? Reasonably well, given the difficult operating environment in Pennsylvania, but I will tell you that Virginia, North Carolina, and Mississippi are so desirable that folks are looking at the whole package. We won't have to chop it up, and they generate substantial cash flows, which, again, support rents above our current levels.
Speaker Change: Yeah, It's a good question Juan.
Speaker Change: So there are nine assets the levee assets actually do.
Daniel J. Booth: Great, thank you. And then just on the sub-one-time tenant, which sounds like more of a rounding issue. When does the benefit of the Medicaid bump kick in to where you think that will get kind of picked back up into the above-one-time coverage bucket? And apologies if I missed it.
Speaker Change: Reasonably well given the difficult operating environment in Pennsylvania, but I will tell you that Virginia, North Carolina, and Mississippi are so desirable.
Speaker Change: But folks are looking at the whole package, we won't have the chop it up.
Speaker Change: And they generate substantial cash flows, which again support rents above our current run rate.
Speaker Change: Great. Thank you and then just on the sub one time tenant that theres more it sounds like a rounding issue.
Speaker Change: One just the the bed.
Speaker Change: The benefit of the Medicaid kick in to where you think that will get kind of.
Back up.
Speaker Change: And to the above one times coverage bucket and apologies if I missed the rate card remarks, Yep Yep Yep the rate change occurs October 1st.
Daniel J. Booth: The rate change occurs on October 1st. So that's why we said eventually. And the one other thing I'd point out is that you have 0.98 coverage, but if you look at the EDARM coverage... It's over one and a half times that. So, there's a lot of flexibility in this entity at that level of even DARB coverage to flex costs and be able to manage that balance sheet to October 1st. We really have no concern.
Speaker Change: So that's why we said eventually.
Speaker Change: And then one other thing I'd point out is you have 98 coverage, but if you look at the EBITDAR coverage.
It's over one five times.
Speaker Change: There's a lot of flexibility in this entity.
Speaker Change: At that level of EBITDAR coverage.
Speaker Change: So flex costs and be able to manage that balance sheet top October 1st we really have no concerns, but they can they will bounce around that number.
Daniel J. Booth: But they can; they will bounce around that number for the next few quarters. And, sorry, just one incoming question that I received is, is there any incremental staffing being mandated in Pennsylvania that would be additive this summer that could be a drag on... operators in that state? Um, yeah, there is.
Speaker Change: Next few quarters.
And sorry, just one incoming question that I received is is there any incremental.
Speaker Change:
Speaker Change: I think being mandate in Pennsylvania that would be additive.
Speaker Change: This summer that could be a drag.
Speaker Change: To.
Speaker Change: Operators in that state.
Daniel J. Booth: Yeah, there are already staffing mandates there, and it gets a little bit worse, but we're still monitoring the situation. I don't think we have any major concerns that things will get much, much worse in the state from where they are now.
Speaker Change: Yeah, there is already staffing mandates there and it gets a little bit worse.
Speaker Change: But we're still we're monitoring the situation I don't think we.
Speaker Change: We have major concerns that things will get much much questions.
Speaker Change: It is now.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Our next question is from the line of Michael Carroll with RBC. Please proceed with your questions.
Michael Albert Carroll: Our next questions are from the line of Michael Carroll with RBC. Please proceed with your questions.
Michael Albert Carroll: Yes. Thanks, I just wanted to touch back on the V. What's left to be done to be to resolve that situation. I mean, how many more assets do you need to sell and or re tenant within that portfolio.
Daniel J. Booth: Yeah, thanks. I just wanted to touch back on Lavie. What's left to be done to resolve that situation? I mean, how many more assets do you need to sell or re-tenant within that portfolio?
Michael Albert Carroll: So there's 31 assets in total I think I gave you a breakdown by spec.
Daniel J. Booth: So there are 31 assets in total. I think I gave you a breakdown by state. We're not looking to sell those assets at this point. Those states are all very, very good. So, and the nature of the restructure, whether it's a re-tenant or a revised restructure with the existing tenant, has not yet been finalized.
Speaker Change: We're not looking at some of those assets at this point those states are all very very good so.
Speaker Change: And the nature of the restructuring whether to re tenant or.
Speaker Change: Revised restructure with the existing tenant.
Speaker Change: Not yet been finalized.
