Q1 2024 CareTrust REIT Inc Earnings Call
Based on mute to prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply breast <unk> followed by the number one on your telephone keypad.
If you would like to withdraw your question Brett Darwin again, Thank you I would now like to turn the call over to Lauren Beale Senior Vice President and controller. Please go ahead.
Thanks, Mike welcome to characterize REIT first quarter 2024 earnings call participants should be aware that this call is being recorded and listeners are advised that any forward looking statements made on today's call are based on management's current expectations assumptions and beliefs about characterize business and the environment in which it operates.
These statements may include projections regarding future financial performance dividends acquisitions investments returns financings and other matters and may or may not referenced other matters affecting the company's business or the businesses of its tenants, including factors that are beyond their control such as natural disasters pandemics such as COVID-19.
And governmental actions.
The company's statements today and this business generally are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein.
Listeners should not place undue reliance on forward looking statements and are encouraged to review characterized SEC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC regulation G.
Except as required by law characteristic REIT and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information future events changing circumstances or for any other reason.
During the call the company will reference non-GAAP metrics, such as EBITDA, <unk>, and F&B or Fad and normalized EBITDA <unk> and F&B.
When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP reports.
In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by characterized.
Yesterday characterize filed its Form 10-Q, and accompanying press release and its quarterly financial supplement each of which can be accessed on the investor Relations section of <unk> website at Www Dot care Trust REIT Dot com.
Replay of this call will also be available on the website for a limited period.
On the call. This morning are Dave Sedgwick, President and Chief Executive Officer, and Bill Wagner, Chief Financial Officer, Our Chief Investment Officer, James Collister is unable to attend the call today.
I'll now turn the call over to Dave Sedgwick characterize <unk>, President and CEO Dave.
Hello, everybody and thank you for joining US let me kick things off today by first excuse me and our Chief investment Officer, James Coster from the call.
Given how busy we have been with acquisitions you would be justified in guessing that he is just too busy for you.
But this morning, he has a family matter that trumps his participation with us.
So while we're on the subject of investments I'd like to start by talking about our current robust phase of growth.
The sharp increase to interest rates.
Has resulted in a unique situation in our nearly 10 years of business.
On the one hand like everyone our borrowing costs have increased significantly.
But on the other hand, because we conservatively established a fortress balance sheet for times like this and.
And because of the strategic relationships we formed.
And because our cost of equity is remarkably.
Much lower than our cost of debt today.
We are better positioned to invest and grow than any time in our company's history.
It is extraordinary to be able to say that we view interest rates stayed higher for longer as a net positive for care Trust.
And so far as it should continue to drive investment opportunities in our direction.
Those of you who know US best Mill, a couple of important guiding principles, we follow when it comes to capital allocation.
First we do not grow for growth's sake healthcare.
Healthcare real estate skilled nursing in particular requires a high level of discipline.
Every acquisition should immediately or quickly be accretive and must be matched with the right operator.
Second we are building a company to outlast all of US we are not nearly as sensitive as the algorithms are to quarter to quarter numbers.
We run the business for long term value creation, and we will at times when the pipeline justifies it take some short term dilution to lock in permanent financing and accretion.
And thereby set the table for future growth.
We started this year with about $300 million of cash on the balance sheet, because we saw the potential for 2024 to be a record year of investments.
I want to congratulate the team for such a strong start there are the best pound for pound investment team I know and our tireless when it comes to sourcing and closing deals.
With the investment on May one we've already.
Closed approximately $205 million in new investments.
Approximately $154 million of that has been either acquisitions or loans with purchase options at an average yield of nine 4%.
The other $52 million of deals closed our mezzanine loans at an average yield of 13, 6%.
Last quarter I elaborated on in our strategic approach to lending.
You may recall that we are not agnostic between acquisitions and lending.
Lending results and Lumpiness to earnings and does not by itself results in long term growth.
However, we do enthusiastically land with strategic borrowers and operators, who we believe will result in real estate acquisitions in the future. Let me put a finer point on that as of today, we attribute about $260 million of real estate acquisitions in the last 12 months alone.
And another $200 million of acquisitions in our current pipeline.
That came from this strategic approach to lending in recent years.
If we don't have at least a handshake deal with the borrower or operator for acquisition opportunities in the future chances are pretty low that we will land.
The deal we closed on Wednesday is a perfect example of this philosophy in action in case, you missed it on Wednesday, we closed on a mortgage loan of $26 7 million at an annual interest rate of nine 1% in connection with the borrowers acquisition of a two property skilled nursing portfolio in Tennessee.
With ensign as a long term triple net master lease tenant.
