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spk06: Ladies and gentlemen, thank you for standing by, and welcome to the CARE Trust REIT fourth quarter 2020 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at bedtime, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I would now like to introduce our host, Mr. Warren Beal, Senior Vice President of Accounting and Controller of CARE Trust REIT. May I meet you again?
spk00: Thank you, and welcome to Care Trust REIT's fourth quarter and year-end 2020 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 Care Trust's 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 reference 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 its 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 Care Trust 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, Care Trust 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 reasons. During the call, the company will reference non-GAAP metrics such as EBITDA, FFO, and FAD, or FAD, and normalize EBITDA, FFO, and FAD. 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. Care Trust yesterday filed its Form 10-K in accompanying press release and its quarterly financial supplements. each of which can be accessed on the investor relations section of CareTrust's website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period. With me on the call this morning are Bill Wagner, Chief Financial Officer, Dave Sedgwick, President and Chief Operating Officer, Mark Lamb, Chief Investment Officer, and Eric Gillis, Vice President of Portfolio Management and Investment. I will now turn the call over to Greg Stapley, CareTrust REIT's Chairman and CEO.
spk09: Thanks, Lauren, and good morning, everyone. 2020 turned out to be a very busy year for Care Trust. One might think that with M&A and our asset classes virtually shut down for most of the year, a health care REIT like ours might have had little to do. But thanks to our conservative balance sheet, our top flight operators, and especially the outstanding team that I'm privileged to work with here, capital never dried up, and the few deals that were out there did cross our desks. Anticipating some potential dislocation in the markets as we recover from the pandemic, the team worked harder than ever to find smart ways to deploy the extensive dry powder we've carefully accumulated over the years. In their efforts, we're rewarded with $105 million in new assets to help our stock price and related cost of capital recover quickly. To be sure, $105 million is a light year for Care Trust, but we're thrilled to be reporting that we actually grew both assets and shareholder value in the face of unprecedented headwinds this last year. When the pandemic broke, we firmly believed that our outstanding operators would find a way to navigate through the challenge. This gave us the confidence to maintain both our dividend and guidance. That confidence proved well-placed as Care Trust collected 99.3% of contract rents in 2020 and experienced no rent leakage in connection with the one operator change we made during the year. These results and the ongoing performance by our tenants under some of the most difficult circumstances imaginable have proven once again the value of our operator-first investment discipline. Saying that, I don't want to downplay the importance of government measures, especially those aimed at helping the skilled nursing industry to weather the COVID storm. CARES Act funds for those who needed them and the waiver of the three-day qualifying stay have both been huge. To help you see that as clearly as possible, we've once again provided enhanced disclosure around the relief funds in this quarter's supplemental. We hope that the government will see the obvious value in continuing the way for beyond 2021, and that any additional relief funding will be sufficient to help those who need it to achieve the soft landing our healthcare heroes and their employers deserve. So in spite of everything that's going on, Care Trust remains well positioned to continue expanding, reducing our cost of capital, and solidifying our spot as a leader in the market. For example, on the credit front, in case you didn't see it this morning, Fitch published a BB Plus rating on Care Trust today, one notch below investment grade, with a stable outlook. After lengthy conversations with them, we feel confident that they understand our business fairly well, including some of the key things that make us different and better. This marks another important step in Care Trust's ongoing evolution and growth. Finally, speaking of evolution and growth, maybe the most exciting thing to happen this year, we've made some significant personnel moves that we believe will set us up to take Care Trust to the next level and beyond. First, congratulations go out to Dave, who was named President and Chief Operating Officer by our board this week. Most of you know Dave well, and you won't be a bit surprised by that move. In his expanded role, Dave will be taking even greater responsibility for leading our investing, financing, asset management, portfolio management, and investor relations efforts. This will free me up to spend more time on strategy and relationships and will further strengthen an already solid team. Second, a long overdue congratulations goes out to Lauren Beal, who was promoted to Senior Vice President and Controller this week. Lauren has been with us almost since the beginning and has pulled the laboring war on everything from setting up our accounting systems to designing and implementing our internal controls over financial reporting to handling audit and overseeing SEC reporting and more. She's been a huge contributor and we couldn't be happier to have her on the team. Finally, we feel like we scored a major coup in persuading James Collister, one of the best known and most well-respected attorneys in the healthcare REIT world, to join us as General Counsel and Secretary. James has been with us as outside counselor from the beginning, and bringing him in-house will allow us to involve him in his deep expertise at higher levels in the day-to-day workings and growth of the company. We're grateful to have him. As is the case with our operator-first investment philosophy, for the team here, it's all about the people, and it is a real privilege for me to work alongside so many amazing and talented professionals who all share the same goals. to make Care Trust the healthcare read of choice for operators, capital suppliers, and investors. So with that, I'll turn it over to Dave for some more color on what's happening out there. Mark will jump in with the pipeline, and Bill will finish off the financials. Then we'll open it up for Q&A.
