Q1 2024 American Healthcare REIT Inc Earnings Call
Operator: Good morning, good afternoon. My name is Aaron, and I will be your conference operator for today. At this time, I would like to welcome everyone to the American Healthcare REIT's first quarter 2024 earnings conference.
Good morning. Good afternoon. My name is Aaron and I will be your conference operator for today at this time I would like to welcome everyone to the American Health care REIT first quarter 2024 earnings conference.
Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session, and if you would like to ask a question during that time, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, just press star followed by the number one again. We ask that you please limit yourself to a single question with one follow-up when your line is muted, unmuted, excuse me. Thank you. And with that, I would like to turn our call over to Alan Peterson, Vice President of Investor Relations and Finance at American Healthcare. Alan, you may be
Conference Operator: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session and if you would like to ask a question during that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question just press star followed by the number one again.
We ask that you please limit yourself to a single question with one follow up when your line is muted on mute it excuse me. Thank you.
Conference Operator: And with that I would like to turn our call over to Alan Peterson, Vice President of Investor Relations and finance with American Health care, Alan you may be.
Alan Robert Peterson: Good morning. Thank you for joining us for American Healthcare REIT's first quarter 2024 earnings conference call. With me today are Danny Prosky, President and CEO, Brian Peay, Chief Financial Officer, Gabe Willhite, Chief Operating Officer, and Stefano, Chief Investment Officer. On today's call, Danny, Gabe, and Brian will provide prepared remarks discussing our financial position, results of operations, and other recent news relating to American Healthcare REIT. Following these remarks, we will conduct a question-and-answer session on research. Please be advised that this call will include forward-looking statements.
Alan Robert Peterson: Good morning, Thank you for joining us for American Health care REIT first quarter 2024 earnings conference call.
Dani <unk>: With me today are Dani <unk>, President and CEO, Brian <unk>, Chief Financial Officer, Gabe Wilhite, Chief operating officer, and Stefan Our Chief investment Officer on today's call Danny gave and Brian will provide prepared remarks discussing our financial position results of operations and other recent news relating to American health care REIT.
Speaker Change: Following these remarks, we will conduct a question and answer session with covering research analyst. Please.
Gabriel M. Willhite: Please be advised that this call will include forward looking statements. All statements made during this call other than statements of historical facts are forward looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Therefore, you should exercise caution in interpreting and relying on them I refer.
Alan Robert Peterson: All statements made during this call, other than statements of historical facts, are forward-looking statements that are subject to numerous risks and uncertainties that could cause actual results to differ materially from those projected in these statements. Therefore, you should exercise caution in interpreting and relying on them.
Alan Robert Peterson: I refer you to our SEC filings for a more detailed discussion of the risks that could impact our future operating results, financial condition, and prospects. All forward-looking statements speak only as of today, May 14, 2024, or such other dates as may otherwise be specified. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance.
I refer: You to our SEC filings for a more detailed discussion of the risks that could impact our future operating results financial condition and prospects.
I refer: All forward looking statements speak only as of today May 14, 2024, or such other dates as may otherwise be specified.
I refer: We assume no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
I refer: During the call, we will discuss certain non-GAAP financial measures, which we believe can be useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.
Speaker Change: Reconciliations of non-GAAP financial measures discussed on this call today to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release and supplemental information package you can find these documents as well as our SEC filings and the audio webcast replay of this conference call on our website at Www Dot American healthcare REIT Dot com.
Alan Robert Peterson: These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of non-GAAP financial measures discussed on this call today to the most directly comparable measures calculated in accordance with GAAP are included in our earnings release and supplemental information package. You can find these documents, as well as our SEC filings and the audio webcast replay of this conference call, on our website at www.americanhealthcarereit.com. With that, I will turn the call over to our President and CEO, Danny Prosky.
I refer: Tom.
I refer: With that I will turn the call over to our president and CEO Danny Pruski.
Danny Prosky: Thank you, Alan. Good morning, everyone, and thank you for joining us. Since the offering and listing of our common stock on the New York Stock Exchange in February, we've been busy focusing on optimizing portfolio performance and executing an opportunistic capital allocation. I'm continually impressed by and proud of the efforts of all of our staff here at AHR as well as our operating partners. Our focus remains on providing high-quality care and outcomes for our residents and tenants, in addition to maximizing the value of our real estate portfolio for our stockholders. 2024 is off to a great start.
Danny Prosky: Thank you Alan and good morning, everyone and thank you for joining.
Danny Prosky: Since the offering and listing of our common stock on the New York Stock Exchange in February we've been busy focusing on optimizing our portfolio performance and executing on opportunistic capital allocation.
Danny Prosky: Hi, I'm continually impressed by and proud of the efforts of all of our staff here at HR as well as in our operating partners.
HR: Our focus remains on providing high quality care and outcomes for our residents and tenants. In addition to maximizing the value of our real estate portfolio for our stockholders.
Danny Prosky: Property level performance across our diversified healthcare portfolio in all four of our segments is trending positively. We are encouraged to see strong year-over-year occupancy and NOI margin gains in the first quarter of 2024 within our integrated senior health campuses and retail sector, which make up approximately 60% of our pro-rata NOI combined, and we expect this will drive our growth in 2024. Our outpatient medical buildings are faring well, and our asset management team is hard at work combating the headwinds we expect within that segment this year.
HR: 2024 is off to a great start property level performance across our diversified healthcare portfolio in all four of our segments is trending positively we're encouraged to see strong year over year occupancy and NOI margin gains in the first quarter of 2024 within our integrated senior health campuses and shop.
HR: <unk>, which make up approximately 60% of our pro rata NOI combined and we expect this will drive our growth in 2024.
Speaker Change: Alright patient medical buildings are faring well interactive management team is hard at work combating the headwinds we expect within that segment during this year.
Danny Prosky: Finally, our Triple Net Lease portfolio is proving a steady growth profile, with many of our tenants continuing to see improving coverage levels. As we look forward to the rest of the year and beyond, we believe that the supply-demand imbalance within the long-term care sector tees us up well to grow the census within our building. According to the U.S. Census Bureau's Population Projections... From now until the end of the decade, the U.S. is expected to see growth within its 80-plus population of more than 4.5 million individuals.
Speaker Change: Finally, our triple net lease portfolio is proving its steady growth profile with many of our tenants continuing to see improving coverage levels.
Management team: As we look forward to the rest of the year and beyond we believe that the supply demand imbalance within the long term care sector Tees us up well to grow census, within our buildings.
Management team: According to the U S census, Bureau's population projections from now until the end of the decade. The U S is expected to see growth within its 80, plus population of more than $4 5 million individuals.
Danny Prosky: We believe this trend, along with longer life expectancies, growing care needs, and limited new supply due to constrained availability of capital and elevated construction costs, in aggregate, make for a positive environment where businesses like ours stand to benefit. Turning to the transaction market, as we have previously announced, we closed on an acquisition of 14 properties containing 856 beds in Oregon after assuming the debt associated with the properties for $94.5 million. This works out to attractive pricing of $110,000 per bed.
Management team: We believe this trend along with longer life expectancies growing care needs and limited new supply due to constrained availability of capital and elevated construction costs in aggregate make for a positive environment, where businesses like our stand to benefit.
Speaker Change: Turning to the transaction market as we have previously announced we closed on an acquisition of 14 properties containing 856 beds in Oregon after assuming the debt associated with the properties of $94 $5 million.
Speaker Change: This works out to attractive pricing of $110000 per bed.
Danny Prosky: We have brought in our operating partners at Compass Senior Living to manage the properties, and initial performance is trending positively. Utilizing our hands-on asset management expertise, these under-managed properties could allow us to further bolster our portfolio. We anticipate that more opportunities like this Oregon transaction will become available to us as many real estate sponsors face the reality of having to refinance indebtedness at lower LTVs and higher rates. Regardless, we will remain prudent and continue to be cognizant of our balance sheet metrics and cost of capital as we execute on these types of opportunities and seek to fund them primarily with disposition proceeds and free cash flow from organic growth.
Speaker Change: We have brought in our operating partners at Compass senior living to manage the properties and initial performance is trending positively.
Speaker Change: Utilizing our hands on asset management expertise. These under managed properties could allow us to further bolster our portfolio.
Speaker Change: We anticipate that more opportunities like this Oregon transaction will become available to us as many real estate sponsors face the reality of having to refinance indebtedness at lower Ltvs and higher rates.
Speaker Change: Regardless, we will remain prudent and continue to be cognizant of our balance sheet metrics and cost of capital as we execute on these types of opportunities and seek to fund them, primarily with disposition proceeds and free cash flow from organic growth.
Danny Prosky: Before I turn it over to Gabe and Brian, I'd like to emphasize that our three main areas of focus from now until year end are, number one, as always, quality care for our residents and positive health outcomes. Number two, our commitment to delivering strong operating performance across our portfolio for our investors and proving to the investment community that, as a newly listed healthcare REIT, we're committed to maximizing value for our stockholders.
Speaker Change: Before I turn it over to Dave and Brian I'd like to emphasize that our three main areas of focus from now until year end are number one is always quality care for our residents and positive health outcomes comes first.
Speaker Change: Two our commitment to delivering strong operating performance across our portfolio for our investors and proving to the investment community that as a newly listed healthcare REIT, we are committed to maximizing value for our stockholders.
