Q2 2019 Earnings Call
Good morning, and welcome to the Omega Healthcare investors Q2, 2019 earnings conference call.
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I would now like turn the conference over to Michelle Reiber. Please go ahead.
Thank you and good morning with me today are Omegas CEO Taylor Pickett CFO , Bob Stephenson COO, Dan Booth, Chief Corporate development Officer, Steven in Salt and SVP operations, Jeff Marshall.
Comments made during this conference call that are not historical facts may be forward looking statements such as statements regarding our financial projections dividend policy portfolio restructuring rent payments financial condition or prospects of our operators contemplated acquisitions dispositions or transitions in our business and portfolio outlook. Generally these forward looking statements involve risks and uncertainties, which may cause actual results to differ materially.
Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation. Our most recent report on Form 10-K , which identifies specific factors that may cause actual results or events to differ materially from those described in forward looking statements. During the call today, we will refer to some non-GAAP financial measures such as adjusted FFO Fad and EBITDA.
Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles as well as an explanation of the usefulness of the non-GAAP measures are available under the financial information section of our website at Www Dot Omega healthcare Dot com and in the case of I phone when adjusted FFO in our recently issued press release I will now turn call over to Taylor.
Thanks Michelle.
Good morning, and thank you for joining our second quarter 2019 earnings conference call.
Today, I will discuss our second quarter results, our recent acquisition activity.
Our 2019 earnings guidance, and Texas Medicaid reimbursement.
Our second quarter adjusted FFO is 77 cents per share and we declared a 66 cents per share dividends.
The payout ratio is 86% adjusted FFO and 97% of funds available for distribution.
In May we closed the med equities acquisition.
All of the operational in accounting functions have been fully integrated in Hunt Valley. We're excited about the new bed equities tenant relationships and look forward to potential new capital deployment opportunities.
We have also announced our recently signed a $735 million purchase agreements.
Dan will provide additional details later in the call.
Turning to earnings guidance.
We have tightened our 2019 full year adjusted FFO guidance to a range of $3 or three cents to $3 at seven cents.
Hi, <unk> guidance reflects the closing of the met equity steel the opportunistic pending $85 million sale of 10, Kentucky facilities currently operated by Diversicare.
And the anticipated cash rents from our DAYBREAK facilities.
In addition, we have adjusted our fourth quarter adjusted FFO guidance to a range of 76 cents per share to 79 cents per share.
The redeployment of the Diversicare sale proceeds and any improvement in our DAYBREAK catch rats positively impact our adjusted FFO run rate going into 2020.
Lastly.
Texas remains a challenging state with very low Medicaid rates.
As Dan will detail this is particularly difficult several texas skilled nursing facilities.
I will now turn the call over to Bob.
Thanks, Taylor and good morning.
Oh portable I thought, though on a diluted basis with $157 million or 71 cents per share for the quarter as compared to $154 million or 74 cents per diluted share for the second quarter of 2018, our adjusted out that though with $169 million or 77 cents per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation did that income found in our earnings release, our website and on our supplemental.
Operating revenue for the quarter was approximately $225 million versus $220 million for the second quarter of 2018. The increase was primarily a result of incremental revenue from a combination of over $850 million of new investments completed a capital renovations made to our facilities since the second quarter of 2018.
As well as lease amendments made during that same time period.
Revenue related to the Oriental to sell these network transition to existing Omega operator in the third and fourth quarters of 2018.
Finally, we adopted the new lease accounting standard effective January one 2019, which resulted in the recording of tenant real estate taxes and ground lease income in Rabbit Hill.
The increase in revenue was partially offset by reduced revenue related to asset sales transition and loan repayments that occurred throughout 2018.
The timing of cash receipts related to operator, why cash basis, and finally based on the interpretation of the Collectability guidance and the new lease accounting standard requiring the write off of straight line receivables operators on a cash basis, we recorded approximately $6.7 million or non collectible revenue related to two operator during the quarter.
The $225 million of revenue for the quarter includes approximately $17 million noncash revenue.
Our DNA expense was $9.5 million for the second quarter of 2019 versus $11.1 million for the second quarter of 2018 with a reduction resulting from reduced workout a restructuring related expenses.
Interest expense for the quarter, when excluding non cash deferred financing cost was $48 million or approximately the same as the second quarter of 2018.