spk04: Dave? All right. Thank you. Good morning. Today I'd like to address three interrelated areas of focus for the company. First, I'll briefly address vaccine participation. Second, I'll update you on occupancy. And third, I'll dig into our latest lease coverage disclosure and speak to the question of runway for our key operators. First, regarding vaccines, we have recent data from all but two of our operators. And based on those direct reports, as of February 5th, resident participation is coming in at 67.6%. For some context there, the CDC reports skilled nursing residents' participation ranging widely from nominal to 100%, with the median at 77.8%. As for staff participation, we're coming in at 42.6% so far. Again, for context, the CDC reports skilled nursing employees' median participation at 37.5%. We've been looking to the vaccine to be an effective catalyst for a return to normal life, which will in turn be a catalyst for a return to normal hospital discharge patterns and recovering SNF occupancy trends. Next, let me report on occupancy. I've noted on past calls a simultaneous decline in overall occupancy in our skilled nursing facilities, coupled with an increase in skilled mix. Fortunately, the revenue loss from the overall census drop is being significantly offset by the increased skilled revenue. In Q4, our operators reported a sequential decline in SNF occupancy of 154 bps. However, comparing Q3 skilled mix to Q4 skilled mix, we saw another increase of 270 bps. I can't underscore enough the importance of the waiver of the three-night qualifying hospital stay as a lifeline for both the patients who are able to avoid a risky and traumatic transfer to the hospital and for the operators themselves. For seniors housing occupancy, the first two quarters of COVID showed remarkable resilience. Q3 seniors housing occupancy was at about 82.5%. In Q4, our operators reported occupancy of 80.4%. As with skilled nursing, we have some facilities gaining ground and others who have slipped. Remember, our sample size for seniors housing is relatively small here. Going from 82.5% down to 80.4% is the result of each seniors housing location dropping by only one and a half residents on average. While occupancy is certainly central to the plot, The elevated expenses and soft costs associated with the pandemic are also very important, which leads me to my third area of focus, lease coverage. You see in yesterday's posted supplemental a continuation of our enhanced COVID-era disclosure, wherein we try to be as transparent and helpful as possible by reporting lease coverage on an EBITDAR and EBITDARM basis, both excluding CARES Act funding and amortizing the CARES Act funds received to date through June of this year. From our perspective, there weren't really any surprises. Stripping out the CARES Act funds, we saw overall portfolio coverage hold steady, just down two bips to 2.07 times. Look, to be anywhere near two times coverage without CARES Act funds this deep into the pandemic is remarkable and a testament to the quality operators in the portfolio. On the other hand, there are, of course, some areas in the portfolio that have absolutely needed the HHS funds. We spent a lot of time modeling what we refer to here as runway for those few operators, making a couple assumptions around run rate performance and a baseline minimum one times lease coverage ratio. We are cautiously optimistic about the runway they have to make a soft landing back to pre-pandemic fundamentals. One note on asset management, we welcome Noble Senior Services, an operator we've worked with since 2019, to our top 10 list last quarter. Noble stepped into our existing Virginia seniors housing assets under a new triple net lease with no loss in rent. They've done a great job with the assets they transitioned for us in 2019, and both we and they are excited about their prospects in the Virginia portfolio. From our first earnings call since the pandemic started, we've maintained guidance because we could see a reasonable path for that guidance to be achieved. We acknowledge the several uncertainties that will likely remain throughout this year, but when we take what we have experienced so far and weigh the existing headwinds with the regulatory and financial support given to the industry, we continue to see a reasonable path for this year. With that, I'll pass the call over to Mark to talk about investments.