The relationship with this borrower goes back many years, they understand our strong preference to own the real estate and they provided us a purchase option beginning in the fourth year of the loan.
After yesterday's Tennessee deal.
Our pipeline today sits at approximately $260 million.
And it was roughly 50% acquisitions and 50% loans.
It includes one larger deal we have been pursuing for some time that we now feel confident enough to include in our quoted pipe.
Furthermore of the pipe today is almost entirely skilled nursing properties. In addition to today's quoted pipe. We are also interested in some other large deals.
But at this point are not tracking at a high enough probability to include in that number.
So with our line of sight on our reloaded pipeline, we have continued to position the balance sheet to capitalize on this window of opportunity while it remains wide open.
We are pleased to report a net debt to EBITDA zero six times.
High level, if we don't use any more equity.
We can now deploy the $345 million of cash on hand.
Plus the Undrawn $600 million line of credit.
And still only arrive at three six times net debt to EBITDA.
In other words, we are locked and loaded to grow in a meaningful way for the next few years.
Remember, how we quote our pipe we only quote deals that are at least under LOI.
That we believe have a strong likelihood of closing.
And should close within the next 12 months.
Now turning to the portfolio.
You will see in the supplemental lease coverage continues to show tremendous strength in security overall.
Property level, EBITDAR with a 5% management fee.
And EBIT darn coverage was reported at $2, one eight times and $2 78 times respectively.
You may have noted in the supplemental both priority management group and WL see reported declining coverage from Q3 to Q4.
This was due to large one time reserve accruals for workers' comp, Andrew or bad debt.
That the reserve has been better accounted for during 2023, you would not have seen the type of decline in the reported.
They had occupancy and labor headwinds in the quarter as well however, both have favorable state Medicaid rate increases this year.
Should among other things drive coverage higher by year end.
We are not worried about either of them or anyone in our top 10.
The transition of two <unk>, Colorado facilities to Ensign took place on March one as expected.
<unk> stepped in at a lower rent and enduro is covering the difference across the remaining seven care trust properties in the master lease.
Therefore, we do expect to see fairly tight lease coverage for <unk> this year.
But we also expect that coverage to increase going into next year.
Also.
We are still under contract to sell the portfolio of 11 skilled nursing assets with negative EBITDAR in the Midwest Understandably financing has been challenging but the buyer continues to make good faith efforts that lead us to believe the deal will get done.
On the regulatory front, a couple of items first CMS announced a four 1% Medicare rate increase for fiscal year 2025.
<unk> This October and second as we expected.
<unk> issued their final rule on the minimum staffing mandate.
We remain disappointed with the rule that is impossible to implement given the widely publicized staffing shortage in skilled nursing and throughout health care. Today. Furthermore, an unfunded mandate of more staff will not magically make those employees appear.
We remain hopeful that reasonable heads will prevail in D C to modify or reverse course altogether.
For the mandate takes effect.
Now before I hand, it over to Bill Let me conclude like this first the investment environment is very healthy.
Second we have a balance sheet that provides enormous flexibility and historic capacity.
For both the near term and mid term.
Third we have an interest rate environment that has opened wide a window of opportunity as long as borrowing costs remained higher for longer.
And fourth we are at the start of demographic tailwind that should last for decades to come.
Bill will now provide you with color on the numbers, we reported yesterday.
For the quarter normalized <unk> increased 32, 9% over the prior year quarter to $46 5 million normalized <unk> increased 33, 1% to $48 7 million.
On a per share basis normalized <unk> was flat at 35 per share.
<unk> was also flat at 37 per share.
Because of our replenishing robust pipeline, we continue to take advantage of our ATM and issued $273 million of equity under the ATM during the first quarter, resulting in us having $451 million of cash on the balance sheet at quarter end substantially up from year end when the balance was 290.
$4 million.
Since quarter end, we've used a chunk of that for investments and our dividend, leaving us with approximately $345 million as we sit here today.
In Yesterdays press release, we updated guidance for 2024 with a range for normalized <unk> per share of $1 42 to $1 44, and normalized fad per share of $1 46 to $1 48.
This guidance includes all investments made to date.
And weighted average share count of 140 million shares and also relies on the following assumptions.
One no additional investments nor any further debt or equity issuances this year.
To CPI rent escalations of two 5%.
Our total cash rental revenues for the year are projected to be approximately $210 million to $211 million.
We have lowered the reserve of 2% to 3% last quarter to one 5% to 2%.
Not included in this number is the amortization of a below market lease intangible that will total about $2 3 million, but this will be in the rental revenue number as required by GAAP.
Three interest income of approximately $44 million.
The $44 million is made up of $27 million from our loan portfolio and $17 million is from cash invested in money market funds.