For 2019 guidance for modeling purposes.
We're assuming the following major assumption.
Well, Matt equities.
The acquisition was completed on May 17, and as a result, our second quarter result has $7.1 million of revenue from that equity or half a quarter.
We issued 7.5 million Omega common shares as part of the acquisition and we incurred approximately $350 million of additional credit facility debt related to the pay off of their credit facility and the cash portion of the purchase price to their shareholders.
We assume new construction projects will be put into service in accordance with our schedule on page seven of our supplemental information posted on our website.
We assume revenue from DAYBREAK will continue to be recorded on a cash basis with revenue of $3 million to $5 million per quarter.
We assume noncash quarterly revenue should be between 16 and $18 million per quarter.
We project our DNA for the remaining quarters of 2019 to be consistent with our second quarter or $9 million to $10 million per quarter.
Non cash stock based compensation expense is estimated to continue at approximately $4 million per quarter.
The variability in our interest expense is primarily driven by borrowings on our credit facility and LIBOR rates.
At June Thirtyth, 24% of our debt a $1 billion was floating rate debt.
We assume that this position all the 10 Diversey care assets will occur by the end of the third quarter and although not included in guidance additional asset disposition opportunities may occur.
The 735 billion dollar potential acquisition is not included in the 2019 guidance.
Regarding share issuance is in addition to the 7.5 million Omega common shares issued permit equities in the second quarter, we assume we will be issuing approximately $15 million to $25 million.
Equity per quarter through our dividend reinvestment and common stock purchase plan consistent with our recent quarterly issuances.
Lastly, based on our stock price and subject to equity market conditions, we may decide to issue equity on our ATM to continue to de lever and fund potential acquisitions.
During the first six months of 2019, we issued or sold approximately 4.4 million shares of Omega common stock generating $159 million in gross proceeds through a combination of our ATM and our dividend reinvestment and common stock purchase plan.
Our balance sheet remains strong at June Thirtyth, approximately 76% of our $4.7 billion in bad it's fixed.
And our net funded debt to adjusted annualized EBITDA was 5.37 times and our fixed charge coverage ratio was 4.06 times.
It's important to note EBITDA on these calculations has no revenue related to construction in process associated with our six newbuilds scheduled to become operational in the next 12 months.
When adjusting for a full quarter of met equities and the known revenue went out newbuilds, our pro forma leverage would be roughly five times.
I will now turn the call over to Dan.
Thanks, Bob and good morning, everyone.
As of June Thirtyth, 2019, Omega had an operating asset portfolio of 930 facilities.
Approximately 93000 operating beds.
These facilities were spread across 75 third party operators located within 40 states and the United Kingdom.
Trailing 12 month, operator, EBITDARM and EBITDAR coverages for our core portfolio dipped slightly during the first quarter of 2019 to 1.67 and 1.31 times respectively.
Versus 1.67, and 1.32 times, respectively for the trailing 12 month period ended December 31st 2018.
Turning to portfolio matters.
On September 1st 2017, Omega place one of its top 10 operators DAYBREAK on a cash basis for revenue recognition purposes due to operational challenges and liquidity issues. As a result of these concerns well Megan DAYBREAK conceptually entered into a settlement in forbearance agreement on October Thirtyth of 2017, which was amended and extended effective January of 2019, whereby we granted they break a $2.5 million rent deferral for the first two quarters of 2019.
With the exception of $1.1 million in record real estate tax Escrows daypart met their contractual obligations during the second quarter of 2019.
However continued pressures on overall occupancy Medicare census, and labor costs that resulted in even tighter liquidity and accordingly, we have not recognized any income to date in the third quarter of 2019.
Compounding these ongoing pressures in as Taylor mentioned, the Texas State Legislature recently failed to pass a bill which would have provided Texas nursing home operators much needed Medicaid rate relief.
Confronted with these challenges Omega recently engaged a third party consultant to provide a comprehensive review of day Briggs over all operations provide commentary and recommendations for improvement opportunities intermodal long range forecast for future cash flow expectations.
Well the ultimate results, although consultants fundings are not yet final we are adjusting our expectations for future cash receipts to a range of between three and $5 million per quarter for the foreseeable future.