Danny Prosky: Number three, maintaining our measured capital allocation approach to further refine our segments and take advantage of the attractive risk-adjusted returns available in today's market. With that, I will turn it over to Gabe, who will further dive into our operational results.
Speaker Change: And number three maintaining our measured capital allocation approach to further refine our segments and take advantage of the attractive risk adjusted returns available in today's market.
Gabriel M. Willhite: With that I will turn it over to Gabe who will further dive into our operational results.
Gabriel M. Willhite: Thanks, Danny. As Danny mentioned, we are excited to see the momentum and steep trajectory of growth within our portfolio, particularly our operating portfolio, which, of course, consists of our retail and integrated senior health campuses. Senior housing fundamentals remain strong and clearly are continuing to get better. Focusing on our Trilogy-operated Integrated Senior Health Campuses segment first, Same-Store NOI in the first quarter of 2024 grew by nearly 20 percent compared to the first quarter of 2023, driven by solid rent growth and an over 160 basis points increase in occupancy to 86.2 percent.
Gabe: Thanks, Danny as Danny mentioned, we are excited to see the momentum in steep trajectory of growth within our portfolio, particularly our operating portfolio, which of course consists of our shop in integrated senior health campuses senior.
Gabe: Senior housing fundamentals remain strong and clearly are continuing to get better.
Gabe: Focusing on our trilogy operated integrated senior health campuses segment first same store NOI in the first quarter of 2024 grew by nearly 20% compared to the first quarter of 2023, driven by solid rent growth and in over 160 basis points increase in occupancy to 86, 2%.
Gabriel M. Willhite: Q1 is historically a slower quarter for senior housing leasing, and it is very encouraging to see strong sequential occupancy growth quarter over quarter as well. Early second quarter 2024 trends point to steady and improving occupancy across these facilities, with integrated senior health campuses having same store spot occupancy at 86.6% as of May 3, 2024. Our expectation is that strong demographic tailwinds will continue to drive higher occupancy across these facilities.
Gabe: Q1 is historically a slower quarter for senior housing leasing and it is very encouraging to see strong sequential occupancy growth quarter over quarter as well.
Gabe: Early second quarter of 2024 trends point to steady and improving occupancy across these facilities with integrated senior health campuses same store spot occupancy at 86, 6% as of May three 2024.
Gabe: Our expectation is that strong demographic tailwind will continue to drive higher occupancy across these facilities.
Gabriel M. Willhite: Trilogy's skilled nursing business will also continue to benefit from Medicare and Medicaid reimbursement level increases that went into effect in 2023 and the anticipated increases in 2024. Additionally, while our shop segment continues to benefit meaningfully from the same strong fundamentals supporting our integrated senior health campuses, we've also been able to achieve a higher level of growth through more active asset management. Challenging operating conditions brought on by the pandemic uncovered some underperforming operators as the metaphoric tide went out.
Gabe: Trilogy is skilled nursing business will also continue to benefit from Medicare and Medicaid reimbursement level increases that went into effect in 2023 and the anticipated increases in 2024.
Trilogy: While our shop segment continues to benefit meaningfully from the same strong fundamental supporting our integrated senior health campuses. We've also been able to achieve a higher level of growth through more active asset management.
Speaker Change: Challenging operating conditions brought on by the pandemic uncovered some underperforming operators as the metaphor of tag went out.
Gabriel M. Willhite: And after an active few years transitioning and optimizing operators in our shop segment, we are really starting to see significant operational gains and, most importantly, meaningful pull-through to NOI. Our shop portfolio went from 78.6% average occupancy in the first quarter of 2023 to 85.7% in the first quarter of 2024, resulting in a very strong 700 basis points improvement in occupancy year over year. The dramatic occupancy gains drove NOI margins during the first quarter up to 18.4 percent, a roughly 360 basis points increase over the prior quarter. Those improvements drove an over 30% increase in same-span OI for the first quarter of 2024 on a year-over-year basis.
Speaker Change: And after an active few years transitioning and optimizing operators in our shop segment, we are really starting to see significant operational gains and most importantly, a meaningful pull through to NOI.
Trilogy: Our shop portfolio went from 78, 6% average occupancy in the first quarter of 2023 to 85, 7% in the first quarter of 2024, resulting in a very strong 700 basis points improvement in occupancy year over year.
Speaker Change: The dramatic occupancy gains drove NOI margins during the first quarter up to 18, 4% or roughly 360 basis points increase over the prior quarter.
Speaker Change: Those improvements drove an over 30% increase in same store NOI for the first quarter of 2024 on a year over year basis.
Gabriel M. Willhite: After completing our most recent operator transition, the transition of a 220-bed portfolio in Nebraska at the beginning of March 2024, we believe the transitions in our shop segment are complete. We have prioritized working with mission-driven regional operators that have deep commitments to the communities they serve and that we can be proud to call partners. We've had success with this strategy, and early second quarter trends suggest that the strategy continues to be a winning one, with steady weekly occupancy gains bringing shop same store spot occupancy to 86.9% as of May 3rd, 2021. In terms of expenses, our operators understand that agency labor is not only the most expensive labor solution, but that it also negatively impacts the quality of care and overall resident experience and, thus, overall performance.
Speaker Change: After completing our most recent operator transition the transition of a 220 bed portfolio in Nebraska at the beginning of March 2024, we believe the transitions in our shop segment are complete we.
Speaker Change: We have prioritized working with mission driven regional operators that have deep commitment to the communities. They serve and that we can be proud to call partners. We.
Speaker Change: We've had success with this strategy in early second quarter trends suggest that the strategy continues to be a winning one with steady weekly occupancy gains, bringing shop same store spot occupancy to 86, 9% as of May three 2024.
Speaker Change: In terms of expenses, our operators understand that agency labor is not only the most expensive labor solution, but that it also negatively impacts the quality of care and overall resident experience and Thats. The overall performance we share their sentiment and are glad to report that the operational environment has normalized to a point that allowed us to eliminate most of our.
Gabriel M. Willhite: We share their sentiment and are glad to report that the operational environment has normalized to a point that allowed us to eliminate most of our agency labor expenses with staffing from agency nursing having returned to pre-pandemic levels across our SHOP portfolio. This is a very positive development, and there's nothing to suggest that this will not continue through 2024 with continued operator focus. As Danny mentioned, in February, we acquired a portfolio of 14 properties in Oregon consisting of over 850 beds at an attractive basis significantly below replacement costs.
Speaker Change: Agency Labor expenses with staffing from agency nursing, having returned to pre pandemic levels across our shop portfolio. This is a very positive development and there's nothing to suggest that this will not continue through 2024 with continued operator focus.
Speaker Change: As Danny mentioned in February we acquired a portfolio of 14 properties in Oregon, consisting of over 850 beds at an attractive basis significantly below replacement costs.
Gabriel M. Willhite: We immediately executed a strategy to transition operations to one of our trusted operators, and the early results are promising. We've seen this strategy work multiple times now, and we deeply believe this is one of those rare moments in time where a confluence of circumstances has created incredible opportunities as long as you have the expertise and the relationships to access it. Of course, there's no way to predict how long this window will be open, but it's clearly open today.
Danny: We immediately executed a strategy to transition operations to one of our trusted operators and the early results are promising.
Danny: <unk> seen this strategy work multiple times now and we deeply believe this is one of those rare moments in time, where a confluence of circumstances has created incredible opportunities as long as you have the expertise and the relationships to execute.
Speaker Change: Of course, there is no way to predict how long this window will be open but its clearly open today.
Gabriel M. Willhite: Before I turn it over to Brian, I'd like to talk for a moment about the recent regulatory news around skilled nursing staffing. As many on the call are aware, CMS finalized minimum staffing requirements for skilled nursing facilities across the country. I should say the rule is fairly controversial. It's largely, and by largely, we believe nearly unanimously opposed by skilled nursing providers in its current form given the lack of clarity or flexibility between care hours. And for a number of reasons, there are many that don't believe the rule will ever be implemented in its current form.
Speaker Change: Before I turn it over to Brian I'd like to talk for a moment about the recent regulatory news around skilled nursing staffing.
Brian Smith: As many on the call are aware CMS finalized minimum staffing requirements for skilled nursing facilities across the country.
Brian Smith: I should say the rule is fairly controversial, it's largely and by largely we believe nearly unanimously opposed by skilled nursing providers in its current form given the lack of clarity or flexibility between care hours.
Speaker Change: And for a number of reasons. There are many that don't believe the rule will ever be implemented in its current form.
Gabriel M. Willhite: Regardless, we expect the new requirement to have only a nominal impact on our business. Because of the structure of our integrated senior health campuses, we often field questions on this issue, and those questions are fair, but the benefit of partnering with a best-in-class operator like Trilogy Management Services is that they're already a standard bearer in the industry. In addition to having good patient outcomes, high resident satisfaction scores, and industry-leading employee retention, they already staff at a higher level than their peers.
Speaker Change: Regardless, we expect the new requirement to have only a nominal impact on our business.
Speaker Change: Because of the structure of our integrated senior health campuses, we often field questions on this issue and those questions are fair.
Speaker Change: But the benefit of partnering with the best in class operator like trilogy management services is that they are already a standard bearer in the industry. In addition to having to good patient outcomes high resident satisfaction scores and industry, leading employee retention they already staffed to a higher level than their peers as it stands today trilogy.