For interest expense of approximately $33 million and.
In our calculations, we have assumed an interest rate of six 9% for the term loan.
Interest expense also includes roughly $2 4 million of amortization of deferred financing fees.
And five G&A expense of approximately 23% to $24 million and includes about $5 9 million of deferred stock comp.
Our liquidity continues to strengthen as we March to a record setting year for investments, we have approximately $345 million in cash today and our entire 600 million was available under the revolver.
Leverage hit an all time low with a net debt to normalized EBITDA ratio of <unk> six times our.
Our net debt to enterprise value was four 1% as of quarter end and we achieved a fixed charge coverage ratio of seven five times.
I said last quarter that I wouldn't be surprised to see leverage tick further downward as we continue to fund our pipeline with equity, which it did and then some I also said I would expect that leverage will begin to tick up as we deploy the cash into accretive investments.
Still believe that this will occur, but given the price of our equity relative to the current cost of a long term debt issuance. We believe that it makes much better sense to continue to lock in accretion using equity on a robust and replenishing investment pipeline.
Net debt to EBITDA range of four to five times is still a range. It just may take some time and a lot of advancements to get back there.
Which we plan on doing with that.
That I will turn it back to Dave.
Great well, we hope our report has been helpful and happy to take your questions now.
Okay, We got a question from Jonathan here.
He says I think it's fair to say expectations are very high for continued acquisition activity given the cash on hand and leverage profile.
And with that comes pressure to get deals done I know James is in on but Dave I was hoping you could talk about how you managed to balance.
Those expectations for continued investment activity, while maintaining underwriting discipline.
And how much investment capacity can your current team handled before needing to meaningfully increase head count.
Alright, let me touch on those it always makes changed a little bit nervous when I answer your questions on investments in pipeline because I tend to.
Not manage those expectations as well as he does.
Look it is in my prepared remarks, and what you've seen from us so far this year, we certainly feel.
And see a flow of deals coming our way and we've been able to execute on those now for.
At 18 months.
And an accelerated pace, we expect that to continue going forward and so we just want to.
Bill and I talked about lock in that accretion.
Be prepared to take advantage of that.
Regardless of what.
<unk> happens at a macro level.
The disciplined though has got to be there it's always been part of our story.
And.
We haven't changed.
We're not going to grow for growth's sake.
In terms of capacity.
The current team can handle certainly the pace of growth that we're looking at today.
We have added head count in the last.
18 months or so.
And we always evaluate that but I think we're positioned really well to.
Take advantage of the window of opportunity that we're in.
And then last one from.
Jonathan here Bill can take that it's about our preference to settle equity proceeds now versus raising on a forward basis.
Yes, Jonathan the reason, we are settling our ATM issuances right now instead of putting on putting them on a forward is we have some.
Better visibility as to the closing dates as Dave said in his remarks.
With less than 12 months.
We expect to close on the investment pipeline, so thats really and the minimal dilution that is.
Is about taking the taking the cash now as opposed to putting it on a forward.
Your next question comes from the lineup Juan Sanabria from BMO capital markets. Please go ahead.
Hi, Thanks for the time and the patience with getting that sorted.
I guess a question for bill.
Given your strong cash balance and the fact that you probably you said run through that in quite some time.
Absent the pipeline growing from here, which it seems to be continually being replenished should we expect you to continue to issue equity via the ATM.
To further drive up cash and leverage doubter.
From here do you think you can just kind of funded with cash on hand absent again, the acquisition pipeline being replenished you're growing.
It goes to what Dave said, what Dave said earlier, which is when we quote our pipeline. It's under this definition and that's pretty solid and we expect to close on that within 12 months.
But theres also deals that are coming in every day and if we think those are actionable and will get eventually into our pipeline, we're continuing to raise equity.
Against that number if we like the equity price.
And taking into consideration those deals in there.
And the yields that they will produce.
Yes.
For that.
Second question just on portfolios out there can you comment on.
How many are kind of in play for how does that compare to history and well liked.
I think youll land one from here it sounded like one is in the $2 60, but anything above and beyond that any commentary would be would be helpful.
Okay.
Yes, we were reluctant to give too much.
Color on on those bigger deals just because there's lower probability.
<unk>.
And.
It changes from month to month stuff gets sort of falls out and stuff comes in but it's primarily skilled nursing.
Portfolios that we're looking at.
I'd say, where.
We're chasing.
More and larger deals than we have historically, but fairly consistent with the last 12 months.
Thank you.
Excellent.
The next question comes from the line of Michael Carroll from RBC Capital markets. Please go ahead.
Yeah. Thanks, I guess, Dave kind of falling off of that last question related to the larger portfolios.