spk12: Mark? Thanks, Dave, and hello, everyone. We wrapped up Q4 in the year with two investments. First, in November, we closed on the Texas 4 portfolio, which we bought with existing leases in place with Enzyme. The value for us was both the blue chip operator and a portfolio that covers well above two times on an EBITR basis. We paid $47.6 million for the portfolio, and received annual rent of just under $3.8 million. Later in the month, we made a $15 million mezzanine loan at a rate of 12% to Next Healthcare on a portfolio they purchased in the mid-Atlantic region. This was our first investment alongside Next, and we hope to grow our relationship with them over the coming years. We finished the year with a total of $105.3 million in new investments. Deal flow continued to be light in Q4. As COVID spiked, operators continued to keep their heads down, and both underwriting and diligence were complicated by the pandemic. However, we have seen an uptick in deal flow over the past few weeks, and based on conversations we are having with the brokerage community, we anticipate an increase in opportunities over the coming months as operators navigate their way out of the way this COVID spike. Deal flow today is largely composed of one-offs, non-stable seniors housing assets with smaller portfolio opportunities scattered over several states. On the SNF side, we continue to pick through largely broken and challenged assets to find opportunities that work for our operators. That being said, we expect 2021 to be an active year as we believe more and more small operators will look to exit the business as we get COVID further behind us. While we're watching this closely, as another spike in COVID could push out this timeline further into the back of the year and into 2022. As we sit here today, the pipe continues to hover in the $125 to $150 million range, which is in line with our historical range. It is primarily made up of singles and doubles, but there are at least a couple of small portfolios that we hope to pair with both our existing tenants and a couple of new ones that we would love to welcome to our core of best-in-class operators. The composition of the pipe is mixed between SNFs and seniors' housing assets, and for each deal, we are carefully pursuing a customized transactional structure designed to help our operators as they face remaining COVID-related uncertainties in both over the initial 12 to 24 months after acquisition. Please remember that when we quote our pipe, we only quote deals we are actively pursuing under our current underwriting standards, and then only if we have a reasonable level of confidence that we can lock them up and close them in the relatively near term. And now I'll turn it over to Bill to discuss the financials.
spk01: Thanks, Mark. For the quarter, normalized FFO grew by 5% over the prior year quarter to $34.2 million, or $0.36 per share. And normalized FAD grew by 5% to $35.7 million, or $0.37 per share. Even though we raised our dividends significantly in early 2020 and maintained it despite the pandemic, our payout ratio remains right where we like it at approximately 69% on normalized FFO and 68% on normalized FAD. Leverage continues to be at all-time lows at a net debt to normalized EBITDA ratio of 3.3 times. Our net debt to enterprise value was 20% as of quarter end. and we achieved a fixed charge covered ratio of eight times in Q4. Last year, we saw no reasonable guidance as rents continued to come in. In 2021, we plan on taking the same approach. As long as rents continue to be collected, we will continue offering our best estimates of where we think the year is headed. So, as of right now, we expect normalized FFO per share of $1.40 to $1.42, a normalized FAD per share of $1.49 to $1.51. This guidance includes all investments and dispositions made to date, a share count of 95.6 million shares, and also relies on the following assumptions. One, no additional investments or dispositions nor any further debt or equity issuances this year. Two, inflation-based rent escalations, which account for almost all of our escalators, at an average of 1.25%. Our total rental revenues for the year, again, including only acquisitions made to date, are projected at approximately $175 million, which includes less than $80,000 of straight-line rent. Three, interest income of approximately $1.8 million. Four, interest expense of approximately $23 million. In our calculations, we have assumed a LIBOR rate of 15 BIFs and a grid-based margin rate of 125 bps on the revolver and 150 bps on the unsecured term loan. Interest expense also includes roughly $2 million of amortization of deferred financing fees. And five, we are projecting G&A of approximately $17.5 million to $19.4 million. The G&A projection also includes roughly $7 million of amortization of stock comp. This ranges up approximately $1.2 to $3.1 million over 2020 due to our newly structured long-term performance plan causing us to recognize more in new stock compensation expense in 2021 and roughly $3.2 million more than in 2020. Additionally, and as we recently disclosed, we have brought on a new general counsel who used to work primarily on investments for us in the past. while at his outside legal firm. Now that he will be working for us, and even though his duties aren't materially changing, the accounting rules require us to expense these costs instead of capitalizing the costs to new investments. So while it's cash neutral to us, it does negatively impact G&A and FFO and FAD per share. Our leverage and liquidity positions remain strong. We did not sell any shares under the $500 million ATM that we put up last year, And the outstanding balance on our $600 million revolver currently sits at $50 million. And we have approximately $19 million in cash. In addition, cash collections for January came in at 100% and are currently at 98% for February. But we expect that number to go to 100% shortly. With that, I'll turn it back to Greg.