Gabriel M. Willhite: As it stands today, Trilogy is exceeding the minimum hour requirement by nearly 10 percent at 3.79 hours per patient day versus the requirement of 3.48. On perhaps the hardest requirement to meet, minimum RN hours, Trilogy is well above the requirement at.87 hours per patient day versus the minimum of.55, and the vast majority of Trilogy campuses are already meeting the 24-7 RN requirement. Not only does Trilogy already staff at a higher level, but they also have a massive operational advantage in meeting their requirements through Trilogy Flex.
Speaker Change: He is exceeding the minimum our requirement by nearly 10% at $3 79 hours per patient day versus the requirement of 348.
Speaker Change: Perhaps the hardest requirement to meet minimum RN hours trilogy is well above the requirement at <unk> 87 hours per patient day versus the minimum of five and the vast majority of trilogy campuses are already meeting the $24 seven RN requirement.
Trilogy: Not only does trilogy already staff to a higher level. They also have a massive operational advantage and meeting their requirements through the trilogy Flex force. The Flex force is essentially an internal agency labor force of trilogy employees that are only available to trilogy campuses, but that can provide on demand support to meet the needs of each facility.
Gabriel M. Willhite: The Flex Force is essentially an internal agency labor force of Trilogy employees that are only available to Trilogy campuses but that can provide on-demand support to meet the needs of each facility. Given these advantages, we are confident that if this rule is phased in as planned over the next three to five years, the impact on Trilogy will be minimal. With that, I will turn it over to Brian to discuss our financial results.
Trilogy: Given these advantages we are confident that if this rule is phased in as planned over the next three to five years the impact of trilogy will be minimal.
Speaker Change: With that I will turn it over to Brian to discuss our financial results.
Brian Smith: Thanks Gabe.
Brian S. Peay: In the first quarter of 2024, we earned 30 cents per fully diluted share of normalized funds from operations, driven largely by the 13% same store net operating income growth in the combined portfolio, which is led by our shop and integrated senior health campuses segments, with year over year same store NOI growth of 33.5% and 19.9%, respectively. During the quarter, we completed an offering of 64.4 million shares, raising gross proceeds of approximately $773 million.
Brian Smith: In the first quarter of 2024, we earned <unk> 30 per fully diluted share of normalized funds from operation driven largely by the 13% same store net operating income growth in the combined portfolio, which is led by our shop and integrated senior health campuses segments with year over year same store NOI growth of three.
Brian Smith: Three 5% and 19, 9% respectively.
Speaker Change: During the quarter, we completed an offering of $64 4 million shares raising gross proceeds of approximately $773 million.
Brian S. Peay: Utilizing the net proceeds from the offering, we paid down approximately $722 million of high-interest, floating-rate, short-term maturity debt. These paydowns, paired with strong EBITDA growth during the first quarter, resulted in an over two times turn improvement to our net debt to annualized adjusted EBITDA from the end of 2023. Additionally, during the first quarter, we completed the extension and expansion of our revolving credit agreement, providing us with flexibility and capacity to better manage our business. The capacity on our unsecured revolver was increased by $100 million to $600 million and matures on February 14, 2028. It also includes a one-year extension.
Speaker Change: Utilizing the net proceeds from the offering we paid down approximately $722 million of high interest floating rate short term maturity debt.
Speaker Change: These paydowns paired with strong EBITDA growth during the first quarter resulted in an over two times turn improvement to our net debt to annualized adjusted EBITDA from the end of 2023. Additionally.
Speaker Change: Additionally, during the first quarter, we completed the extension and expansion of our revolving credit agreement, providing us with flexibility and capacity to better manage our business.
Speaker Change: The capacity on our unsecured revolver was increased by $100 million.
Speaker Change: Two $600 million and matures on February 14th 2028. It also includes a one year extension option.
Brian S. Peay: In aggregate, at quarter end, and after executing on our capital markets and balance sheet strategies, we have approximately $915 million of liquidity between cash on hand and undrawn capacity on our lines of credit. Moving on to our 2024 Outlook. At this time, we are maintaining our full-year guidance for same-store NOI growth in the combined portfolio of 5 to 7 percent in 2020. To remind everyone, our expectations for full-year 2024 NOI growth in each of our segments are 8 to 10 percent for integrated senior health campuses. 25-30% for SHOP, potentially down slightly to flat for outpatient medical, and 1 to 3% for our Triple Net Lease segment.
Speaker Change: In aggregate at quarter end and after executing on our capital markets and balance sheet strategies, we have approximately $915 million of liquidity between cash on hand, and undrawn capacity on our lines of credit.
Speaker Change: Moving on to our 2024 outlook at this time, we are maintaining our full year guidance for same store NOI growth in the combined portfolio of 5% to 7% in 2024 to remind everyone. Our expectations for full year 2020 for NOI growth in each of our segments are 8% to two.
Speaker Change: 10% for integrated senior health campuses, 25% to 30% for shop.
Speaker Change: Potentially down slightly to flat for outpatient medical.
Speaker Change: And 1% to 3% for our Triple net lease segment.
Brian S. Peay: Additionally, we are maintaining our guidance for normalized funds from operations for the full year of 2024 of between $1.18 to $1.24 per fully diluted share. Our earnings guidance is driven by the organic net operating income growth embedded in our diversified portfolio of clinical healthcare assets, partially offset by higher interest, which will be modestly higher than we'd initially expected as a result of the changes in the Fed rate cut expectations. Nonetheless, we are continuously managing our balance sheet and will remain conservative in our approach to additional leverage. Our floating rate interest exposure was less than 8% of our total outstanding debt at quarter end after considering the interest rate swaps that we have in place.
Speaker Change: Additionally, we are maintaining our guidance for normalized funds from operation for the full year of 2024 of between $1 18.
Speaker Change: Two $1 24 per fully diluted share.
Speaker Change: Our earnings guidance is driven by the organic net operating income growth embedded in our diversified portfolio of clinical healthcare assets, partially offset by higher interest expense, which will be modestly higher than we initially expected as a result of the changes in the fed rate cut expectations.
Speaker Change: Nonetheless, we are continuously managing our balance sheet and we will remain conservative in our approach to additional leverage our floating rate interest exposure was less than 8% of our total outstanding debt at quarter end after considering the interest rate swaps that we have in place.
Brian S. Peay: While we are encouraged by the strong same-store NOI growth and earnings results that we saw during the first quarter of 2024, we have taken a conservative and measured approach with respect to maintaining our guidance at this early point in the year. We will carefully monitor our results and trends as the year progresses, and it is entirely possible that we will revise our guidance at some point during the year if warranted.
Speaker Change: While we are encouraged by the strong same store NOI growth and earnings results that we saw during the first quarter of 2024, we have taken a conservative and measured approach with respect to maintaining our guidance at this early point in the year, we will carefully monitor our results and trends as the year progresses.
Speaker Change: And it is entirely possible that we will revise our guidance at some point during the year if warranted.
Brian S. Peay: On the capital allocation front, we paid down a significant amount of debt in February with proceeds from our common stock offer, and we remain committed to exploring the selective disposition of non-core assets, provided we are able to attain attractive prices. The dispositions provide us with an opportunity to further de-lever our balance sheet or to otherwise recycle capital. We closed on the sale of approximately $16 million of non-core assets in the first quarter, and we are projecting to sell an additional $45 to $50 million of non-core assets during the remainder of 2024.
Speaker Change: On the capital allocation front, we paid down a significant amount of debt in February with proceeds from our common stock offering and we remain committed to exploring the selective disposition of noncore assets provided we are able to obtain attractive pricing.
Speaker Change: The dispositions provide us with an opportunity to further delever, our balance sheet or to otherwise recycle capital.
Speaker Change: We closed on the sale of approximately $16 million of noncore assets in the first quarter and we are projecting to sell an additional $45 million to $50 million of noncore assets during the remainder of 2024.
Speaker Change: We continue to expose assets to the market as potential candidates for disposition. So it is possible that we could sell more than that amount, but any further disposition activity will be heavily dependent on achieving attractive sales prices and cap rates.
Brian S. Peay: We continue to expose assets to the market as potential candidates for disposition, so it is possible that we could sell more than that amount, but any further disposition activity will be heavily dependent on achieving attractive sales prices and capital. As to any potential acquisitions, which includes our option to purchase the portion of Trilogy that we don't already own, we are cognizant of our current cost of capital, and we will look to acquire properties opportunistically that meet our return requirements in the most leveraged, neutral way possible. That concludes our prepared remarks. Operator, at this point, we're prepared to open the line for questions.
Speaker Change: As to any potential acquisitions, which includes our option to purchase the portion of truly that we don't already own. We are cognizant of our current cost of capital and we will look to acquire properties opportunistically that meet our return requirements in the most leverage neutral way possible.
Speaker Change: That concludes our prepared remarks, operator at this point, we are prepared to open the line for questions.
Operator: Thank you. Ladies and gentlemen, at this time, I would like to remind everyone that in order to ask a question, press star and then the number one on your telephone keypad. As a reminder, we ask that you please limit yourself to a single question with one follow-up when your line is unmuted. Our first question comes from the line of Michael Griffin with Citigroup. Your line is live.
Speaker Change: Thank you, ladies and gentlemen at this time I would like to remind everyone that in order to ask a question press Star and then the number one or two telephone keypad.
Operator: As a reminder, we ask that you please limit yourself to a single question with one follow up when your line is muted.
Speaker Change: Our first question comes from the line of Michael Griffin with Citigroup. Your line is live.