Is the competitive landscape for those deals of that change versus pre COVID-19 or even a few years ago. I mean, who are you typically compete against for those assets right now.
Yes, the competition for the deal sort of depends on the.
The the deal itself in other words, if its a nice stabilized cash flowing deal theres going to be quite a bit of competition for that.
If it requires more of a turn there.
Competition, but theres, just less less players going after it.
Okay.
And then going to your press release, you indicated that you collected 98% of your rents can you kind of highlight the 2% in France that weren't collected in the quarter and if thats something thats going to recover here shortly.
Yes.
Yes.
A few operators, primarily seniors housing and are not top 10 list that arent quite performing like we would like we think that their worst performances behind them, we see them, making some improvements now and so we would expect.
Those underpayments to improve going forward.
Your next question comes from the line of Tayo Okusanya from Deutsche Bank. Please go ahead.
Hi, yes, good morning out there.
So I am just you guys noticed consensus estimates are much higher versus your guidance and I think a part of it has to do with just again overall assumptions about capital structure and leverage.
Again, I don't think ive ever seen a net debt to EBITDA of 0.6 in my 25 years of doing this so just kind of curious again like why is that.
Makes sense will you guys, even on a near term basis.
Just kind of given all the pre funding Doug have been negative at least in near term earnings impact.
Well I'll answer that and have built clean up after me.
I think that the really the big difference.
And consensus with our guidance is is that we do not include investments.
Future investments in our guidance.
And of course, you and everybody that is.
Folds into consensus due.
And so I think as you look at what our run rate is for guidance when you fold in the assumptions for investments.
And I think that that comparison is the more meaningful one.
Yeah, I would push back on that because I think when everyone normalizes for the amount of acquisitions, you've done year to date, we still we're still much higher.
But your current guidance and I think again, a part of it just has to do with assumptions around capital structure.
My main question is you guys have.
Yeah.
Youre very disciplined about how you do acquisition so.
If you kind of are out they're not finding what you want in the meantime, you've kind of over <unk>, if I may use that word.
And are impacting earnings release.
So.
If you end up not doing deals just because they don't they don't pencil or whatever.
I think there's a fair amount of earnings that you've kind of given up in the pursuit of deals they ended up not doing.
Alright.
Yes, sorry.
That's true if we don't actually execute on the pipe that we have.
And the pipe doesn't continue to.
To build as we anticipate then youre right. We would we would have a lag to our earnings growth.
We've positioned the balance sheet based on.
Our confidence level in our ability to continue to do what we have been doing over the last 12 months.
We have a high level of confidence in the quoted pipeline number that we have.
And we have a funnel of deals making their way to that level of <unk>.
Confidence.
Still coming.
Which is which is all why we would.
We would position the balance sheet to lock in that permanent financing locking that accretion.
Because we believe that we will.
Usually deploy that cash on the balance sheet.
In the near term.
Your next question comes from the line of Alex Freegan from Baird. Please go ahead.
Hi, Thank you for taking my question kind of to piggyback on that what is the timing to deploy the capital or should we expect a similar rate for the rest of <unk>.
Slide 24, as we have seen year to date.
Well the time, when we quote our pipe like I said in my prepared remarks that typically means.
We have a high level of confidence in closing on that quoted number within 12 months.
But that could be.
As early as next month.
To 11 12 months from now in skilled nursing one of the.
Nuances of closing on deals.
Is that there is always a requirement for skilled nursing acquisitions to have.
consensus estimates are much higher versus your guidance. And I think a part of it has to do with just overall assumptions about capital structure and leverage. Again, I don't think I've ever seen a net debt to even down 0.6 in my 25 years of doing this. So just kind of curious again, like, why does that
Analyst: makes sense for you guys, even on a near-term basis, just kind of given all the pre-funding does have a negative, at least near-term earnings impact.
Licensure approval and different states have different requirements there.
And so that's one of the reasons why we we give ourselves a little bit of latitude in terms of quoting the timing.
Company Representative: Well, I'll answer that and have Bill clean up after me. Um, you know, I think that the really big difference in consensus with our guidance is that we do not include investments, future investments, in our guidance, and, of course, you and everybody that folds into consensus do. And so I think as you look at what our run rate is for guidance and you fold in the assumptions for investment, then I think that that comparison is the more meaningful one.
But 12 months were inside of 12 months, we think is.
makes sense for you guys even on a near-term basis, just kind of given all the pre-funding, does have a negative at least near-term earnings impact.
As a conservative way to read our quoted pipeline of deployed capital.
Okay. Thank you and second question for me is on that 11 asset portfolio. That's.
Speaker Change: Well, I'll answer that and have Bill clean up after me.