It is important to point out however that this remains a work in progress and in no way reflects our future rent expectations for this portfolio as we continue to work that day breaks management team and our third party consultants to maximize stay Briggs future cash flow and that's fine tune our rent forecast.
Well many of our Texas operators are challenged by Texas is woefully low Medicaid rate and the continued labor pressures Daybreakers further challenged given its widespread geographical footprint across the entire state.
Its lack of exposure to any other better reimbursement states and it's mostly rural localities, resulting in limited Medicare case mix and low occupancy.
While the third quarter is expected to be a particularly challenging one we are confident that big circle benefit from certainly known factors in the fourth quarter, including.
The addition of 26, a mega facilities into the Texas <unk> program.
The implementation of PDP EM.
And the 2.4% Medicare rate increase.
But then if it begins September onest, while PDP and Medicare rate increases take effect on October onest.
The results of these benefits as well as our ongoing discussions with they break and our consultants recommendations will greatly assist them. They get you know future forecasts and our ultimate restructure plans.
Turning to new investments.
As mentioned by together, we closed on our acquisition of net equities on May 17th 2019 for total consideration of 623 million.
The metal equities portfolio consisted of 35 facilities located in eight states with 12 different operators 10 of which are new to a mega.
We believe this portfolio will provide a mega with new opportunities as well as the potential to expand into new asset classes.
In addition to the MRT acquisition Omega invested $55.5 million in capital expenditures during the second quarter of 2019.
Turning to subsequent events in July 2019, and they get completed a $25 million purchase leaseback for three skilled nursing facilities in North Carolina and Virginia.
The facilities were added to an existing operators master lease at an initial cash yield of 9.5%.
Also as mentioned earlier.
On July 26, 2019, and make it entered into a purchase and sale agreement for the acquisition of 16 facilities for $735 million, consisting of approximately $345 million of cash and the assumption of approximately $390 million a day.
The facility is comprised of 58 skilled nursing facilities and two assisted living facilities.
At least two operators via three triple net leases generating approximately $64 million in 2020 annual cash revenue.
Completion of the transaction is subject to consent by HUD as well as the satisfaction of customary closing conditions.
And executed Nondisclosure agreement limits, our ability to share additional details of this transaction at this time.
I will now turn the call over to Josh.
Thanks, Dan and good morning, everyone.
Florida is average nursing home Medicaid rate dropped 4.5% effective July one 2019, resulting from the loss of one time discretionary funding applied to October one 2018 rates to cover the impact of hold harmless provisions and the new prospective payment system or PPS enacted at that time.
The new P.S. basically changed the rate methodology from cost based to price based and it was designed to be budget neutral. However, because 44% a Florida sniffs would have immediately suffered Medicaid rate decreases upon implementation of the new PPS additional discretionary funding was allocated to allow sniffs to be paid the higher of their actual rate as of September 32016, or the rate calculated pursuant to the new P.S. subject to a cap.
This hold harmless provision extends through September 32021, after which SNF rates are expected to be based exclusively on the TPS, which benefits the more cost efficient providers with good quality outcomes. The fiscal year 2019, 20 loss of discretionary funding directly attributable to unanticipated state spending increases for hurricane relief was allocated to the 56% of facilities, whose PPS rates were above hold harmless levels, resulting in average rate decreases for those facilities of about 7%. However, the impact of these decreases was essentially to change rates back to their pre PPS levels, just nine months prior such that operational adjustments to maintain coverage levels could be made effectively.
A smaller discretionary increase effective October one 2019 will bump those facilities rates back up by 1.5%.
As for the rest of the nation based on the June 2019 report at the National Association of State budget officers. The general economic outlook for all states projects, a healthy average general fund growth rate of 3.7% for fiscal year 2019, 20, a comparable average increase in overall Medicaid spending a 4.0% with a state portion to increase 3.1% and record high rainy day funds with a median reserve balance equal to 7.5% of General fund spending.
None of the states reported budgeted nursing home Medicaid rate decreases as a result, aside from the unique Florida rate cut we expect nursing home Medicaid rates generally keep pace with the growth in operating expenses for Medicaid beneficiaries.
I will now turn the call over to Steven.
Thanks, Jeff and thanks to everyone on the line for joining today in conjunction with Maplewood senior living we continue to work on our LSW memory care High rise at second Avenue, and 90 Threerd Street in Manhattan.