spk09: Thanks, Bill. Again, we hope this discussion has been helpful to you, and we thank you again for your continued interest and support. And with that, we'll be happy to answer questions. Valerie?
spk06: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1 on your text phone telephone. One moment, please. Our first question comes from Jonathan Hughes of Raymond James. Your line is open.
spk02: Hey, good afternoon. Dave, could you give us some more information details and background on the operator transition in the quarter, and then maybe also talk about Noble's progress on the 2019 properties they took over.
spk04: Yeah, I'll go in reverse order. They stepped into a portfolio back in 2019 of seven facilities across four states. It was the beginning of our relationship with them, and they've done a very good job of stabilizing those assets and increasing occupancy there, even in a couple of the buildings that had historically been fairly challenging. One of those seven actually has been closed this entire time and is about to come online down in Fort Myers. So once that comes online and they're able to fill that up, their performance in that lease will do exceptionally well. Because of their performance there, we felt confident in turning to them for these Virginia assets. The operator that exited essentially felt like these assets would be in better hands with somebody else in terms of the ability to meet the rent obligations going forward. And so when Noble took a look at them, they saw a lot of potential, as they did with the original seven, and were excited to step in at the current rent.
spk02: Okay. So just to clarify on the noble coverage that's shown in the SUP, does that include one property that's effectively, I mean, they're paying rent on, but it's not generating any EBITDA because it's closed. Is that right?
spk11: That's right.
spk02: Okay. Maybe one for Mark here on the deal pipeline and external growth, but you mentioned you're offering customized structures on some deals. Can you kind of expand on that, what you What do you mean by that?
spk12: Yeah, I don't think it's, you know, I think in this age of COVID, I think there are, you know, I don't think we're the only ones that are doing it. I think really it's more a function of, you know, uncertainty around occupancy and where revenue is and kind of getting the necessary protections and safeguards in place should occupancy or revenue dip prior to our operator taking over. So whether that's a form of a hold back or other creative ways to make sure that our operators are not going to be harmed as they take over. As you know, sometimes as you have operators exiting Portfolios, they tend to take their foot off the gas, and so we just need to make sure that occupancy levels and overall cash flow levels, there's a catch-up or a look-back mechanism to make sure that our operators, from a coverage perspective, are not harmed by that.
spk02: Okay, so maybe like after a couple years if things recover and stabilize, there's a reset feature in there to be able to capture some of that upside that you're giving them leeway on in the near term?
spk12: No, it's more of a function of the outgoing operator, the outgoing owner of the assets would, you know, there's a catch-up feature directly to our operator. just depending on how quickly the recovery takes place with the new incoming operator, getting the building or buildings back to, call it, pre-COVID levels.
spk02: Okay. Maybe I'll follow up offline, but I want to ask one more for Bill. I'm going to leave you out. Can you talk about the stock comp guidance and the new performance and incentive plan. It is a noticeable increase to any color there on how that package has changed would be helpful.
spk09: You know what, Jonathan, it's Greg. I'll take that one. Quite simply, we've just switched to a more conventional type of long-term incentive plan that is different from what we've been using, because what we've been using was sort of back-end loaded, and we took the expenses later. Now, using a more conventional plan, there's issuances up front that have to be the best over time. And for this year, and I anticipate only this year, we will sort of have a double stock expense, so to speak. But I think it's better overall. I think the shareholder advisory services and others are going to like the plan better, and we'll publish more about it in the upcoming proxy.
spk02: Okay. All right. Thank you very much for the time. Appreciate it.
spk06: Thank you. Our next question comes from Stephen Zalicat of Barclays. The line is open.
spk07: Great. Thanks. Hello, everybody. Thanks for taking the questions. First question, the trend of the improving EBITDA or rent coverage ratio is among many of your leading SNF operators during the first six or nine months of the COVID pandemic versus the pre-COVID baseline. It is pretty remarkable. I guess I'm just curious to hear more about some of the fundamental drivers within the SNF operations that are driving the improving EBITDA. I'm sure it's a combo of a lot of things, whether it's improved skill mix or just treating higher acuity patients. Also, as SNFs are just treating more and more COVID patients, or COVID patients ultimately turning out to be fairly profitable patients for SNF either based on reimbursement bonuses or other factors. I'm just curious to get your thoughts around all this as far as, you know, the improving fundamentals within the SNF post-COVID. Thanks.