Bill: You know, I think that the, really the big difference
Held for sale to characterize have any sort of non refundable deposits from that potential buyer and what is holding that buyer back from actually closing.
Bill: in consensus with our guidance is that we do not include investments
Yes, we do we have about $1 million of.
Bill: future investments in our guidance. And of course, you and everybody that folds in a consensus do.
Money, that's gone hard and it's nonrefundable.
Analyst: Yeah, I would push back on that because I think when everyone normalizes for the amount of acquisitions you've done year to date, we're still much higher than your current guidance. And I think, again, a part of it just has to do with assumptions around capital structure. So, again, my main question is, you guys have... You're very disciplined about how you do acquisitions. So, you know, if you kind of are out there not finding what you want, in the meantime, you kind of over-equitize, if I may use that word, on our impacting earnings.
And.
We're staying close with those guys.
They are making progress and what they are telling US is they think it can get closed here in the next month or two.
Bill: And so I think as you look at what our run rate is for guidance and you fold in the assumptions for investments,
Got it that's it for me thank you.
Bill: then I think that that comparison is the more meaningful one.
Thank you a good weekend.
Your next question comes from the line of one Sanabria again from BMO capital markets. Please go ahead.
Speaker Change: I would push back on that because I think when everyone normalizes for the amount of acquisitions you've done year to date, we're still much higher.
Hi, Thanks for the time again.
Im just curious given your strong cost of capital if you'd have any interest in looking at senior housing operating assets or is that something that.
Speaker Change: than your current guidance. And I think, again, a part of it just has to do with assumptions around capital structure. So I guess, again, my main question is you guys have,
You could add to the fold.
Analyst: So, you know, if you end up not doing deals just because they don't they don't cancel or whatever, you know, I think there's a fair amount of earnings growth that you're kind of giving up in the pursuit of deals that you end up not doing.
Kind of dovetail to that would you have any interest in all tax by any chance.
Speaker Change: you know, you're very disciplined about how you do acquisitions. So, you know, if you're kind of out there not finding what you want, in the meantime you've kind of, you know, over-equitized, if I may use that word, on our, you know, on our impacting earnings growth.
Well I'll go in reverse order.
We probably don't have.
Company Representative: Yeah, that's true. If we don't actually execute on the pipe that we have, and the pipe doesn't continue to build as we anticipate, then you're right. We would have a lag in our earnings growth. We've positioned the balance sheet based on our confidence level and our ability to continue to do what we have been doing over the last 12 months. We have a high level of confidence in the quoted pipeline numbers that we have, and we have a funnel of deals making their way to that level of confidence still coming, which is why we would position the balance sheet to lock in that permanent financing, lock in that accretion, because we believe that we will easily deploy that cash on the balance sheet.
The interest and L tax today.
I would never say never but it's not something that we're currently interested in are pursuing with.
Speaker Change: So, you know, if you end up not doing deals just because they don't pencil or whatever, you know, I think there's a fair amount of earnings worth that you're kind of giving up in the pursuit of deals that you ended up not doing.
With regards to shop seniors housing.
I would I would say that we are certainly open to that.
Speaker Change: Bye-bye.
Speaker Change: Yeah, Tyro, that's that's true. If we don't actually execute on the pipe that we have,
We're not exactly built for it.
Today, we're really built to scale in a triple net way, but if we were to go into a shop invest.
Speaker Change: and the pipe doesn't continue to build as we anticipate, then you're right. We would have a lag to our earnings growth.
The investment we would we would not.
We would have to solve both the economics of the deal, but also the backend support structure for it.
Speaker Change: We've positioned the balance sheet based on our confidence level and our ability to continue to do what we have been doing over the last 12 months.
And Thats something that we would be open to looking at.
And one last question for me given how low the Leverages is there any chance you could re cut any of euro.
Speaker Change: We have a high level of confidence in the quoted pipeline number that we have.
Loans to get some benefit for how conservative your balance sheet is positioned or any discussions with lenders to that area.
Speaker Change: And we have a funnel of deals making their way to that level of confidence still coming.
Speaker Change: which is which is all why we would
No.
Yeah.
Speaker Change: we would position the balance sheet to lock in that permanent financing, lock in that accretion, because we believe that we will easily deploy that cash on the balance sheet.
Sure great. Thanks.
Operator: Your next question comes from the line of Alec Fagan from BEIRD. Please go ahead.
Thanks, Paul.
Your next question comes from the line of Austin <unk> from Keybanc capital markets. Please go ahead.
Alec Fagan: Hi, thank you for taking my question. Kind of to piggyback on that, what is the timing to deploy the capital? And should we expect a similar rate for the rest of 2024 as we have seen here today?