The project is expected to cost approximately $285 million, including accrued rent is scheduled to open in early 2020.
Including the land and sea IP of our New York City project at the end of the second quarter Omega Senior housing portfolio totaled $1.6 billion of investment on our balance sheet anchored by our growing relationship with Maplewood senior living and their best in class properties as well as health care homes in gold care in the UK. Our overall senior housing investment now comprises 127 assisted living independent living and memory care assets in the U.S. and UK.
On a standalone basis, the core portfolio not only covers its lease obligations at 1.19 times, but also represents one of the larger senior housing portfolios amongst the publicly listed health care Reits our ability to successfully continue to grow this important component of our portfolio is highlighted by our 15 maplewood facilities, including the newly opened 98 unit AOCF in Southport, Connecticut as well as the related pipeline is predicated on coupling our tenants operating capabilities with our commitment to having in house design and construction expertise.
Through the same capability, we invested $55.5 million in the second quarter, and new construction and strategic reinvestment.
40.3 million of this investment is predominantly related to our active construction projects with a total budget of approximately $500 million inclusive of Manhattan.
The remaining $15.3 million of this investment was related to our ongoing portfolio Capex reinvestment program.
I will now turn the call over to Taylor for some final comments.
Thanks Steven.
We've been clear in our intention to move back to our traditional accretive growth model in 2019.
Between the deal announced today and our recently closed met equities acquisition, we are executing on that plan.
We will continue to look to augment our portfolio with additional accretive acquisitions, while also generating further value through our robust development pipeline.
We will now open up the call for questions.
Thank you.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Karin Ford with M.U.S.G. Securities. Please go ahead.
Oh, hi, good morning.
Wanted to ask around some to question around the DAYBREAK resolution on the Diversicare sales I'm. Following these houses visibility into future. Operator issues are you comfortable that negative headline risk around your operators is going to be adding in the coming quarters.
Yeah.
The neighboring issue quite frankly, it's been a nice you now for going on close to two years I scare situation is one where we're.
You know looking to get them out of state, where they probably shouldn't be and so I think that's a win win for both.
As far as other issues on the horizon at this point, we see nothing of any materiality.
All clear for this I missed that one.
Okay, Great I know, you're unable to share a lot of additional detail on the pending acquisition, but can you tell us how it was sourced how does it compare just generally quality and credit wise with your existing portfolio. When do you think it will close and what are your funding plans for the cash portion.
I can't describe how well sourced I will tell you that it's coverages.
Slightly above our current me.
And expectation clothing is hard to predict because really is contingent upon the assumption on deck, which.
Once again, it's a government agency and I got it got it and then down on on their timing so.
We have a pretty wide range of between three and.
Four stages.
Nine months for the closing to take place.
Great and then just lastly.
On the financing side, you have about $500 million out on your line should we be modeling a debt deal later this year to term that out and are you considering a refunding refinancing of any of your 2022 term loans given low rates.
[noise] or historical practices, we use our credit facility to lever up to do acquisitions and then once you get to a certain point.
Plus million, we always look to term it out.
So I can't tell you, whether we're doing one or not but we will be opportunistic looking at the market given the current rate environment, but going back to your other question how to win.
A follow up on how we plan to.
Finance.
The potential deal will a piece of it is assuming the second piece is we will use our credit facility, but we also have the proceeds coming in from God, though the perfect care Oh sale.
It's a bond deal included in your guidance range.
It did not.
Okay. Thank you.
Our next question comes from Jonathan Hughes with Raymond James. Please go ahead.
Hey, good morning.
What's the pipeline look outside of that portfolio under contract I know you did another 20 500 million of acquisitions at a nine and a half ago that started in July .
Just curious how many more of those single and double type acquisitions to use a baseball analogy are in the pipeline.
You know we're constantly looking at those singles if you will.
And there it was in our pipeline.
They're choppy in terms of.
When we receive them and when we close on them, but I would just say that it's consistent with what we've seen in the past.
Yeah, the bigger deals obviously even.
More choppy if I may say.
You know the big deal that we just announced it wasn't even on our radar screen six months ago. So, they're they're very very hard to predict.
Okay.