Brian S. Peay: Great, thanks. I want to go back to your comments on guidance, Brian. I noticed that there was a large jump in the number of properties in the same store pool, both for Trilogy and Shop. Should we take it as the guidance that you laid out is based on that pool? I mean, it seems like a large difference from last quarter, so I just want to see if there are any additional kinds of puts and takes.
Speaker Change: Great. Thanks, I wanted go back to kind of your comments on guidance, Brian I noticed that there was a large jump in the number of properties in the same store pool, both for trilogy and shop.
Michael Anderson Griffin: Should we take it as the new guidance that you laid out is based off of that pool I mean, it seems like a large difference from last quarter. So I just wanted to see if there are any additional kind of puts and takes.
Brian S. Peay: No, I think the guidance we put out just six short weeks ago fully anticipated all of the assets that are in the current pool, so I wouldn't say that that necessarily changed it other than the fact that more assets will have an impact, but that's not the driving force for the guidance.
Brian Smith: No I think the guidance we.
Brian Smith: We put out just six short weeks ago fully anticipated all of the assets that are in the current pool.
Brian Smith: So I wouldn't say that that necessarily changed it other than the fact that more assets will have an impact, but that's not the driving force for.
Brian Smith: For the guidance.
Danny Prosky: Gotcha. That's helpful. And then maybe one just on the acquisitions environment kind of opportunities you're seeing out there. Obviously, you did the Oregon transaction back in February. You're looking to do the Trilogy buyout at some point in the future, but maybe outside of Trilogy, you know, where is the best opportunity to grow the portfolio? Is it shopped? Is it skilled? Kind of give us a sense of maybe what the acquisitions team is looking for.
Brian Smith: Got you that's helpful.
Brian Smith: Then maybe one just on the acquisitions environment kind of opportunities Youre seeing out there. Obviously you did the the Oregon transaction back in February Youre looking to do the trilogy buyout at some point in the future, but maybe outside of trilogy, where is the best opportunity to grow the portfolio as it shops is it.
Skilled: Skilled kind of give us a sense of maybe what the acquisitions team is looking at.
Danny Prosky: Hey Griff, good morning. This is Danny.
Danny: Hey, Chris Good morning. This is Danny I'll take that one so.
Danny Prosky: I'll take that one. As you remember from our call six weeks ago, we talked about kind of what we're looking for from a growth perspective with our limited available capital and that, you know, today the best risk-adjusted returns for us are within Trilogy, both exercising the purchase option and growing the existing portfolio. So, for example, we talked about some lease buyouts. We had three assets that we leased from developers where we had purchase options at a fixed price.
Danny: As you remember from our call six weeks ago, we talked about kind of what we're looking for from a growth perspective with our limited available capital in that today, the best risk adjusted returns for US are within trilogy, both exercising the purchase option.
Danny: And growing the existing portfolio. So for example, we talked about.
Danny: Some lease buyouts, we had three assets that we leased from developers, where we had purchase options at a fixed price. We did go ahead and exercise those in April.
Danny Prosky: You know, we did go ahead and exercise those in April. Very high single digit. We're paying a 9.2% lease rate on those. You know, clearly, the cost for us to borrow on our line is lower than that.
Danny: Very high single digit, we're paying 92% lease rate on those.
Speaker Change: Clearly our the cost for us to borrow on our line is lower than that so we're really cognizant of what the best risk. Adjusted returns are now if youre, telling us if youre asking me, what's the best risk adjusted returns outside of trilogy, I would say its growing our shop portfolio. The Oregon transaction is a great example of that we may have another similar opportunity although much smaller.
Danny Prosky: So, we're really cognizant of what the best risk-adjusted returns are. Now, if you're telling us, if you're asking me what the best risk-adjusted returns are outside of Trilogy, I would say it's growing our shop portfolio. The Oregon transaction is a great example of that. We may have another similar opportunity, although much smaller, coming up sometime later this year. But I think you're going to see us focus mostly on Trilogy because there are just so many opportunities in front of us within Trilogy.
Speaker Change: Going up some time later on this year.
Speaker Change: But I think youre going to see us focus mostly on trilogy, because theres just so many opportunities in front of us with intelligence.
Danny Prosky: Great, that's it for me. Thanks for the time. Thanks for your question.
Speaker Change: Great. That's it for me thanks for the time.
Speaker Change: Thanks for your questions.
Operator: Our next question comes from the line of Ronald Kamden with Morgan Stanley. Your line is live.
Speaker Change: Our next question comes from the line of Ronald Camden with Morgan Stanley. Your line is live.
Danny Prosky: Hey, just two quick ones for me. So I guess going back to the same store and using the same guide, and so you get 13% in one queue, the full year guide is sort of 6%, which feels like it's a pretty significant deceleration. So I know you talked about, you know, you're sort of waiting to see how the selling season goes and so forth, but maybe just can you talk about, you know, sort of what sort of expectations you have for the back half of the year? Are there any sort of transitions or anything else we should be mindful of? Or is it just sort of a wait and see during the selling season?
Ronald Kamdem: Hey, just two quick ones for me.
Ronald Kamdem: Going back to the same store NOI guidance, So you get 13% and <unk>, the full year guidance, 4% to 6%, which feels like it's a pretty significant deceleration. So I know you talked about.
Speaker Change: You sort of wait and see how the selling season goes and so forth, but maybe just can you talk about.
Speaker Change: Sort of what sort of anticipated in the guide for the back half of the year is there any sort of transition or anything else, we should be mindful of.
Speaker Change: Or is it just sort of wait and see on the selling season. Thanks.
Danny Prosky: Hey, so thanks for the question, Ron. This is Danny speaking. I'll start.
Speaker Change: Okay. So thanks for the question Ron This is Danny speaking I'll start and I'll, let Brian chime in.
Danny Prosky: I'll let Brian chime in. You know, we feel very, very good about the metrics within our business, what we've seen over the last several quarters, and what our expectations are for the rest of this year and probably for the next two to three years, at least. Just looking at the demographic story, with the aging of the population, with a limited new supply that's come out over the last six years, we feel really good about all the metrics, right, occupancy, margin, REVPOR, etc. And I think we've seen really good growth, not just with us, but the industry as a whole over the last several quarters.
Speaker Change: We feel very very good about.
Brian Smith: The metrics within our business, what we've seen over the last several quarters and what our expectations are to the rest of this year and probably for the next two to three years at least just looking at the demographic story with the aging of the population with a limited new supply that's come out over the last six years, we feel really good about all the metrics right occupancy margin.
Brian Smith: Revpar et cetera, and I think we've seen really good growth not just with us, but the industry as a whole over the last several quarters.
Danny Prosky: You know, we're only at the quarter end of the year, and we feel good about the direction, but I think we're not quite willing to just assume that we're going to continue on the same trajectory that we've seen over the last two, three quarters. We're going to revisit it once we close out Q2 and see if we want to update guidance at that time. But we're very bullish, but I don't think we're, you know, with only three months completed in the year, willing to just say, oh, this is going to continue on for the next nine months.
Brian Smith: It's where all the quarter into the year.
Brian Smith: And we feel good about the direction, but I think we're not quite willing to just assume that we're going to continue on the same trajectory that we've seen over the last two to three quarters.
Speaker Change: Yes.
Speaker Change: We're going to revisit it once we close out Q2 and see if we want to update update guidance at that time.
unknown: But we're very bullish but I don't think were with only three months completed in the year that we're willing to just say Oh. This is going to continue on for the next nine months. Let's go ahead and update guidance, if you want to add.
Danny Prosky: Let's go ahead and update the guidance. Anything you want to add, Brian? Yeah. Hey, Ronald. So, listen, I would say that, you know, Danny said, we're only a quarter of the way into the year. We only gave guidance six weeks ago. I will tell you, one of the things that's a major contributing factor to our reluctance today: our occupancy has fully recovered back to pre-pandemic levels, and in some cases, it's in excess of pre-pandemic levels.
unknown: Brian, Yes, Hey, Ronald so listen I would say that.
unknown: Danny said, we were only a quarter of the way into the year.
Brian Smith: We only gave guidance six weeks ago I would tell you one of the things that is a major contributing factor to our reluctance today, our occupancy has fully recovered back to pre pandemic levels and in some cases is in excess of pre pandemic levels.
Brian S. Peay: Starting off with a 710 basis point increase in our shop occupancy over the last 12 months for the same-store pool, you know, do we think that it's going to grow by another 710 basis points? I can pretty confidently tell you that I don't think it's going to. 2023, after the first quarter, certainly at Trilogy, becomes a much harder comp. As you can see, there was, if you dig into the numbers in the supplemental, and you probably haven't had a chance to absorb it yet, but what you'll notice is that Q2, 3, and 4 at Trilogy were significantly better than Q1, which makes it harder to grow our earnings by that much.
unknown: Coming off of a 710 basis point increase in our shop occupancy over the last 12 months for same store pool.
Speaker Change: Do we think that it's going to grow by another 710 basis points I can I can pretty much confidently tell you that I don't think it's going to.
unknown: 2023 after the first quarter is certainly a trilogy becomes a much harder comp as you can see there was.
Trilogy Speaker: Can you dig into the numbers in the supplemental and you probably haven't had a chance to absorb it yet, but what you'll notice is that Q2, three and four at trilogy were significantly better than Q1, which makes it harder to grow our earnings by that much.