Hey, everybody.
Speaker Change: in the near term.
A question about some of these larger deals as well so I'm just curious if with each kind of incremental decrease in leverage.
Speaker Change: Your next question comes from the line of Alec Fagan from Beard. Please go ahead.
Company Representative: Well, when we quote our pipe, like I said in my prepared remarks, that typically means we have a high level of confidence in closing on that quoted number within 12 months. But that could be as early as next month to 11, 12 months from now. In skilled nursing, one of the nuances of closing on deals is that there is always a requirement for skilled nursing acquisitions to have state licensure approval, and different states have different requirements for that.
And just a more attractive.
Cost of equity is that what's really improve the probability of <unk>.
Alec Fagan: Hi, thank you for taking my question. Kind of to piggyback on that, what is the timing to deploy the capital? Should we expect a similar rate for the rest of the
Doing these larger deals or is something else change.
Either just the benefit of time in underwriting.
Alec Fagan: 24 as we have seen year to date.
Given the size of the transaction, that's got new comfortable to.
Get under LOI again for specific maybe to the one that's in the pipeline today.
Alec Fagan: Well, the time, when we quote our pipe, like I said in my prepared remarks, that typically means we have a high level of confidence in closing on that quoted number within 12 months.
Well I think I think.
We're seeing an increase in larger deals.
Alec Fagan: But that could be
<unk>.
How attractive we've become as a transaction partner in today's environment, where.
Alec Fagan: you know, is
Alec Fagan: early as next month to 11, 12 months from now. In skilled nursing, one of the
We're borrowing costs are so high and another reason for it is.
Company Representative: And so that's one of the reasons why we give ourselves a little bit of latitude in terms of quoting the timing. But 12 months, inside of 12 months, we think is a conservative way to read our quoted pipeline of deployed capital.
Alec Fagan: nuances of closing on deals is that there is always a requirement for skilled nursing acquisitions to have state licensure approval and different states have different requirements there.
The fruit of.
Some relationship building that we've done over recent years and strategic lending that we've done over recent years, where as we've as we've.
Spanned did these relationships and done some things that have been a little bit outside of the norm.
Alec Fagan: And so that's one of the reasons why we give ourselves a little bit of latitude in terms of quoting the timing. But 12 months, inside of 12 months, we think is,
Alec Fagan: Okay, thank you. And the second question for me is on the 11-asset portfolio that is held for sale. Does CareTrust have any sort of non-refundable deposits from that potential buyer, and what is holding that buyer back from actually closing?
These folks continue to stay active in the and they come to us because we've had a really good.
Experienced transacting together.
Alec Fagan: is a conservative way to read our quoted pipeline of deployed capital.
So I think it's kind of a combination of a lot of us.
Company Representative: Yeah, we do. We have about a million dollars of money that's gone hard, and it's non-refundable, and we're staying close with those guys, and they, you know, they're making progress, and what they're telling us is they think it can get closed here in the next month or two.
Speaker Change: Okay, thank you. And second question for me is on that 11 asset portfolio that's held for sale, does Care Trust have any sort of non-refundable deposits from that potential buyer and what is holding that buyer back from actually closing?
Got it.
Just given sort of your calculated measured commentary when it comes to talking about the pipe is it fair to say that the newer larger deals than that arent in the pipe is simply because of that they are there newer deals and really are too soon to.
Alec Fagan: Got it. That's it for me.
Speaker Change: Yeah, we do. We have about a million dollars of money that's gone hard and it's non-refundable. And we're staying close with those guys and they, you know, they're making progress. And what they're telling us is they think it can get closed here in the next month or two.
Have under LOI and you have got enough to chew on.
With with what's in front of you and what you have capacity to acquire today.
Company Representative: Thank you. Thank you. Have a good weekend.
Operator: Your next question comes from the line of Juan Sanabria, again from BMO Capital Markets. Please go ahead.
Or are there other factors that kind of have you on the sidelines with some of the newer stuff that you've seen.
Juan Sanabria: Hi, thanks for the time again. I'm just curious, given your strong cost of capital, if you'd have any interest in looking at seniors' housing operating assets? Is that something that, potentially, you could add to the fold and is a kind of dovetail to that? Would you have any interest in LTACs by any chance?
Yes.
The thing that keeps us from including more is really just about stage of progression of the deals.
Speaker Change: Got it, that's it for me. Thank you. Thank you. Have good weekend.
Speaker Change: Your next question comes from the line of Juan Sanabria, again from BMO Capital Markets. Please go ahead.
Okay.
As things get the bigger the deal we're just going to wait until things are really baked.
Juan Sanabria: Hi, thanks for the time again.
