Omega Healthcare Investors, Inc.

Greetings and welcome to the Omega Healthcare Investors Third Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After today's presentation, there will be a brief question and answer session. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Michelle Reber. You may begin.

Thank you and good morning. With me today are Omega's CEO, Taylor Pickett, COO, Dan Booth, CFO, Bob Stevenson, and Megan Krull, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions, dispositions or transitions, and 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 NAREIT FFO, 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.omegahealthcare.com and, in the case of NAREIT FFO and Adjusted FFO, in our recently issued press release. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.

Thanks, Michelle. Good morning, and thank you for joining our third quarter 2023 earnings conference call. Today, I will discuss our third quarter financial results and certain key operating trends. The third quarter FAD, funds available for distribution, of 68 cents per share was better than expected, modestly exceeding our 67 cent per share dividend. The FAD dividend payout ratio is 99%. The decrease in FAD from the second quarter is due to the reduced rent from cash basis operators, with Levee, as expected, paying $9 million less in cash rent in the third quarter compared to the second quarter. The November 1st Levy asset sales have significantly reduced our Levy exposure. The remaining Levy portfolio is expected to cover above 1.0 times, and therefore, Levy should no longer be in the below 1.0 times EBITDA coverage bucket going forward. We continue to have a handful of cash basis operators, including Maplewood, that will impact our go-forward AFFO and FAD, making fourth quarter 2023 and first quarter 2024 FAD difficult to predict. However, longer term, we believe all of these assets, but in particular Maplewood, are well positioned to generate reliable and growing cash flows and related rent, turning to the under 1.0 times EBITDA coverage operators, which represent 27.5% of total rent. We can break the 27.5% into a handful of buckets. Operators representing 6.2% of the 27.5% are sitting on extremely strong balance sheets, and therefore payment of rent should not be an issue. Operators representing 6.2% have second quarter EBITDA coverage above 1.0 times, and operators representing 1.3% are benefiting from July state rate increases that have resulted in above 1.0 times coverage on a go-forward basis. 8.4% represents levy, which I have already discussed. 1.3% represents one operator that has already transitioned to a performing credit. That leaves operators representing 4.1%, of which operators representing 1.2% are in active restructurings or were recently transitioned, which leaves a balance of 2.9%, representing eight small operating relationships. I will now turn the call over to Bob.

Thanks Taylor and good morning. Turning to our financials for the third quarter. Revenue for the third quarter was $242 million before adjusting for certain non-recurring items compared to $239 million for the third quarter of 2022. The year-over-year increase is primarily the result of timing related to operator restructurings, revenue from new investments completed in 2022 and 23, and short-term investment income, partially offset by asset sales completed during that same time period. Our NAE REIT FFO for the third quarter was $161 million, or 63 cents per share as compared to $159 million, or 65 cents per share for the third quarter of 2022. Our adjusted FFO was $182 million, or 71 cents per share for the quarter And our FAD was $174 million, or 68 cents per share, and both exclude several items consistent with historical practices and outlined in our NAREIT FFO, Adjusted FFO, and FAD Reconciliations to Net Income found in our earnings release, as well as our third quarter financial supplemental posted to our website. Our 68 cents of FAD was 2 cents less than our second quarter FAD of 70 cents. As Taylor mentioned, the two-cent decrease compared to the second quarter was primarily the result of levy, cash-based operators, and the impact of additional weighted average shares, partially offset by the incremental short-term investment income. Our fourth quarter FAD will be impacted by a number of items, including the timing of payments received from cash-based operators and the availability of security deposits. the full quarterly impact of rent and interest on new investments, the third quarter repayment of the $105 million seller's note and other asset sales, restructurings or releasing of a few small cash-based portfolios, short-term or overnight interest income earned on balance sheet cash, interest expense related to the term loan offset by bond and HUD repayments, and the weighted average shares outstanding impacted by potential equity issuances. Turning to the balance sheet, this is another quarter where we continue to strengthen our liquidity, capital stack, maturity ladder, and help protect our overall cost of debt. We started the quarter with approximately $350 million of cash on the balance sheet. During the quarter, in addition to paying our 67 cent dividend and making regular bond interest payments, We paid off a $350 million bond that matured in August. We entered into a $428.5 million term loan that has a two-year maturity with two one-year extensions at our option, effectively a four-year term loan. We swapped the term loan rate from floating to fixed at just under 5.6%. And lastly, we issued 4 million shares or $126 million of equity to continue to delever. In total, we ended the quarter with over $550 million of cash on the balance sheet. 99% of our $5.3 billion in debt was at fixed rates, and our net funded debt to annualized adjusted normalized EBITDA was 5.01 times, and our fixed charge coverage ratio was 4.0 times. capital markets, our pipeline, and an April 1st, 2024, $400 million bond maturity, we expect to continue to be opportunistic in the equity market while targeting leverage below five times. In summary, consistent with the commentary provided last quarter, we still expect our fourth quarter FAD per share to approximate our 67 cent dividend. However, as Taylor mentioned, It's hard to predict given the number of items I've laid out that may impact FAD. I will now turn the call over to Dan.