Brian S. Peay: Listen, we like the business, we like the space that we're in, we like the tailwind that we have right now, and it's entirely feasible that at some point down the road, we reconsider, but I don't think it makes sense for us today.
Trilogy Speaker: Listen we like the business, we like the space that we're in we like the tailwind that we have right now and it's entirely feasible that at some point down the road, we revisit but I don't think it makes sense for us today.
Trilogy Speaker: Yes.
Danny Prosky: Great. And then just following up on the first question on just Trilogy, you know, clearly something you want to own all of, can you just remind us what the avenues, like what the avenues of funding it would be, right? You talked about sort of preferred, maybe equity issues, just what you're thinking about funding it and also on timing, right? Is that, could everything go right and get it done this year, or is it a 2025 thing?
Trilogy Speaker: Great and then just following up on the first question on just trilogy.
Speaker Change: Clearly something you want to own.
Speaker Change: <unk>.
Trilogy: Can you just remind us what the avenues like what what the avenues of funding it.
Speaker Change: Would be around you talked about sort of preferred maybe equity issue is just what youre thinking is on funding. It and also on timing right is that good everything go right and get it done this year or is it a 2025.
Danny Prosky: This is Danny. We've got a lot of flexibility, right? Not just on timing but on methodology. We have until September of next year, so, you know, a little under a year and a half to do it. We can use cash preferred or mixed. [inaudible] On the one hand, we want to, you know, it's very important that we maintain. We went through all this work and dilution a few months ago to raise money to pay off debt and bring our balance sheet metrics to kind of an investment grade credit balance sheet. We want to keep it there, so the last thing we want to do is just turn around and borrow to exercise that purchase option. You know, we're, I think you'll see us.
Speaker Change: Yes.
unknown: Danny up we got a lot of flexibility there right not just on timing, but our methodology we have.
Danny: Till September of next year, so a little under a year and a half to do it we can use cash preferred or mix.
Danny: On the one hand, we want to it's very important that we maintain we went through all this.
Danny: Work and dilution few months ago to raise money to pay off debt and bring our balance sheet metrics to kind of an investment grade credit balance sheet, and we want to keep it there. So the last thing we want to do is just turn around and borrow to exercise that purchase option.
Danny: I think youll see us.
Danny Prosky: And we're definitely planning on doing it; whether it's this year or next year, I think it will depend on market conditions and how successful we are, potentially raising new equity or continuing to sell apps. [inaudible] The sooner we do it, the sooner we can recognize the earnings, which would be nice. On the other hand, the value creation of Trilogy is going to be inert to us no matter what, so we're not under any intense pressure to do so.
Speaker Change: We're definitely planning on doing it whether it's this year or next year I think it will depend on market conditions and how successful we are.
Speaker Change: Essentially raising new equity or continuing to sell assets.
Danny: The sooner we deal with its generation recognize the earnings which would be nice on the other hand, the value creation of trilogy is going to inure to us no matter. What so we're not under any intense pressure to do so I think you're going to see us continue to sell off assets. We've sold primarily outpatient medical buildings, we've got more under contract.
Danny Prosky: I think you're going to see us continue to sell off assets. We've sold primarily outpatient medical buildings. We've got more under contract in LOI and more that we're exposing to the market. So I think it's going to be a mix of asset sales and organic EBITDA growth, which has been very strong over the last several quarters. We expect to continue to increase at a nice pace and potentially be new. And I think those three things are going to dictate when we exercise that purchase option. Yeah,
Speaker Change: An LOI and more that we're exposing to the market. So I think it's going to be a mix of asset sales organic EBITDA growth, which has been very strong over the last several quarters. We expect to continue to increase at a nice pace.
Danny: New equity.
Speaker Change: And I think those three those things are going to dictate when we exercise that purchase option yet Ron I think the goal here is for us to create as much optionality as we possibly can and if that means that we're successfully selling assets at decent prices.
Brian S. Peay: Yeah, Ronald, I think the goal here is for us to create as much optionality as we possibly can. And if that means that we're successfully selling assets at decent prices, that's one way to affect the trilogy buyout, utilizing those proceeds. Alternatively, if institutional investors recognize the tremendous value proposition associated with our stock at its current price and our stock price goes up, there is a chance that, in the future, we could consider issuing shares, but certainly nowhere near the level that we're trading at today.
Ronald Kamdem: That's one way to certainly affect the trilogy buyout utilizing those proceeds alternatively.
Danny: If the institutional investors recognize the tremendous value proposition associated with our stock at its current price and our stock price goes up there is a chance that out in the future we could consider issuing shares but certainly nowhere near the level that we're trading at today and then the final would be.
Brian S. Peay: And then the final would be, you know, the very attractive preferred that we've been able to negotiate. We recognize that a lot of people would consider that debt. So we're mindful of not taking on too much of that. But building optionality, and doing it when we can do it in the most leveraged ways is sort of our target.
Speaker Change: Very attractive preferred that we've been able to negotiate.
Speaker Change: We recognize that a lot of people would consider that debt. So we're mindful of not taking on too much of that but but building optionality and doing it when we can do it in the most leveraging tool way is sort of our target.
Operator: Okay, excellent. That's it for me. Thank you.
Speaker Change: Okay excellent that's it for me thank you.
Speaker Change: Thanks for your questions.
Operator: Ladies and gentlemen, once again, if you would like to ask a question, remember, it's star followed by the number one on your phone. And again, another reminder to please limit yourself to one question with a follow-up when your line is unmuted. Our next question comes from the line of Anthony Powell with Barclays.
Speaker Change: Ladies and gentlemen, once again, if you would like to ask a question remember at Star followed by the number one on your phone and again. Another reminder, to please limit yourself to one question with a follow up when your line is muted our next <unk>.
Speaker Change: <unk>. Our next question comes from the line of Michael I'm Sorry. Our next question comes from the line of Anthony Powell with Barclays.
Anthony Franklin Powell: Your line is live.
Gabriel M. Willhite: Hi, good morning. Question on REIT and RevPoor. I noticed that you had, I think, close to 5% RevPoor growth in Trilogy but 2% in SHOP. Obviously, you had very strong growth in SHOP occupancy. So, what's the outlook for higher SHOP rate growth going forward, given your above 86% occupancy in that segment?
Anthony Franklin Powell: Hi, good morning, I guess.
Anthony Franklin Powell: Question on I guess rate and Revpar and I noticed that you had I think close to 5% revpar growth in the trilogy by 2% and shop. Obviously, you had a very strong growth in shop occupancy. So what's the outlook for higher shop rate growth going forward, giving your.
Anthony Franklin Powell: About 86% occupancy in that segment.
Gabriel M. Willhite: So our expectation is that number will continue to grow throughout the year. We've got a lot of people who were admitted into our facility last year who are going to be coming up on their 12-month anniversary, which is, I think, where you're going to see, you know, significant REVPOR growth for those individuals. Our occupancy is much higher now than it was 12 months ago. So, our expectation is that you're going to see that REVPOR number on our shop portfolio increase at an accelerated pace throughout the year.
Anthony Franklin Powell: So our expectation is that number will continue to grow throughout the year.
Gabriel M. Willhite: Great, and maybe one more on the transit. Go ahead.
Anthony Franklin Powell: We've got a lot of people who.
Speaker Change: Were admitted into our facility last year, who are going to be coming up on their 12 month anniversary, which is I think where youre going to see.
Speaker Change: A significant revpar growth for those individuals are occupancy is much higher now than it was 12 months ago. So.
Speaker Change: Our expectation is you're going to see that revpar number on our shop portfolio.
Speaker Change: Increased at an accelerated pace throughout the year.
Speaker Change: Okay, great and maybe one more on that.
Gabriel M. Willhite: One more point on that I'd like to add. So one part of that number that's a little bit noisy for us is that in our same store number, their operator transitions are included in it. So of course, across our portfolio of shops, some operators were able to push REVPOR and successfully achieve higher numbers than others. But like Danny said, when you've got 700 basis points of occupancy increase over a year, all those new people coming in have a certain level of concessions attached to them as well, in a lot of cases.
Speaker Change: One more point on that I would like to add in so one part of that number thats a little bit noisy for US is in our same store number there operator transitions are included in it so of course across our portfolio of shop. Some operators were able to push revpar and successfully achieve a higher number than others.
Danny: But like Danny said, when you've got 700 basis points of occupancy increase over a year.
Danny: All of those new people coming in and having a certain level of concessions attached to them as well and a lot of cases, so our aggregate concession number is higher than normal would really be driven by the higher occupancy growth than normal and that will stabilize in 2024, our it's our expectation that it will anyway and you can already see that kind of pull through just on the sequential revpar.
Gabriel M. Willhite: So our aggregate concession number is higher than normal, really driven by higher occupancy growth than normal. And that will stabilize in 2024, or it's our expectation that it will anyway. And you can already see that kind of pull through just on the sequential REVPOR growth that was 3.7%.
Speaker Change: Growth that was three 7%.
Danny Prosky: Thanks, maybe one more on the transaction environment. I mean, you talked about maybe selling more assets than you initially said, so I guess that's kind of the baseline. What's the kind of overall appetite for assets in this segment? What are the cap rates? I guess, what are you seeing out there in terms of interest in your portfolio? Yeah, so keep in mind, the majority of what we've...
Speaker Change: Got it thanks, and maybe one more on the transaction environment.
Speaker Change: You talked about maybe selling more assets than.