spk04: Thanks for your question, Steve. Yeah, it has been a remarkable trend to see. And in your question, you sort of answered it by talking about the main drivers, and you're right. It really is the skilled mix that has offset the drop in overall occupancy significantly. A couple other things, just a little bit more color on that. We saw PDPM kick in just in time for this pandemic. I think the picture that we'd be seeing here would be different. if we were still on the old rugs program that was, you know, largely driven by volume of therapy minutes. But the fact that reimbursement is now based on the clinical characteristics of these patients and has mattered a lot. You know, we see our Medicare rate go up quite a bit because of PDPM, and then it goes up you know, after COVID starts, we see that tick up just a touch more because the COVID patient does require a lot more in terms of cost. And those characteristics of a COVID patient are captured under PDPM. When captured appropriately under PDPM, those costs are reflected in the reimbursement. So, you know, right now we have A lot of our operators, well, not just now, but from the get-go, some of our operators realized that they needed to be part of the solution. And so they created wings in their facilities that would specialize in COVID and became sort of that COVID facility of choice in their markets. And that trend has continued and is largely the reason for the increased performance there.
spk07: Okay, great. That's definitely helpful. One other quick question. I feel like I probably could have tracked down the answer to this, but sometimes it's hard to keep track of all the individual transactions taking place among some of your operators. But it looked like Ensign maybe acquired some additional properties in the fourth quarter over and above the four Texas facilities that CTRE also press released. I wasn't sure if there's just some variables that determine when CTRE is involved in the facilities being acquired by your largest operator and when you're not, or maybe there's just some other nuances there. I think they acquired some California properties, but maybe there were just some circumstances there. I just wanted to hear more about some of the when you're involved and when you're not with that particular operator.
spk12: Yeah, this is Mark. My understanding is those Those were a transition of another California operator, and there was another landlord involved. So it was the transfer of the operations for those three California-based assets that you touched on.
spk09: Yeah, and just to be clear, this is Greg. The assets that we took over in November that were enzyme assets, those we just bought from another landlord. with enzyme leases already in place. They've been in place for some time. And with respect to any additional work that we do with them, we show them deals from time to time, and we'd be happy to have more to grow our relationship with them any time and every time it makes sense to do so.
spk07: Okay, that's helpful. Okay, great. Thanks.
spk06: Thank you. Our next question comes from Jordan Sadler of QBank Capital Markets. Your line is open.
spk13: Thank you. Hello, gentlemen. I'm curious about the CPI escalator assumption bill. I think you threw one and a quarter into the number. What is the impact of every hundred basis points of CPI on FSO? Is that an obtuse question? Something you might have handy.
spk01: Let's see. Well, you know, it's going to impact 2021 a little differently because some of our leases, you know, the renewal dates are throughout the year. Our biggest renewal, which is Enzyme, hits on June 1st. And let's see, that would be if we... It's about a penny for the year on those CPI increases.
spk13: So I would say it's not... For the one and a quarter for just for every 100 basis points or just the one and a quarter you have got?
spk01: For the one and a quarter.
spk13: Okay. Okay. And then there's some incremental contribution across the rest of the portfolio. Correct.
spk01: That one penny for 2021 is 1.25% on all leases.
spk13: Oh, okay. The penny is 1.25% on all leases. That's all the impact is. Okay. Yep. Not just in. In terms of the sort of acquisition pipeline, Mark, you talked a little bit about it. I'm curious, you know, the appetite on seniors housing. I mean, you did say the pipe includes a mix that incorporates some seniors housing and I'm kind of just curious how you're thinking about sort of pricing, coverage, the occupancy required as you underwrite those types of assets today.
spk12: Yeah, so I think the first variable is going to be which of our kind of small stable of seniors housing operators are looking to grow at this point. We're also kind of keenly focused on the outgoing operator and kind of how strategic the asset or assets are to them, how much low hanging fruit on the expense side is there for our operators to kind of come in and make some day one changes. Certainly on the occupancy side, that's going to be a bit of a mixed bag. Obviously, depending on the area, some occupancies have held up better than others. I think from an underwriting perspective, we're always in that 1.2 to 1.25 on an EBITDA basis. But really, it's kind of like, you know, as we kind of view SNF opportunities, you know, where's the low-hanging fruit? You know, maybe occupancy has been held down because the existing operator, you know, just didn't want to admit, didn't really have the right infection control protocols in place. So, yeah, I mean, there is some senior housing in our area. in our pipe and, you know, we feel comfortable with where the buildings, you know, kind of performed over time. And we think that, you know, our operators are going to get in and actually, you know, kind of increase occupancy fairly quickly. And so really it's, you know, it's kind of on an asset by asset basis.