Speaker Change: Okay. So theres no. Other major transitions are those assets that need to be done is just that I guess, what does <unk> need to do is it just they need to negotiate a new rent with U I know previously you talked about right sizing their ABL.
Daniel J. Booth: Okay, so there's no other major transitions of those assets that need to be done. It's just that, I guess, what does Levy need to do? Is it just that they need to negotiate a new rent with you? I know previously you talked about rightsizing their ABL before they could get the necessary cash flow. Has that been done, or are we waiting on that also?
Speaker Change: Before they can get the necessary cash flow is has that been done or are we waiting on that also.
Daniel J. Booth: Now, that was just done more or less automatically as their portfolio shrunk due to the asset sales. But once again, it's not a... We haven't concluded our negotiations or our discussions yet with LaVie, so it's too early to say that we're just renegotiating rent with LaVie. It could go any which way at this point. We're still an ongoing act. Okay, and just last one with me, I mean...
Speaker Change: No.
That was just done more or less automatically as their portfolio shrunk due to the asset sales.
Speaker Change: But once again, it's not a.
Speaker Change: Were not concluded our negotiations or discussions yet with movie. So it's too early to say that.
Speaker Change: We're just renegotiating breakfast will be it could go any which way at this point.
Speaker Change: We're starting an ongoing active.
Speaker Change: Yeah.
Daniel J. Booth: Okay, and just last one with me. Can you kind of highlight the EBITDA that those assets are currently generating? I guess, is it well above the rent that they paid in the first quarter and that they paid in April?
Speaker Change: Okay, and then just last one for me I mean can you kind of highlight the EBITDAR that those assets are currently generating I guess is it well above the rents that they paid in the first quarter and that they paid in April.
Speaker Change: Yes materially.
Speaker Change: Okay, great. Thank you.
Speaker Change: Our next questions come from the line of Alex Fagan with Baird. Please proceed with your questions.
Operator: Our next questions come from the line of Alec Fagan with Baird. Please proceed with your question. Hello. Good morning.
Alec Fagan: Hello, good morning, and thank you for taking my question. The first one is on the sold Guardian Healthcare facilities. Kind of curious, what is the trajectory of the new tenant to getting to that 12 million plus in rent?
Alex Fagan: Hello, Good morning, and thank you for taking my question. The first one is on the.
Alex Fagan: Sold Guardian health care facilities kind of curious what is the trajectory of the new tenant to getting to that 12 million plus right.
Alex Fagan: Okay.
Speaker Change: You know what.
Daniel J. Booth: Once again, it's revenue-based. The kicker, and the tenant's been in there for 30 days, so to speculate on the trajectory of the revenue and how much we would... benefit from that, it's just way too early to tell.
Speaker Change: Once again, it's it's a revenue based.
Speaker Change: Kirk and the tenants been in there for 30 days so to speculate on the trajectory of the revenue and how much we would.
Daniel J. Booth: I would just be throwing darts.
Speaker Change: Benefit from that is just way too early to tell.
Speaker Change: Well just be thrown darts.
Speaker Change: Okay fair enough.
Megan M. Krull: Okay, fair enough. The second point for me is, I know it's early days, and Megan highlighted some of the ways industries are already pushing back on the CMS rule, but when would a company plan on changing their underwriting criteria following this rule if it doesn't get changed?
Speaker Change: Second for me is does the I know it's early days.
Speaker Change: <unk> highlighted some of the ways the industry's already pushing back on the CMS rule, but does the when will the company plan I'm changing their underwriting criteria. Following this rule if it doesn't get changed.
Speaker Change: Okay.
Speaker Change: I think for sure without a doubt you have to see how the next year plays out.
Megan M. Krull: I think for sure, without a doubt, you have to see how the next year plays out, and we'll just have a lot more facts. But given the facts that we have today, I don't think there's any reason to change underwriting.
Speaker Change:
Speaker Change: And we will just have a lot more facts, but given.
<unk>, we have today I don't think there's any reason to change underwriting.
Speaker Change: Got it and one last one for me are you seeing better opportunities in the U K right now relative to the United States and do you have any concerns on the regulatory front for the United Kingdom.
Megan M. Krull: And one last one for me, are you seeing better opportunities in the UK right now relative to the United States? And do you have any concerns on the regulatory front for the United States?
Speaker Change: I think that we.