Speaker Change: Then I guess as kind of the baseline what's the kind of overall appetite for assets. In this segment what are the cap rates I guess, what are you seeing out there in terms of interest in that in your portfolio.
Danny Prosky: Yeah, so keep in mind, the majority of what we've sold has been kind of, you know, smaller, off campus, kind of non-core outpatient medical buildings, those that we're not necessarily looking to hold long term. We've, you know, you know, we've mostly kept the buildings that we like the most, kind of the larger ones. So it's a mix of cap rates; I think our average cap rate is in the mid sixes.
Danny Prosky: However, I'd say the ones that we've exposed to the market more recently, the ones that we have under contract or LOI are probably more likely to be in the low sevens. I believe one is in the sixes where we're selling it to the hospital, but there's still an appetite for outpatient medical. It's certainly not where it was a couple of years ago, but there are buyers out there, and if we don't get a price we like, we won't sell.
Speaker Change: Yes, so keep in mind the majority of what we've sold has been kind of smaller off campus kind of noncore outpatient medical buildings dose that we're not necessarily looking to hold long term.
Speaker Change: We've mostly kept the buildings that we liked the most kind of the larger ones.
Speaker Change: So.
Speaker Change: It's a mix of cap rates I think our average cap rate is in the mid sixes. However.
Speaker Change: However, I would say the ones that we are exposed to the market more recently the ones that we have under contract or LOI are probably more likely to be in the low sevens.
I refer: I believe one is in the <unk>, where we're selling it to the hospital.
Speaker Change: But they are still there is still a sudden appetite for outpatient medical it's certainly not where it was a couple of years ago.
Speaker Change: But there are buyers out there and if we don't get a price we like we don't sell.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks for your question.
Michael Albert Carroll: Okay, thank you. Thanks for your questions. Our next question is from the line of Michael Carroll with RBC Capital Markets. Your line is live.
Speaker Change: Our next question is from the line of Michael Carroll with RBC capital markets. Your line is live.
Michael Albert Carroll: Hey, Mike.
Gabriel M. Willhite: I wanted to circle back on Gabe's comments regarding Trilogy staffing levels. I know employees within Trilogy can generally work within both the Seniors Housing and SNF segments. Is the staffing higher on the SNF side because you're able to allocate more of that Seniors Housing hours to SNF hours to kind of get to the minimum staffing? So having that Seniors Housing component is kind of a benefit when trying to meet that rule. Am I thinking about that correctly?
Michael Albert Carroll: Okay.
Michael Albert Carroll: I wanted to circle back on <unk> comments regarding trilogy staffing levels I know employees within trilogy generally can work within both the seniors housing and sniff segments as the staffing higher for on the sniff size. Because you are able to allocate more of that seniors housing hours to sniff hours to kind of get to those minimums.
Speaker Change: Staffing so having that seniors housing component component is kind of a benefit trying to meet that rule my thinking about that correctly.
Gabriel M. Willhite: That could be true, Mike, and I think that's one way that Trilogy could deal with the minimum staffing requirement that makes it a little bit easier for them. But in the number that I talked about, that is not true. That's really Trilogy's last six quarters run rate has been above the federal minimum staffing requirement without allocating staff differently from their AL side of the business or independent living side of the business. It's really just that they staff to a higher level. And you can look at the five-star ratings on a historical basis, and you can see that as well.
Mike: That that could be true, Mike and I think that's one way that trilogy could deal with.
Michael Albert Carroll: Minimum staffing requirement that makes it a little bit easier for them, but in a number that I'm that I talked about.
Speaker Change: That is not true.
Mike: Really triologies last six quarters run rate has been above the federal minimum staffing requirements without.
Michael Albert Carroll: Allocating staff differently from there al side of the business are independent living side of the business. It's really just that based staff to a higher level.
Michael Albert Carroll: And you can look at the five star ratings on a historic basis, and you can see that as well at some point it might be the inverse Mike which is the al side is benefiting from a very high level levels of staffing on the sniff side.
Gabriel M. Willhite: At some point, it might be the inverse, Mike, which is that the AL side is benefiting from the very high levels of staffing on the SNF side. So it's a little bit of the inverse of what you described.
Michael Albert Carroll: So it's a little bit the inverse of what you described.
Danny Prosky: Okay, I know that that makes sense. And then I know that you guys have been talking about how you want to remain pragmatic, deploying capital here in the near term. And a lot of those investments are going to be kind of focused on trilogies. So how should we think about the near-term trilogy investments? I mean, how many expansions are you working on that you could potentially break ground on over the next 12 months or so?
Speaker Change: Okay, No that makes sense and then I know that you guys have been talking about you want to remain pragmatic deploying capital here in the near term.
Speaker Change: Lot of those investments are going to be kind of focused on trilogy. So how should we think about the near term trilogy investments I mean, how many expansions are you working on that you could potentially break ground on over the next 12 months or so.
Danny Prosky: And similar to the ground-up developments, are there a number of ground-up developments that you plan on breaking ground on? I mean, on that investment strategy, how much of that do you think you can pursue related to the trilogy?
Speaker Change: Similar to the ground up development. So there are number of ground up developments that you plan on breaking ground on that investment strategy. How much of that do you think you can pursue related trilogy.
Danny Prosky: Yeah, so this is Danny. I already mentioned the lease buyouts that we did in April. Those are kind of the easiest, right? There's nothing under right there.
Speaker Change: Yes. So this is Danny I already mentioned the lease buyouts that we did in April of those are kind of.
Danny: Theres nothing to underwrite there you already own and operate the asset exactly what you are.
Danny Prosky: You already own and operate the asset. You know exactly what your rent payment is. Really, all you're doing is just a financing transaction. So now we own three more campuses than we did prior to the end of March. I think I mentioned the independent living villas. We've got five campuses where we already own the land, and it's already entitled and ready to go. We are embarking on those projects.
Danny: Payment is really all you're doing is just it's really just a financing transaction. So now we own three more campuses than we did prior to.
Danny: At the end of March.
Danny: I think I mentioned, the independent living pellets, we've got five campuses, where we already own the land and it's already entitled and ready to go we are embarking on those projects. Those we really like those projects for several reasons, it's much lower risk profile right Theyre short construction.
Danny Prosky: We really like those projects for several reasons. They have a much lower risk profile, right? They're short construction time periods, typically take about twelve months, and they're almost always leased prior to construction being completed. There's no lease up time on those. And the rate there matches our kind of high single-digit, low double-digit return.
Danny: Time periods are taken typically take about 12 months and they're almost always leased prior to construction being completed there is no lease up time on those and the rate there matches, our kind of high single digit low double digit return.
Michael Albert Carroll: So we're starting to work on five of those so those arent arent huge projects, but when you add them all up it's pretty sizable.
Danny Prosky: So we're starting work on five of those. So those aren't huge projects, but when you add them all up, they're pretty sizable. Campus development: we still like those opportunities. They take longer to build. They take longer to fill up.
Michael Albert Carroll: Campus development.
Michael Albert Carroll: Still like those up those opportunities.
Speaker Change: They take longer to build they take longer to fill up the returns are probably a little bit higher than on independent living but.
Speaker Change: Probably a little bit higher risk I think youll see us continue to do new campus development, but I think at a slower pace than what you've seen over the last few years typically we've done kind of two or three a year I think you're more likely to see that be one a year.
Danny Prosky: The returns are probably a little bit higher than on independent living, but probably at a little bit higher risk. I think you'll see us continue to do new campus development, but I think at a slower pace than we've seen over the last few years. Typically, we've done kind of two or three a year. I think you're more likely to see that be one a year. For the time being, as long as we've got the independent living opportunities, I think you're going to see us kind of focus more on those than on brand new campuses. We've got several in the pipeline, but I think we're probably going to slow those down a little bit as long as capital is constrained.
Speaker Change: For the time being as long as we've got the independent living fill opportunities I think you're going to see us kind of focus more on those bid on brand new campuses. We've got several in the pipeline, but I think we're probably going to slow those down a little bit as long as capital is constrained.
Danny Prosky: Okay, and then just last one on the cottages. You said there were five projects that all add up to a decent size. What roughly is that size? Right, right around four.
Michael Albert Carroll: Okay, and then just last one on the cottages, how you said theres five projects that all add up to a decent size like what what plays that size.
Danny Prosky: Right around $40 million. Yeah.
Speaker Change: Right right around $40 million, yes.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks for your questions.
Operator: Our next question comes from the line of Joshua Dennerlein with the Bank of America.
Speaker Change: Our next question comes from the line of Joshua Dinner line with Bank of America. Your line is live.
Operator: with Bank of America, Your Linus Life.
Danny Prosky: Hi, this is Farrell Granite. Sorry, this is Farrell on behalf of Josh. Yeah, I just wanted to have any comments on the cadence of the trilogy growth for the rest of the year versus what was seen in Q1.
Joshua Dinner: Hi, Joseph.
Speaker Change: Yes.
Bill: Hi, This is bill on behalf of Josh.
Bill: Yeah, just wondering do you have any comments on the cadence of the trilogy growth spread the rest of the year versus what was seen in Q1.
Danny Prosky: Well, we've had a lot of new campuses opening late last year and this year. I think we've got two or three more left to open this year. But I expect that to slow down.
Josh Bill: Well, we had a lot of new campus campuses opening up late last year and this year.
Josh Bill: I think we've got two or three more or less to open up this year.