Maybe I'll turn to Texas, and obviously legislation expected to address Medicaid reimbursement rates didn't happen. There how do you view that stayed over the next few years in terms of your current exposure and investment potential.
Any plans to pair exposure there you did mention a there could be more dispositions in the in the back half of the year or do you see those headwinds creating potential growth opportunities.
As some people struggle and you can't create some value for shareholders.
Yes. So it was the latter point I mean, I listen, we're not going to be aggressive in acquiring facilities in Texas.
One of our existing operators sources of fuel and comes to us.
You know, we'll do everything we can to meet those needs. So and we are going to be opportunistic in Texas, because I do think Darryl.
There'll be some opportunities.
Okay is there any chance the legislature would re address that before 2021 are we stuck here for two years with the current rate.
Great policies.
So you know they were trying to do something unique I mean, I don't want to you another try to tap federal funds with this recent legislation so [laughter].
He was no they were trying to pass visiting bill.
That doesn't preclude taxes from Randy.
Just flat out Medicaid rate increases, which could occur within the next two years.
Okay. So maybe maybe a chance for some upside.
All right one more from me a sense. It's in my backyard, but can you can you expand upon the Florida Medicaid legislation you talked about earlier basically.
I just want to understand the risk to your Florida portfolio, that's 9% of the overall company, maybe whats coverage, but then your Florida segment, and where do you expect that to go may be over the next 12 months or so.
The the coverage in Florida is probably slightly above the mean.
And it was it was helped by the switch from cost base to the Pbms. So we've actually got to pick up.
And I think it now this is going to sort of slipped back down again, but most of the operators there.
At accounting for this and most of them have dealt with it in terms of making key.
Ladies and corporate cuts.
Brain costs back in line with the right.
Okay are that's helpful I'll jump off thanks for the time.
Our next question comes from Lukas Hartwich with Green Street Advisors. Please go ahead.
Thanks. Good morning can you provide the skilled mix an EBITDARM margin on the $735 million portfolio.
[noise].
Off the top of my head now I think it's it's north of 20%.
And then did you ask what was the second one the EBITDAR coverage, even EBITDARM Arjun.
Hi, EBITDARM wouldn't be slightly above the median for the entire portfolio.
Okay, and then are there any <unk> any re tenanting plans for that portfolio.
No.
Okay, and then lastly can you provide the rent bumps.
There are more than one portfolio I believe we want as two in a quarter and wants to do that.
Okay.
Cool that's it for me thank you.
Our next question.
Comes from Trent Julio with Scotia Bank. Please go ahead.
Hi, Good morning, So just following up on a a topic from a little bit earlier and market exposure with diversicare acts in Kentucky, and some news about other operators, leading states like Ohio, and the issues that have been documented in Texas can you give us your thoughts on market diversification, and where you'd optimally like to add or remove exposure.
Yeah in general trend I would say that we continue to focus on the southeast.
And the far west.
The middle of the country Weve lightened up already.
Kentucky is somewhat unique because it's a pretty good reimbursement state, but the professional liability exposure there.
Makes the dangerous they particularly for public operators like diversicare.
So that's a little bit of a unique.
Situation.
Kentucky in general is pretty good state.
So that's that's kind of broad brush here in the northeast.
Not that or will it be a focus.
Okay. So I guess triangulate <unk> is it fair to say the $735 million acquisition is focused on markets such as that like in the southeast.
That is fair to say trend yes.
Okay, I guess sticking with diversicare, they reported some I guess somewhat less than inspiring results earlier this week and even after yourself 10 assets in Kentucky, you still have exposure to I believe 24 other assets of theirs are that they operate so how are you viewing that relationship.
We've had a long relationship with diversicare.
And they have always had a tough balance sheet situation.
And their cash flows have tightened a bit but we think the balance of the portfolios that we sit with well continue to perform.
Can I can't speak specifically to their overall balance sheet issues, but ultimately we look to the facility level credit, which we think will continue to be relatively stable.
Okay shifting a little bit I'm looking at your operator, EBITDARM coverage stratification I looks like about 28 million dropped down a one bucket and then a one to 1.2 times range can you talk about that shift and maybe how much rent is on the cost of shifting either up or down because I know that can change quarter to quarter.
Yeah, that's exactly what happened this past quarter, we had somebody that was run on the cost.