Thanks, Bob, and good morning, everyone. As of September 30th, 2023, Omega had an operating asset portfolio of 883 facilities with approximately 86,000 operating beds. These facilities were spread across 65 third-party operators and located within 42 states and the United Kingdom. Trailing 12-month operator EBITDA coverage for our core portfolio as of June 30, 2023, increased 1.15 times versus 1.1 times for the trailing 12-month period ended March 31, 2023. During the second quarter of 2023, our operators cumulatively recorded approximately $13.2 million in federal stimulus funds, as compared to approximately $5.8 million recorded during the first quarter. Trailing 12-month operator EBITDA coverage would have increased during the second quarter of 2023 to 1.07 times as compared to 1.02 times for the first quarter when excluding the benefit of any federal stimulus funds. EBITDA coverage for the standalone quarter ended June 30, 2023 for a core portfolio was 1.21 times including federal stimulus and 1.15 times excluding the $13.2 million of federal stimulus funds. This compares favorably to the standalone first quarter of 1.18 times and 1.15 times with and without the $5.8 million in federal stimulus funds respectively. Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 2022 to 80.1% as of mid-October 2023, based upon preliminary reporting from our operators. Turning to portfolio matters. LaVie. As previously discussed, Omega and LaVie have continued our process of restructuring their portfolio by transitioning certain underperforming facilities, mostly located in the state of Florida. During the course of the restructure, Omega has transitioned 48 facilities. 46 through outright asset sales, and 2 through retenancy, including 29 facilities that were sold on November 1, 2023, for gross proceeds of $305 million. We are now down to 6 remaining transition facilities, including 2 in Florida and 4 in Louisiana, which we are hopeful to transition in the near term. Post these recent sales, and in anticipation of closing our 6 remaining transition facilities, Omega's portfolio with LaVie will include a total of 31 facilities, which include 13 facilities in North Carolina, 2 in Virginia, 9 in Pennsylvania, 6 in Mississippi, and 1 in Florida. During the third quarter and for the month of October of 2023, LaVie paid partial rent of approximately $2.5 million per month. Maplewood In the third quarter and for the month of October of 2023, Maplewood continued to short pay its contractual rent by $1 million per month. We currently are working with Maplewood and the estate of Greg Smith to address these shortfalls. In anticipation of January 2024 rate increases and improved occupancy at the Second Avenue facility in Manhattan, Maplewood believes there is a pathway forward to meet its full contractual rental obligations. However, the timing at this point is unknown. To date, including October, we have applied $4 million of the $4.8 million security deposit to cover the rent shortfalls. Guardian. On Omega's first quarter 2022 earnings call, Omega announced that we had entered into a restructure agreement with Guardian Healthcare after agreeing to sell 12 facilities, eight in Pennsylvania and four in Ohio, and successfully releasing eight facilities, all located in Pennsylvania. In May of 2022, Guardian resumed making full contractual rent and interest payments on its remaining portfolio of 16 facilities. Subsequently, in May of 2023, Omega sold 10 additional Guardian facilities, leaving only six remaining facilities, one in West Virginia and five in Pennsylvania. Recently, in the third quarter of 2023, Guardian informed Omega that they intend to exit the nursing home industry entirely. and needed to transition their remaining facilities with Omega. At that time, Guardian ceased making its contractual rent payment of approximately $1.5 million per month. Since that time, Omega has been using Guardian's $7.3 million security deposit to cover rent. The security deposit will be substantially depleted after applying full contractual rent to December of this year. Since becoming aware of this situation, Omega has sought to re-tenant the remaining six facilities with the goal of concluding the transitions by year-end. At this point, Omega is in discussions with a potential new tenant with the goal of a year-end close subject to the normal due diligence, satisfactory documentation, and regulatory approvals. In addition to the aforementioned restructurings and transitions, Omega is working with several other relatively small operators on various restructurings. Turning to new investments. On August 29th, 2023, Omega closed on a sale-leaseback transaction for one facility in Virginia for $16 million. The facility was added to an existing operator's master lease with an initial cash yield of 10%, with 2% annual escalators. On September 8th, 2023, Omega closed on a $40 million sale-leaseback transaction for 14 care homes in the U.K., Concurrently with the acquisition, Omega entered into a master lease for the care homes with a new operator with an initial cash yield of 10.2% with 2.5% annual escalators. Subsequent to the third quarter, Omega closed on two additional transactions. Specifically, on October 2, 2023, Omega provided $38 million in mortgage loans to a new operator to purchase two assisted living facilities in Pennsylvania. The loan fares a blended interest rate of 9.3% and have terms that range from three to five years. Additionally, on October 2nd of 2023, Omega closed on a purchase lease transaction for one facility in Maryland for $22.5 million. The facility was added to an existing operator's master lease with an initial yield of 10%, with 2.5% annual escalators. During the third quarter, Omega closed on a total of $106 million in new investments, including $24 million in capital expenditures. As of September 30, 2023, Omega has closed on $418 million of new investments, including $53 million in capital expenditures. Turning to dispositions, during the third quarter of 2023, Omega received $99 million in proceeds related to facility sales. As of September 30th, 2023, Omega has divested 27 facilities for a total of $161 million in gross proceeds. And as previously mentioned, on November 1st, 2023, Omega sold 29 LaVie facilities for total gross proceeds of $305 million. I will now turn the call over to Megan.