Speaker Change: I expect that to slow down as I mentioned, we're probably going to doing one a year going forward at least for the time being.
Danny Prosky: As I mentioned, we're probably going to be doing one a year going forward, at least for the time being. The independent living villas that I mentioned, those will start to open up next year. We've got expansions underway that will be opening up this year and next year. But I think, you know, comparing the next two years to maybe the last three or four years, I think you're going to see a little bit of a slowdown.
Speaker Change: The independent living villas that I mentioned those will start to open up next year, we've got expansions underway.
Bill: We'll be opening up this year and next year I think.
Speaker Change: I think comparing the next two years, so maybe the last three or four years, I think you're going to see a little bit of a slowdown.
Speaker Change: It's going to give this year with the new campuses opening up as well as the lease buyouts that I mentioned.
Danny Prosky: You know, it's going to be a big year this year with the new campuses opening up as well as the lease buyouts that I mentioned. I think next year, you're probably looking at kind of $60 to $80 million in totality, including the independent living villas and campus expansions. It's probably a good number for the next couple of years.
Speaker Change: I think next year, I think you're probably looking at kind of $60 million to $80 million in totality, including the independent living villas and campus expansion. This is probably a good number for the next couple of years.
Brian S. Peay: And Farrell, if you think about, I don't know the context of your question, but if you're thinking about the same store on Trilogy, I want you to keep in mind that Trilogy's same store occupancy at the end of Q1 was 86.2%. And that's, you know, that's coming off a 160 basis points increase over the last 12 months. So that's a really good number, and it's certainly a pre-pandemic number. So 19-20% growth this quarter. If you look at Q2, 3, and 4 of 2023, those numbers are higher than Q1 of 2023. So the comparisons get more difficult, and I don't know that we'll necessarily be in that 19-20% range. It's definitely going to trend back down closer to our guidance of 8-10%.
Speaker Change: And federal if you think about I don't know the context of your question, but if you're thinking about the same store on trilogy I want you to keep in mind that <unk> same store occupancy at the end of Q1 was 86, 2%.
Speaker Change: And that's that's coming off of 160 basis points increase over the last 12 months. So thats, a really good number and it certainly pre pandemic number so.
Speaker Change: 19, 20% growth this quarter. If you look at Q2, three and four of 2023 those numbers are higher than Q1 of 2023, so the comparisons get more difficult and I don't know that we'll be necessarily in that 19% to 20% range seven going to trend back down closer to our guidance of 8% to 10%.
Brian S. Peay: pay. And also, in terms of rates or when thinking about expenses going forward in the year, do you have any commentary on that? I know you made some comments on interest rates, uh, let's
Speaker Change: Okay that makes sense.
Speaker Change: Also in terms of.
Speaker Change: Sure.
Speaker Change: When thinking about expenses going forward in the year you had any commentary on that I know you had made some comments on interest expense.
Brian S. Peay: Listen, I think that we're seeing a moderating in expenses, which is welcomed. Certainly, the rate of increases in compensation costs and payroll costs is lower than it has been for quite some time. We're pleased with that. Anecdotally, I can tell you that our friends at Gallagher, who arrange our property insurance, did a great job. And ultimately, we wound up with a slight decrease in our property insurance coverage, so that's more informative of sort of where expense growth is. It's definitely moderating somewhat versus the last few quarters slash years.
Speaker Change #104: Listen I think that we're seeing a moderating and expenses.
Speaker Change: Which is welcomed certainly the rate of increases in the in the compensation.
Speaker Change #100: Cost payroll cost is lower than it has been in quite some time, we're pleased with that.
Speaker Change #100: Anecdotally I can tell you that our friends at Gallagher, who arrange our property insurance did a great job.
Gallagher: Ultimately, we wound up with a slight decrease in our property insurance coverage. So that's more informative of sort of where expense growth is it's definitely moderating somewhat.
Gallagher: Versus the last few quarters slash years.
Gallagher: Okay. Thank you.
Gallagher: Thanks for your question.
Michael Robert Lewis: Our next question comes from the line of Michael Lewis with Truist Securities. Your line is live.
Gallagher: Our next question comes from the line of Michael Lewis with <unk> Securities. Your line is live.
Michael Robert Lewis: Great, thank you. I think you said earlier the spot occupancy as of earlier this month, 86.6% Trilogy, 86.9% SHOP. Has there been a change in occupancy in the MOB portfolio? You know, it ended the quarter around 88%. To maybe talk about, you know, if there are any more known move-outs there or how you expect, you know, occupancy there to bottom and then recover?
Gallagher: Great. Thank you.
Gallagher: I think you said earlier.
Michael Lewis: <unk> occupancy.
Michael Lewis: As of earlier this month 86, 6% trilogy 86, 9% shop has there been a change in occupancy in the mob portfolio.
Speaker Change #101: <unk> ended the quarter around 88% and maybe talk about if there are any more known move outs, there or how you expect occupancy there.
Speaker Change #101: The bottom and then recover.
Danny Prosky: I think we're either at or near the bottom. We do have a few leases expiring in Q3 in particular that we expect potentially not to renew. Of course, the vast majority are going to renew. We've run north of 80 percent renewal, you know, almost every year, in some cases close to 90. Lots of activity, lots of new leasing, lots of upside tours. But I think that our expectation is that we'll probably end the year more or less around the same occupancy we are today. We're going to have some move-outs. We're going to have some new leases commence as well.
Speaker Change #109: Yes, I think we're either at or near the bottom. We do have a few leases expiring in Q3 in particular that we expect potentially not to renew of course. The vast majority are going to be new we've run north of 80% renewal almost every year in some cases close to 90.
Speaker Change #101: Lots of activity lots of new leasing lots of upside tours.
Speaker Change #103: But I think that our expectation is that we'll probably end the year more or less around the same occupancy that we are today, we're going to have some move outs were going to have some new leases commence as well.
Michael Robert Lewis: Okay, got it. And then my second question, I'm going to come back to staffing, right? So, this is the big risk now that everybody seems to be talking about more than ever, now that we've got the rule, whether it goes through or not.
Speaker Change #103: Okay got it and then.
The interviewer: My second question I'm going to come back to the staffing right. So this is the big risk now that everybody seems to be talking about more than ever now that we've got the rule, whether it whether it goes through or not.
Danny Prosky: You know, you don't seem to have an issue as far as staffing is concerned, and, you know, Mike Carroll had a thesis or a reasonable thesis earlier, but that doesn't seem to be the answer. I'm going to ask it more bluntly. I mean, do we know why Trilogy is able to do this and be profitable? Well, it seems like everybody else says they can't do it. And, you know, you have a smaller triple net portfolio, but you have experience with other operators. The bottom line is that they're covering it, and you gave us the numbers, but I can't help but ask, you know, the why and the how.
Michael Albert Carroll: You don't seem to have an issue as far as staffing and Mike <unk>.
Speaker Change #105: Is this a reasonable thesis earlier, but that doesn't seem to be the answer.
Michael Albert Carroll: I'm going to ask it more bluntly I mean <unk>.
Michael Albert Carroll: No why trilogy is able to do this and be profitable while it seems like everybody else says they can't do it.
Speaker Change #106: And you have it's a smaller triple net portfolio, but you have experience with other operators.
Speaker Change #108: The bottom line is is that the cover and you gave us the numbers, but I can't help but ask the why in the half.
Danny Prosky: I think the main answer is pretty easy, and that is higher acuity. So if you look at our portfolio, Trilogy in particular, but even most of our tenants, we don't have that many skilled nursing homes. We only have three portfolios, and two of those also serve kind of a higher acuity resident. So if you've got higher acuity, it means you've got higher staffing, right? You're going to have more care. You're also going to have, you know, more Medicare, more private insurance, and probably less Medicaid.
Speaker Change #110: I think the main answer is pretty easy and that is higher acuity.
The interviewer: If you look at our portfolio of trilogy in particular, but even most of our tenants. So we don't have that many skilled nursing really have three portfolios.
The interviewer: Two of those also sort of kind of a higher acuity residents. So if you've got higher acuity. It means you've got higher staffing right youre going to have more care Youre also going to have more Medicare and private insurance property less Medicaid.
Danny Prosky: So the problem with this rule is that it's a one-size-fits-all so far, and it doesn't account for those that have lower acuity, longer-stay residents who don't need as much care. So that's right. That's the main reason Trilogy is able to survive this role with little, if any, impact.
Speaker Change #112: So the problem with this rule as it's one size fits all so far is it doesn't account for those that have lower acuity longer stay residents, who don't need as much care.
Trilogy: So that's right. That's the main reason trilogy is able to survive this role with little if any impact and most of the rest of our tenants are as well as they service a higher acuity resident they have higher hours already.
Danny Prosky: And most of the rest of our tenants are as well, because they serve as a higher acuity residents. They have higher hours already just because of the nature of their business. You know, we have one tenant that serves a lower acuity resident. They do a lot of kinds of behavioral health. They are going to have some catching up to do if they're required to meet that mandate. Fortunately for us, they've got very, very strong rent coverage.
Speaker Change #112: Just because of the nature of their business.
Speaker Change #114: We have one tenant that serves a lower acuity resident they do a lot of kind of behavioral health.
Speaker Change #114: Hey.
Speaker Change #113: And have some catching up to do with their required to meet that mandate. Fortunately for us they've got very very strong rent coverage.