Well the one to one so.
You know what anytime we've got some folks on the French I don't have the dollar amount of rent.
Associated with those that.
Whatever we would define as on the French but.
You know, it's it's not an immaterial number its probably somewhere between 25 and 50 million.
Right.
But that is on the French but could shift.
Well it depends on how you define French but well okay sure.
Okay do it are those numbers inclusive of the med equities or properties that did that portfolio did absorbing that portfolio affect your stratification much.
It didn't affect at all because it's not a corporate we close on that it may be even after the.
Coverages that we were reporting on so.
No, but the medical these portfolios in general is slightly.
As slightly higher coverages.
And the legacy Omega all though.
It wasn't it's not enough to move the needle.
Okay, and I'm, sorry, one more one last one from me if you don't mind, so given all the completed and announced acquisitions. How are you thinking about your dividend on a go forward basis.
Yeah. So as we discussed in the past trends, we'll look at it every quarter as a board.
Uh huh.
At this point.
Dividend coverage and the nineties.
I wouldn't expect to see a shift in our dividend policy, but again the board takes it up every quarter and we do have.
A number of.
Assets coming online.
So pretty significant cash between second Avenue.
And ER.
The closing of the transaction, we announced today the timing of that will drive a lot.
The decision.
Okay. Thank you very much appreciate it.
Our next question comes from Daniel Bernstein with capital one. Please go ahead.
Hi, Good morning, and wanted to go back to how you're thinking about your rural versus urban exposure in Texas, just following up on your earlier comments.
Oh, Yeah, I think as it relates to Texas.
You're just sort of making the point I mean, you have.
Rural facilities that.
We'll continue to be.
Relatively difficult.
But.
We'll continue to look at opportunities in Texas.
Just based on risk adjusted analysis, So I wouldn't say that we're making a distinction between rural and urban.
In terms of.
Allocating capital.
But we will have risk adjust were on a different way than we do.
Okay.
I don't know if you could talk about your actual exposure for all versus urban.
If if if not we can always take that offline.
Yes, it really goes back to it.
How you decide to find it but I will tell you how we think about our overall portfolio is about 20% to 25% goal, but again it's.
Depends how you decide to fine.
Right.
Okay.
[noise] those kind of switch gears, a little bit to seniors housing.
You have.
A development pipeline.
Lets maplewood <unk> or are you actively looking are seeking out other operators.
Yeah to maybe build other development pipeline with them I guess some of your peers have done that.
Just trying to get your your your kind of your proclivity at this point to do more seniors housing development.
And expand that beyond maplewood.
We continue to look for opportunities.
On the development front.
Across the spectrum of potential operators, but I will tell you from our perspective.
The maplewood relationship is.
Incredibly important that we're doing everything we can to.
Turbocharge that if you will.
[laughter] does rise in construction or labor costs.
Temper any of that enthusiasm to do development at this point or worse.
There is everything still kind of penciling out.
Whatever.
What's on the drawing board, maybe hasn't turned dirt, yet, but you're working on.
Those still penciling out is developments you want to go forward with that are accretive.
Oh.
They are generally, but Stephen do you want to take that.
Yeah, I think it's fair to say that construction costs in particular.
A putting a little bit of pressure on you the excitement level around to some of these newbuilds, but we haven't got to the point, yet where they don't pencil out there just I mean.
A slightly less exciting than they were a year ago, but it's something we we were particularly careful about the labor costs. I think you mentioned also are not really factoring into the desirability. Those investments right now there are a factor, but not really a swing one way or the other.
Okay.
I appreciate I'll hop off and let some others ask questions. Thanks.
Our next question comes from Chad Vanacore with Stifel. Please go ahead.
All right. Thanks.
So.
How do you think upcoming implementation MPD PM is impacting that pipeline in next six months any noticeable acceleration or deceleration of opportunities.
Now at this point well not that we can directly tied to GDP and thats for sure.
So I'd say no.
So you can say that Dan after you signed a 700 million dollar deal.
[laughter].
I'm not sure that was the driving force.
Yeah.
Alright, and then just looking across your operators what are you seeing in terms of the census trends.
Yes, the Medicaid census has been slowly, but surely picking up Medicare has been.
Flat or even still slightly dropping off just because.
You know I think just the.