spk13: Mostly these would not be sale-leasebacks, it sounds like. It would be new operators.
spk12: That's right.
spk13: Okay. And the coverage you're talking about, the 1 to 1.25 that's going in, or upon stabilization?
spk12: You know, I would say, you know, when you underwrite any deal, you can sort of, sign the PSA and have coverage at 1.2 or 1.15 or 1.30, and that number will inevitably move around. I think we would expect the coverage upon stabilization to kind of be above 1.25. Where we ultimately end up going in is going to be a function of when we close on the transaction. So I would expect it To probably be anywhere, you know, kind of, you know, in the 110 to 125 range, just really kind of dependent upon how, you know, COVID impacts specific facilities and where we are when we actually close on the portfolios relative to how the operators are doing. But that was part of the prepared remarks in terms of, you know, we're structuring so that the operators, you know, if we sign a deal up at 1, 2, 5, you know, our structure will allow us to, or will allow our operators to kind of catch up or to get, you know, made whole to an extent on some of the cash flow that they, you know, have maybe had to have put out. So we felt very comfortable about, in particular assets that we currently have in the portfolio, of how we've structured for coverage and getting that runway to get to where they need to be on a stabilized basis.
spk13: Great. Thank you. And then lastly, maybe for Dave, congrats, Dave, on the promotion. But I thought a little color maybe on some of the tenants' who seem to be under the most pressure in the portfolio. We already discussed really Noble from a coverage standpoint, but maybe, you know, back on Premier, Trillium fell off the top 10 list, so any insight you can cover? I know some of these guys have not received HHS Provider Relief Funds.
spk04: Yeah, thank you, and, you know, regardless, The seniors housing guys like Premier and Noble, you're right, the HHS funds have been anemic, if any, and so they've been kind of fighting the headwinds without that support and doing an actually pretty strong job compared to the rest of the seniors housing sector. In terms of an update, there's really not much of an update to give over the last couple of quarters. It's just more of the same in terms of their navigating the challenges that COVID presents. It's difficult, as you can imagine, to be in a situation before COVID that was challenging and trying to make that turn and then to continue to try to make that turn during COVID. Trillium on the skilled nursing side has, like many of our other operators, have had a bit of a roller coaster with COVID. They've had some pretty hard hits on the occupancy front. and the the expenses you know expenses for skilled nursing have have increased quite a bit i think our opex ppd has gone up by nine percent because of covid that's largely because of staffing costs agents needing agency costs as people have to be quarantined for covid and things like that so While it's been a pretty steady quarter for us, we don't want to convey that all is nice and easy out there. Our operators are definitely still slaying dragons in their several markets.
spk13: Is there anybody that we're worried about here who's not current on rent or is at risk?
spk04: Like Bill said, we expect to be at 100% rent for this month, like last month. In spite of the dragons at their sleigh, they really do have a lot of runway. For the foreseeable future, we feel like the liquidity is there to help them bridge the gap.
spk13: Thank you. Welcome.
spk06: Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then 1. Our next question comes from Jason Arden of RBC Capital Markets. Your line is open.
spk03: Hey, guys. I wanted to ask a question on maybe what you're hearing from your operators or what your own expectations are. or I guess what the remaining duration of the emergency health period would be or what you would expect it to be, and when should we start thinking about the HHS supports beginning to phase out?
spk04: Well, we've got some good news on the government funding. As you know, the emergency has been extended through the end of this year, which means that sequestration and FMAP and the three-night qualifying stay, all very important supports for the industry should stay in place now through the end of this year. There's still somewhere around $27 billion from previously passed stimulus money that has not been allocated yet, and so it's too early to predict the degree of the recovery slope and when that really starts. We think that overall it's going to be fairly uneven throughout our portfolio and throughout the country as a whole. We're encouraged to hear anecdotally some from our operators that where they're seeing COVID wane, that they're starting to see an increase in their overall skilled nursing census. But that's the color that we have right now on the government funding as it relates to, and as that relates to our recovery.
spk03: Got it, okay. And then the balance sheet today is pretty well positioned. I know you guys have some room for additional leverage, also the ATM available. So I guess how should we think about the targeted range of four to five times and where you guys sit today and maybe how you'll be funding acquisitions in the future?