Danny Prosky: They are mostly rural facilities. You know, they'd have a much longer time to adapt. But it's just the nature of our business. But if you serve kind of a lower-acuity resident and you're forced, and particularly if it's a Medicaid resident, and you're forced to adapt to this level of staffing, you're going to have a problem.
Speaker Change #107: They are mostly rural facilities they'd have a much longer time to adapt.
Speaker Change #111: But it's just the nature of our business, but if you're if you're sort of kind of a lower acuity resident and are forced in it particularly if its Medicaid resident engineer forced to adapt to this level of staffing youre going to have a problem.
Gabriel M. Willhite: And I'd add just one more thing to that. I think Trilogy's model is unique, where they have this mix of skilled nursing and AL and memory care and IL on one campus, and there are operational efficiencies that come from that setup. You've got one admin team, you've got one dining team, you've got maintenance staff that's shared across all those beds, and spreading the cost around makes the business more efficient and more profitable.
Triologies: And I would add just one more thing on to that I think Triologies model is unique where they have this mix of skilled nursing and al and memory care.
Triologies: Oh on one campus and there are operational efficiencies that come from that setup you got one admin team you've got one dining team you've got maintenance staffs and shared across all of those pads and spreading the cost around makes the business more efficient and more profitable and that's why the model is exciting to us and one that we want to continue to invest in because we see.
Gabriel M. Willhite: And that's why the model is exciting to us and one that we want to continue to invest in because we see it working over and over and over again in ever-expanding markets while Trilogy continues to capture more market share.
Trilogy: And working over and over and over again and ever expanding markets. While trilogy continues to capture more market share.
Michael Robert Lewis: Perfect. Thanks. A chance for this to be a differentiator.
Trilogy: Perfect. Thanks.
Trilogy: For this to be a differentiator.
Trilogy: Yeah.
Michael Robert Lewis: Thanks for your question. Ladies and gentlemen, this is your final call. If you would like to ask a question today, remember it's star followed by the number one on your touchtone phone. Our next question is from the line of Michael Stroyack with Green Street. Your line is live.
Trilogy: Thanks for your questions, ladies and gentlemen final call. If you would like to ask a question today remember at Star followed by the number one on your Touchtone phone. Our next question is from the line of Michael History with Green Street. Your line is live.
Michael Stroyack: Thanks and good morning. Hey, maybe one on the triple net business. So, NOI growth has been running between three and a half and four and a half percent the last two quarters. What factors are driving the expected deceleration to call it the mid one percent range that's implied by the midpoint 2024 guidance?
Michael Anderson Griffin: Hey, Mike Thanks, and good morning, Hey.
Michael Anderson Griffin: Maybe one on the Triple net business. So NOI growth, it's been running between $3, 545% last two quarters, what factors are driving the expected deceleration call. It mid 1% range, that's implied by the midpoint for 2020 for guidance.
Brian S. Peay: Well, I think we, I think, and I. Maybe I should go back, but I think we talked about 1% to 3% for the triple net lease business. And I can tell you that with a little bit of an anomaly this quarter, there were a few factors that really kind of benefited us. One of our tenants, we had put some CapEx into some properties in the UK. And as a result, that carries an additional rent associated with it.
Michael Anderson Griffin: Well I think.
Michael Anderson Griffin: And then.
Speaker Change #116: Maybe I should go back, but I think we talked about 1% to 3% for the triple net lease business.
Speaker Change #119: And I can tell you that we are a little bit of an anomaly this quarter.
Speaker Change #122: There were a few factors that really kind of benefited us one of our tenants. We had put some some capex into some properties in the U K and as a result that carries additional rent associated with it.
Brian S. Peay: And then, in addition to that, we had some benefit from some currency fluctuations. Actually, the dollar moved such that it added to our same store increase where it was. I don't see this as long-term sustainable, and I'm certainly not in the business of projecting what's going to happen to currency rates. So I still believe that our same store increase is going to be in the 1 to 3% range.
Speaker Change #123: And then in addition to that we had some benefit from some currency fluctuations actually the dollar.
Speaker Change #116: Move such that it added to our to our same store increase where it was.
Speaker Change #118: I don't see these as long term sustainable and I'm certainly not in the business of projecting what's going to happen to currency rates. So I still believe that our same store is going to be in the 1% to 3% range.
Danny Prosky: Okay, that makes sense. And I just meant that by the falling 1Q performance, the rest of the year is implied mid-1%, but I totally understood. Yeah, no, I got you. And then maybe the second question, that Oregon shop portfolio acquired during the quarter, is there any deferred capex within those assets that the company will need to fund in the future? And then, just for clarification, were you guys the original lenders on that asset or just got involved once the primary lender defaulted?
Speaker Change #118: Okay.
Speaker Change #121: Makes sense and I just meant by the falling <unk> performance the rest of the year as implied mid 1%, but.
Speaker Change #121: I understood.
Speaker Change #121: Yes, no I got it.
Speaker Change #121: Okay, and then maybe second question on that Oregon shop portfolio acquired during the quarter is there any deferred capex within those assets that the company will need to fund in the future and then just just for clarification.
Speaker Change #120: As an original lender on that asset or just got involved once the primary lender defaulted.
Danny Prosky: Yeah, so we were the original lender going back to 2015, I believe. We were the best lender on that, and surprisingly, you know, you'd think there'd be a bunch of deferred maintenance, but there wasn't. We were pleasantly surprised by the condition of these assets. In a lot of cases, there's actually impounds with the lender, and so the operator and the owner are not, they're disincentivized not to spend money on the property, so there's not much in the way of deferred taxes there at all, if any.
Speaker Change #124: Yes. So we were the original lender going back to 20 <unk> I believe.
Danny Prosky: Great
Speaker Change #125: We were the best lender on that end.
Speaker Change #120: Surprisingly.
Speaker Change #126: Think there'd be a bunch of deferred maintenance, but there wasn't we were pleasantly surprised by the condition of these assets in a lot of cases, there is actually impounds up with the lender.
Speaker Change #127: So the operator and the owner or are not.
Speaker Change #117: They are disincentivize not to spend up on the property.
Speaker Change #117: So there is not much in the way of deferred there at all.
Michael Robert Lewis: if any. Great, thanks for the time.
Speaker Change #117: If any great. Thanks for the time.
Speaker Change #117: Thanks for your question.
Michael Robert Lewis: Our next question is from a line from Michael Lewis. We have a follow-up question with Truist Securities. Your line is live.
Speaker Change #117: Our next question is from a line of from the line of Michael Lewis, We have a follow up question with true Securities. Your line is live.
Michael Robert Lewis: Thank you. I just have one more quick question. What did you pay for the trilogy interest that you bought this quarter? And, you know, was that also kind of a fixed negotiated price, or is there any insight from that into, you know, its fair market value?
Michael Lewis: Thank you I just had one more quick one.
Michael Lewis: What did you guys pay for the trilogy interest that you bought this quarter and was that also kind of a fixed negotiated.
Michael Lewis: Price or is there any insight from that into a fair market value of it.
Danny Prosky: Yeah, so that was all the interest from the original Trilogy employees going back to the deal that we did in 2014 when we bought Trilogy. And we kind of pre-negotiated that price a few years ago. We feel that, you know, it's a pretty good price, especially considering the growth in value for Trilogy over the last couple of years. But the total proceeds for that ownership piece were $32 million, and that was paid on Trilogy, and I'd add to that.
Michael Lewis: Yes. So so that was that was all the interest from the original trilogy employees going back to the deal that we did in 2014, when we bought trilogy.
Speaker Change #131: We kind of pre negotiate that price a few years ago, we feel that it's a pretty good price, especially considering the growth in value for the trilogy has had over the last couple of years.
Trilogy: But the total proceeds for that ownership piece was $32 million and that was paying on the trilogy. So trilogy actually bought them out as a company.
Danny Prosky: And I'd add that the majority of that was with the former founder of Trilogy, who has since retired.
Michael Lewis: And I'd add to that or any of that was with.
Speaker Change #129: The former founder of trilogy, who has since retired.
Michael Lewis: Thank you.
Danny Prosky: Thank you for your question. And, ladies and gentlemen, that will conclude our Q&A session here today. And I would like to turn the call back over to Mr. Prosky, President and CEO, for closing comments. Thank you, Operator, and thank you to everyone who joined the call. It feels like we just did one of these not that long ago, which is the case. We are looking forward to a successful remainder of the year and are very optimistic that we'll continue to see things move in the right direction for our facilities. So with that, everybody have a great rest of the week and a great summer, and we'll talk to you again in August.
Speaker Change #132: Thank you for your question and ladies and gentlemen that will conclude our Q&A session here for today and I would like to turn the call back over to Mr. <unk> <unk>.
Speaker Change #133: <unk> and CEO for closing comments.
Operator: Thank you operator, and thank you to everyone who joined the call.
Speaker Change #130: We just did one of these not that long ago, which is the case.
Speaker Change #128: We are looking forward to.
Speaker Change #134: A successful remainder of the year and are very optimistic that we'll continue to see things move in the right direction for our facility so with that.
Speaker Change #128: Everybody have a great rest of the week and a great summer and we'll talk to you again in August.
Operator: Please wait; the conference will begin shortly.
Speaker Change #128: Please wait the conference will begin shortly.
Speaker Change #128: Yes.
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Speaker Change #128: Okay.
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Speaker Change #128: Yes.
Speaker Change #128: Yes.
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Speaker Change #128: Sure.
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