Company Representative: Well, I'll go in reverse order. We probably don't have enough. The interest in LTACHs today, I would never say never, but it's not something that we're currently interested in or pursuing. With regard to SHOP, seniors housing, I would say that we are certainly open to that, um, We're not exactly built for it today. We're really built to scale in a triple net way, but if we were to go into a shop investment, we wouldn't.
Juan Sanabria: I'm just curious, given your strong cost to capital, if you'd have any interest in looking at seniors housing operating assets. Is that something that essentially you could add to the fold and is the kind of dovetail to that? Would you have any interest in L-Tax by any chance?
And ready to go before we start including those in our coated pipe we've just seen.
Larger deals for a number of reasons fall through.
After.
We thought we had a good chance that that's just that's just learning from chasing bigger deals over many years.
Speaker Change: Well, I'll go in reverse order.
Speaker Change: We probably don't have
Yes.
Okay.
Speaker Change: The interest in L-Tax today would never say never, but it's not something that we're currently interested in or pursuing.
Your next question comes from the line of Joe <unk> from Jefferies. Please go ahead.
Hey, guys. Thanks for taking my question just have a quick one here Wls team management coverage has come down quite a bit the last couple of quarters at 172 times EBITDAR.
Speaker Change: With regards to shop, seniors housing, I would say that we are certainly open to that.
Company Representative: We would have to solve both the economics of the deal and the backend support structure for it. And that's something that we would be open to looking at. And one last question for me: given how low the leverage is, is there any chance you could recut it?
I guess kind of what's the story, there and where do you guys see this settling.
Speaker Change: We're not exactly built for it.
Thanks.
Speaker Change: today. We're really built to scale in a triple net way, but if we were to go into a shop
Well I think Joe I think.
Ill just add a little bit to my prepared remarks about WMC.
Juan Sanabria: And one last question for me, given how low the leverage is, is there any chance you could recut any of your loans to get some benefit for how conservative your balance sheet is positioned, or any discussions with lenders to that effect?
Speaker Change: investment we would we would not
Are a great operator for us in southern Illinois had been doing it a long time for us and have been operating this portfolio a very long time it did have.
Speaker Change: We would have to solve both the economics of the deal, but also the back end support structure for it. And that's something that we would be open to looking at.
Kind of an end of year large adjustment and.
Speaker Change: And one last question for me, given how low the leverage is, is there any chance you could recut any of your loans to get some benefit for how conservative your balance sheet is positioned or any discussions with lenders to that out?
And also as I talked about I think I talked about them last quarter I could be mistaken they had a drop in skilled mix quite a bit and.
So as you as you are.
As they recover on the skilled mix side.
Operator: Your next question comes from the line of Austin Wersmith from Key Bank Capital Markets. Please go ahead.
As the new <unk>.
Our rates kick in in Illinois.
April 1st.
Austin Wersmith: Hey, everybody. Just a question about some of these larger deals as well. So I'm just curious if with each kind of incremental decrease in leverage and just a more attractive cost of equity, is that what's really improved the probability of doing these larger deals, or has something else changed? Either just the benefit of time and underwriting, given the size of the transaction that's gotten you comfortable to get under LOI? Again, specifically, maybe to the one that's in the pipeline today.
Then we would expect that coverage to.
Speaker Change: Short and sweet. Thanks.
To improve we're not concerned about them.
Okay, great. Thank you.
Thanks, Joe.
Austin Reimbursement: Your next question comes from the line of Austin reimbursement from Key Bank Capital Markets. Please go ahead.
That concludes our Q&A session I will now turn the conference back over to Dave <unk> for closing remarks. Please go ahead.
Austin Reimbursement: Hey, everybody.
Alright, Thanks, everybody really appreciate your time and of.
Austin Reimbursement: Just the question about some of these larger deals as well. So I'm just curious if with each kind of incremental decrease in leverage,
Of course, we're always standby for follow up questions, you know where to find us have a great weekend.
Austin Reimbursement: and just a more attractive, you know, cost of equity. Is that what's really improved the probability of, you know, doing these larger deals or has something else change, you know, either just the benefit of time and underwriting,
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Company Representative: Well, I think, I think what. We're seeing an increase in larger deals because of how attractive we've become as a transaction partner in today's environment, where borrowing costs are so high, and another reason for it is it's the fruit of some relationship building that we've done in recent years and strategic lending that we've done in recent years where we've expanded these relationships and done some things that have been a little bit outside of the norm. These folks continue to stay active, and they come to us because we've had a really good experience transacting together. So I think it's... kind of a combination of a lot of them.
Austin Reimbursement: given the size of the transaction that's gotten you comfortable to get under LOI, again, for specific maybe to the one that's in the pipeline today.