spk01: I think you'll see us continue to, as long as stock price kind of stays where it at, we like to match. Fund the deals as we go. If large deals come up, we would look to maybe do an overnight or the high-yield market is wide open with very, very attractive pricing. We could tap that as well. But I would expect over time, even though we love the leverage where it's at right now, it is a tad bit low. So slight, you know, call it a slight uptick in it.
spk03: Got it. And then last one for me. I know the investment volumes have been pretty light through the pandemic, but are you seeing any larger portfolios start to come to the market? Obviously you completed the four property acquisition this quarter, but are they still mostly onesie twosies come to the market or anything bigger?
spk12: Yeah, no, everything's, everything's kind of, you know, onesie twosie. Obviously there's been some announcements from our, our re brethren of, of, you know, some $500 million plus deals. There's a couple of large SNF portfolios that closed last year down in the southeast. So, you know, at this point, to our knowledge, there isn't really anything that's kind of of that magnitude at this point in time. But we are tracking a couple you know, larger portfolios that we know the operators want to exit at some point. But, you know, they obviously want to make sure that their numbers are kind of back to pre-COVID levels so that they can get the valuations that they want. But as we sit here today, there isn't anything that is, you know, chunky or significantly transformative. Got it. Thanks. Yep.
spk06: Thank you. Our next question comes from Daniel Bernstein of Capital One.
spk10: Your line is open. Good morning, I guess good afternoon, and congratulations, David. I guess, you know, when we were talking to your peer, Omega, on their earnings call, you know, there was a debate as to how fast skilled nursing occupancy can come back and whether, you know, kind of home health, has permanently taken some market share from the skilled nursing business. So just wanted to kind of get your thoughts on, you know, how much has home health impacted your portfolio and maybe whether there is a permanent change in discharge pattern as a result. Thanks.
spk04: Hey, Dan, this is Dave. Home health has historically been a very close second to skilled nursing for Medicare post-acute discharges. And given the circumstances of COVID, I don't think anybody's surprised that home health has bounced back faster than skilled nursing. But I'd say that the narrative around home health permanently taking share from patients from skilled nursing is mistaken. Now, given the impending demographic surge, it wouldn't be a bad thing if they were able to take more share over time. Because as you project, you know, 5, 10, 15 years, we're going to have a capacity problem. But, you know, before, during, and after the pandemic, essentially all residents and patients in skilled nursing facilities need to be there. And structurally, home health has the same ceiling on how high it can climb the acuity scale as they did before. And just some home health context there. On average, over a 60-day period, a home health patient will be visited by a nurse eight times. They'll get on average 18 visits from the home health agency, a mix of nurses and therapists and others, but that nurse is going to visit on average eight times over 60 days. In a skilled nursing setting, a Medicare patient must be seen by a nurse multiple times every day. It's just a very different type of patient, and those patients well before the pandemic have already largely been going home if at all they had that ability to do it. So we believe that with time the balance of discharges to skilled nursing and home health will recalibrate.
spk05: Okay.
spk10: Okay. I appreciate the answer. And I experienced exactly what you said firsthand with a parent coming home and seeing a nurse twice a week for a couple weeks and that was it.
spk04: One other thing on that, Ken, I was talking, we talked recently with just a little anecdote, spoke with a fairly large regional home health operator in the Midwest. They take care of about 1,400 lives a day. And in the fourth quarter, they told us that they diverted 30% of all their new patients to skilled nursing facilities due to acuity needs. So, yeah, you might be seeing quite a bit more going to home health out of the hospital, but in this case, 30% of those couldn't stay in home health. They had to go straight to a skilled nursing facility.
spk10: Okay. And then the other question I had was just going back to Ensign. You know, they had split out their real estate as a different, I guess, part of their business. And I didn't know if you had any thoughts of whether there was an opportunity to maybe help them monetize and realize the value of that real estate in some form or fashion. Yeah. But I don't know, kind of open-ended question, but I just thought I was curious that, you know, that Ensign had split out the real estate within its financial statements. So I didn't know if there was an opportunity there for you.
spk09: Hey, Dan, it's Greg. You know, that was an interesting move, and we haven't actually had an opportunity to chat with them about that. So we know exactly as much as you do about their thinking behind that. Again, they're a great operator and a great tenant for us. And as I mentioned before, we'd love to do more with them if the opportunity arises.