Megan M. Krull: I think that what we were seeing, you know, during the latter part of COVID, we were seeing more deals come out of the UK. I think it's a little bit more evenly weighted at this point. And we're not concerned about the regulatory environment in the UK. We feel very good about it, actually.
Speaker Change: We were seeing during the latter part of what we're seeing more deals come out of the U K I think it's a little bit more evenly weighted at this point.
Speaker Change: And we're not concerned about the regulatory environment in the UK, we felt very good about that actually.
Speaker Change: Yeah.
Operator: Got it, that's all for me, thank you.
Speaker Change: Got it that's all for me thank you.
Speaker Change: Our next question is from the line of Emily <unk> with Green Street. Please proceed with your questions.
Emily Meckler: Our next question is from the line of Emily Meckler with Green Street. Please proceed with your question. Yeah, just kind of following up on
Emily Meckler: Yeah, just kind of following up on that. I know it's early, but do you anticipate dislocation in property types, particularly in more rural areas, in the coming months due to an overhang of uncertainty on the staffing mandate? Can you please repeat that? Yeah, just wondering if you guys anticipate dislocation in property values, particularly in the more rural areas, in the coming months due to an overhang of uncertainty on the staffing mandate.
Emily: Yeah, just kind of following up on that I know, it's early but do you anticipate dislocation and property types, particularly in more rural areas in the coming months, it's an overhang of uncertainty on the staffing mandate.
Emily: Yeah.
Yeah.
Speaker Change: Can you can you repeat that.
Speaker Change: Yeah I'm just I was wondering if you guys anticipate dislocation in property values, particularly in the more rural areas in the coming months due to an overhang of uncertainty on the staffing need.
Speaker Change: I don't know that we'll see a dislocation in pricing until at least after the election because people are just waiting to see.
Megan M. Krull: I don't know that we'll see a dislocation in pricing until at least after the election. Those people are just waiting to see how the politics, policy, and legislation play out around the world. And remember, there are rural carve out exceptions that we don't even fully know mechanically how they're going to work. I don't think you'll see pricing dislocation now. If we're still sitting here a year from now with the same pattern we have today, then maybe you will start to see it at that point.
Speaker Change: Where the politics and policy and legislation play out.
Speaker Change: Around the world.
Speaker Change: And remember there is there are more carve out exceptions that we don't even fully under no mechanically how they're going to work so.
Speaker Change: I don't think you'll see pricing dislocation.
Speaker Change: No.
Speaker Change: If we're still sitting here a year from now with the same fact pattern we have today.
Speaker Change: And maybe you start to see it at that point.
Speaker Change: Yeah.
Operator: Okay, great. And then Megan, just one follow up for you.
Speaker Change: Okay, Great and then Megan just one follow up for you what are the main drivers of the abnormally large staffing issues in Texas are these staffing issues, primarily responsible for the lagging occupancy gains relative to the other markets or is there something that might be fundamentally challenged in that state.
Megan M. Krull: What are the main drivers of the abnormally large staffing issues in Texas? Are these staffing issues primarily responsible for the lagging occupancy gains relative to the other markets? Or is there something that might be fundamentally challenged in that state? I mean, look. Texas has a lot of very rural areas.
Megan M. Krull: I mean, Texas has a lot of very rural areas, right? And so you have very small towns where it's not easy to go pick up stuff, you know, from the neighboring town; you're really relying on your local market. So that plays into it being very wide and vast.
Megan M. Krull: My name is the Texas has a lot of very rural areas right and so you have very small town sorry, it's not easy to go pick up stuff you know from.
Megan M. Krull: From the neighboring town, you're really relying on your local market.
Megan M. Krull: So that plays into it very wide and fast.
Megan M. Krull: Okay.
Megan M. Krull: Okay.
Speaker Change: Thank you.
Operator: As a reminder, to ask a question, you may press star 1 at this time. We'll pause for a moment to assemble the queue. Thank you. At this time, I will now turn the conference back to Taylor Pickett for closing comments.
Speaker Change: As a reminder to ask a question you May press star one at this time.
Speaker Change: We'll pause a moment to assemble the queue.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: At this time.
Speaker Change: I will now turn the conference back to Taylor Pickett for closing comments.
Speaker Change: Yeah.
Taylor Pickett: Thanks for joining our call this morning. As always, the team is prepared for any follow-up questions. Have a great day.
Taylor Pickett: Thanks for joining our call. This morning as always the team is prepared for any follow up questions have a great day.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Yeah.