Austin Reimbursement: Well, I think what
Austin Reimbursement: We're seeing an increase in larger deals
Austin Reimbursement: because of
Austin Reimbursement: how attractive we've become as a transaction partner in today's environment where
Austin Reimbursement: where borrowing costs are so high. And another reason for it is it's the fruit of
Austin Reimbursement: some relationship building that we've done over recent years and strategic lending that we've done over recent years where as we've as we've expanded these relationships and and done some things that have been a little bit outside of the norm.
Austin Wersmith: Got it. So, I mean, just given your calculated, measured commentary when it comes to talking about the pipe, is it fair to say that the newer, larger deals that aren't in the pipe are simply because of that? They're newer deals and really are too soon to have under LOI. You've got, you know, enough to chew on with what's in front of you and what you have the capacity to acquire today? Or are there other factors that kind of have you on the sidelines with some of the newer stuff that you've seen?
Austin Reimbursement: These folks continue to stay active and they come to us because we've had a really good experience transacting together. So I think it's kind of a combination of a lot of those.
Speaker Change: Got it. So, I mean, just given sort of your calculated measured commentary when it comes to talking about the pipe, is it fair to say that the newer, larger deals then that aren't in the pipe is simply because of that? Their newer deals and really are too soon to...
Company Representative: Yes, I'd say the thing that keeps us from including more is really just about the stage of progression of the deals. Um, and as things get bigger, the bigger the deal, we're just going to wait until things are really baked and ready to go before we start including those in a quoted pipe. We've just seen larger deals, for a number of reasons, fall through after you know we thought we had a good chance at them. That's just, that's just learning from chasing bigger deals over many years.
Speaker Change: you know, have under LOI and you've got, you know,
Speaker Change: enough to chew on with what's in front of you and what you have capacity to acquire today. Or are there other factors that kind of have you on the sidelines with some of the newer stuff that you've seen?
Speaker Change: As things get, the bigger the deal, we're just going to wait until things are really baked.
Speaker Change: and ready to go before we start including those in a quoted pipe. We've just seen
Operator: Your next question comes from the line of Joe Dickstein from Jefferies. Please go ahead.
Speaker Change: larger deals for a number of reasons fall through after, you know, we thought we had a good chance at it. That's just, that's just learning from chasing bigger deals over many years.
Joe Dickstein: Hey guys, thanks for taking my question. I just have a quick one here.
Joe Dickstein: The WLC management coverage has come down quite a bit in the last couple quarters at 1.72 times EBITDARM. I guess kind of what's the story there and where do you guys see this settling? Well, I think.
Speaker Change: Your next question comes from the lineup Joe Dixstein from Jeffries. Please go ahead.
Company Representative: Well, I think, Joe, I think I just want to add a little bit to my prepared remarks about WLC. They are a great operator for us in Southern Illinois. They've been doing it a long time for us and have been operating this portfolio for a very long time. They did have kind of a large end-of-year adjustment. And also, as I talked about, I think I talked about him last quarter. I could be mistaken.
Joe Dickstein: Hey guys, thanks for taking my question. Just have a quick one here. So WLC management coverage has come down quite a bit the last couple quarters, that 1.72 times EBITARM. I guess kind of what's the story there and where do you guys see this settling? Thanks.
Speaker Change: Well, I think, Joe, I think I just add a little bit to my prepared remarks about WLC.
Speaker Change: They are a great operator for us in southern Illinois. They've been doing it a long time for us and have been operating this portfolio a very long time. They did have...
Company Representative: They had a drop in skilled mix. Quite a bit. And so as you, as they recover on the skilled mix side as the new rates kick in in Illinois on April 1st, then we would expect that coverage to improve. We're not concerned about them.
Speaker Change: kind of an end of year large adjustment and and also as I talked about I think I talked about them last quarter I could be mistaken they had a drop in skilled mix quite a bit and I
Speaker Change: So as you, as they recover on the skilled mix side, as the new rates kick in Illinois on April 1st,
Operator: That concludes our Q&A session. I will now turn the conference back over to Dave Zegwick for closing remarks. Please go ahead.
Speaker Change: then we would expect that coverage to improve. We're not concerned about them.
Dave Zegwick: All right, well, thanks everybody. I really appreciate your time.
Operator: And, of course, we are always standing by for follow-up questions. You know where to find us. Have a great weekend. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks, Joe.
Speaker Change: That concludes our Q&A session. I will now turn the conference back to over to Dave Segrick for closing remarks. Please go ahead.
Dave Segrick: All right, thanks everybody. Really appreciate your time and of course we always stand by for follow-up questions. You know where to find us. Have a great weekend.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.