spk10: All right. Good enough. Take care and have a good one. Bye. You too.
spk06: Thank you. Our next question comes from Bill DePriest of Wells Fargo. Your line is open.
spk11: Hey, guys. Good afternoon. And congrats, Dave, on the promotion. Thank you. Most of our questions have been answered, but we wanted to ask some questions around tenant purchase options. It looks like a portfolio of seven properties are up for tenant purchase options starting here in Q1. I'm just wondering if you could talk about any conversations you've had on that front. And if they did choose to exercise, how much notice or time elapses typically until those transactions are completed?
spk04: Yeah, at this point, we don't expect them to exercise that option this year. We have good dialogue going with all of our operators, and I think we would have quarters before a window opens, we're going to start having that conversation with those guys to see what their plans are. So at this point, we don't expect any options to be exercised this year.
spk11: Okay, great.
spk04: Thanks.
spk11: That makes sense. And in general, it looks like most of the tenant purchase options we see are for leases expiring in 2030 and beyond. Are these legacy kind of agreements? And have you included tenant purchase options in your more recent deals?
spk04: Yeah, so look, we're here to grow, not shrink. However, there have been a handful of times where we provided purchase options in order to sweeten the risk-reward assessment for operators usually when taking over existing operations and allowing us to maintain the rent where it is. But it's not something that we do as a matter of course. Occasionally there will be a new investment that has a particular building Or two, that in order for the operator to engage, you'd have to sweeten that deal for them. But most of what you see here is a result of some restructuring work and re-tenanting and giving incoming operators the incentive to step in and take some higher than normal risk. in taking over some buildings that need some turnaround.
spk11: That all makes sense. Thanks a lot, Dave. Appreciate it.
spk06: Thank you. Our next question comes from . Your line is open.
spk08: Yes, good afternoon, everyone. Dave, congrats, and also good quarter, good guidance. In regards to government regulation going forward, can you hear me? Yes, we can. Oh, perfect. In regards to government regulation going forward, you know, appreciate the commentary about, you know, FMAP and sequestration being extended to the end of the year. Any comments around what could potentially happen with, you know, PDPM reimbursement come the typical spring period when it's kind of reviewed for the next fiscal year would be helpful. Any comments around Medicare advance payments and an extension of the payment period would also be helpful if there's anything out there.
spk04: Well, thank you, by the way, but I'm not sure we have much more than some sophisticated speculation to share on those fronts. With PDPM, when it first came out, I think there was a general expectation that some period after seasoning of a brand new program that Medicare would reevaluate and potentially recalibrate the algorithm to make sure that the rate is doing what it expected. What we saw in the previous administration was, I think, an indication that any attempt to recalibrate was going to be put on hold until the pandemic was behind us. I think most folks in the industry expect that. that position to maintain under the new administration. So, but again, it really is a guess and nothing better than that, that it's likely not going to be tinkered with this year. But it certainly could next year with the assumption that, you know, next year we're going to be living in a post-COVID environment. world at some stage. So as far as the Medicare advance payment, yeah, I think we had one of our operators who participated in that. But I'll have to double check on that for you. And I don't have any new information about the government's plans on on changing the goalposts there, except for the fact that they continue to then move the goalposts out further. So I wouldn't be surprised if that were to take place.
spk08: Great. That's helpful. And then one quick follow-up. Again, a lot of positive commentary on the call about the acquisition outlook, but yet you specifically don't put acquisitions in the 2021 guidance. Any reason why? And again, it seems like there could be potential upside to guidance just from you guys in a creative deal giving you a little leverage.
spk09: Yeah, Tayo, this is Greg. We've never put acquisitions into our guidance simply because we think that imposes sort of an artificial discipline on us that's not real. We would hate to tell you that we're going to do X hundred million dollars of deals this year. and then fall short or worse, stretched farther than we should to hit that number if the market's not there for us. So we'll let you decide, you know, what you think we can do in a year, and we'll just report the deals as they come in.
spk08: All right. I'm going to stick $2 billion in the model.
spk05: All right.
spk08: Well done. Thank you. Thank you.
spk06: Thank you. I'm sure no further questions at this time. I'll just turn the call back over to Greg Stapley for any closing remarks.
spk09: Thanks, Valerie. And thank you, everybody, for being on the call today. It's been good to chat with you again. And as always, if you have any other questions or anything else we can help you with, do not hesitate to call. Take care.
spk06: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.
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