The length of stay.
They're not come back up certainly in are probably still grieving down a little bit. So overall census is flat to slightly up and it's mostly driven by Medicaid.
Okay.
And then just.
One more question probably for Steven.
Can you give us an update on second half development with Maplewood, yet where it is leasing so far you know you're right before opening you plan on opening in the first quarter. So can you give us an idea how the lease up is going.
Sure Chad I think that the best way to describe it is that the momentum behind it I would call. It deposits at this 0.4 leases rather than leases because the building still a number of months away from being opened.
But the momentum of the deposits being taken is consistent with.
The levels, we would see in the suburban locations that maplewood is executing really well on in the past. So we're cautiously optimistic the market is accepting the pricing. So obviously more to follow as as the opening day comes closer.
Okay, all right I'll leave it there thanks.
Our next question comes from Todd Stender with Wells Fargo. Please go ahead.
Ah. Thanks, My question has to do with the new Ah portfolio announcement, you made so demographics and potential bottoming and sniff fundamentals if you subscribe to that.
Our right now here in 2019.
Are you acquiring the in place leases so the contractual rents already locked in.
Just kind of looking at the other side of that if there's upside and fundamentals. How do you guys participate Nan how did you kind of underwrite that.
So the so we are very effectively in place leases on the rent is locked.
If the operations improve our coverage is improving but theres no rent share there's no revenue share.
Right.
Did you enter at maybe a lower rent coverage than you normally would with the backdrop of improving fundamentals or how did you look at that.
No I think we underwrote it to our normal standard.
Okay, and Ah back to DAYBREAK. So they dropped out of your top 10 tenant list a in the quarter.
Did their cash rent contribution drop out mathematically or was this something you proactively pulled them out of just speak maybe speak to DAYBREAK.
Well, it's based on the cash rent run rate. We've had this year, which is 5 million a quarter, we've talked about three to five so when you think about that.
On an annualized basis. They just they don't know they won't be in the top 10.
You know hopefully over time, we can push them back towards the top.
I have to wait and see.
Okay last question, Bob I think you gave Oh you indicated it was a 25 million of new equity a quarter was got kind of a drip program estimate.
Correct.
Is it fair to say, though.
Yes, sorry go ahead.
I'd like they got a couple of quarters, sorry about that okay. Yeah. No problem. The reason I ask is is it fair to assume or maybe not as much new equity raised outside of that drip.
Until you've gotten through your asset sales, which include the diversicare, you'll chew through the dispositions before we should assume maybe larger equity raise.
Yes, that's a fair assumption.
Great. Thank you.
Our next question is a follow up question from Karin Ford with M.U.S.G. Securities. Please go ahead.
Hi, just a couple of quick ones you mentioned the pivot back to accretive external growth. This year 2019 is turning out to be an above average year for you guys 1.41, and a half billion maybe more to come should we be thinking about this volume level as the new normal for only tie or would you say that this year, it's been an anomaly given the two large transactions youve done.
So to an earlier comment that Dan made Uh huh.
It's something we've talked about a lot.
We typically think about four or $500 million of deal flow is naturally coming out of.
The relationships that we have that seems to be a normal minimum capital allocation that we see in the portfolio and then.
Incrementally. It's these larger deal driven opportunities and so if you look over time care and I think the best way I think about it is if we do a billion dollars in the year, that's a pretty good year, hey averages out over time in that range. So I would think about a billion and a half is.
More than an average year that being said.
The type of activity we've seen in 2019 I think there are a lot of reasons, we might see similar things in 2012.
Great and then just sorry, if I missed this do you guys did you guys give an estimate to how much you think PD P M and the Medicare rate increase might lift overall coverage in your portfolio.
We have talked about that in the past and its specific by operator, but it's it's positive for each of the operators at least the last time, we modeled it and we modeled between point owed to have coverage improvement to 0.11 coverage improvement with the overall being about the average of those two numbers.
Perfect. Thank you.
As a reminder, if you would like to ask a question. Please press Star then one.
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This concludes our question and answer session.
I would like to turn the conference back over to Taylor Pickett for any closing remarks.
Thanks, Brandon and thanks, everyone for joining the call today as always we're available for follow ups.
I would ask you to call either Bob or Matthew if you have any specific questions. Thanks again.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
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