Thanks, Dan, and good morning, everyone. From an occupancy perspective, the slow positive trends have continued. with the number of core facilities now recovered at 37%, up slightly from the 35% reported in the first quarter. Additionally, 26% of core facilities that have not yet fully recovered are at or above 84% occupancy. While the staffing shortage situation continues to ease slowly, there's still large variation by market, and occupancy is still believed to be impacted. As noted last quarter, in June, ACCA released the results of a survey of 425 nursing home providers, results of which showed that 52% are still limiting new admissions due to staffing shortages. Agency expense on a per patient day basis for our core portfolio for second quarter 2023 dropped to four times where it was in 2019 in comparison to the five times we reported last quarter. Despite the continued staffing limitations in the industry, as expected, CMS moved forward with releasing a proposed staffing mandate on September 6th. And while it was not as onerous as it was believed it might be, it is certainly not palatable given the current state of play. Included in the proposal is a requirement for an RN to be onsite 24-7, along with required RN hours per resident day of 0.55, and required nursing aid hours per resident day of 2.45. And while the 24-7 RN requirement is a two-year delayed implementation for urban facilities, three years for rural, and the required hours per resident day for RNs and nursing aides is a delayed implementation of three years for urban facilities, five years for rural, with the industry still in flux post-pandemic, predicting out where the state of staffing will be at that time is difficult at best. The comment period for this proposal is open through November 6th, and ACCA has been bringing to light some of the difficulties of the proposed mandate, most importantly the fact that it is currently unfunded. While it is too soon to tell what the ultimate outcome of this proposal will be, we hope that if a final mandate is indeed imposed, that CMS will hear the voices of the industry and implement a fair, balanced mandate that is realistically achievable by whatever delayed timeframe is ultimately set. I will now open the call up for questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that you please limit your questions to one question and one follow-up. Our first question comes from the line of Jonathan Hughes with Raymond James. Please proceed with your question.

Hi, good morning. Thanks for the time. Could you share some more details or background on what happened at Guardian and their decision to exit the skilled nursing business? I recall they had think some issues last year and they were restructured seems like maybe operations got better and then worse is it is it maybe a real estate issue there with that portfolio rather than an operator issue just any color that'd be great yeah the um we've gone through a couple of recruit structures with guardian over the last couple years the um

Their decision to exit the industry in its entirety came as quite a surprise. I think it's a myriad of issues, but I think that the management there is – AJ decided to exit the business, quite frankly. They've got a lot more facilities than just ours, but, yeah, they've been struggling as of late. They had deep liquidity issues, and they've decided to exit, and we're looking to replace them as operators. Okay.

And then Taylor, in your prepared remarks, you mentioned like 2.9, almost 3% of operators are in the sub one times EBIT dark coverage bucket. And I don't think those have been restructured. None individually are that impactful, but together they're almost a top 10 tenant. What's the expectation for each of those? I understand they might have strong balance sheets or other businesses don't pay with rent, but some are actually negative in EBITDA coverage. I guess, should we take a more conservative approach there in terms of rent looking forward?

I feel pretty comfortable with that focus, Jonathan. Every one of those eight credits has a slightly different story, but in terms of looking at it as a whole, any type of discount will be minimal. So we're not particularly worried. And if you look historically, that's the type of percentage we've had in the under one bucket for many, many years. Typically, those things work themselves out over long periods of time. I would expect this to be exactly the same. Okay.

And then one more for me, if I can sink one in. What's the investment pipeline look like today in terms of size and yields? And I realize deals take time, but when do you think we could see more robust, fee simple, so owned versus loans acquisition activity?

You know, we could go back years and we could state that the pipeline is choppy. I would say that it's borderline robust at this point. It's still choppy. You know, we're still seeing a lot of deals in the U.K. We're seeing a fair amount of deals in the U.S. And size is, you know, is choppy. I can't predict what we're going to see in 24 at this point, but I think it would be similar to what we've seen so far in 23, you know, which we've done just under, I guess, a half a billion in new investments in the year to date.

Okay. All right. Look forward to hearing more in a couple weeks. Thanks. Have a great weekend.

Our next question comes from the line of Vic Ramaholtra with Mizuho. Please proceed with your question.

Hi, this is Jorge on for Vic. Just on LaVie and Maplewood, like from a cash flow perspective, how should we think about the range of outcomes in 2024?

So I think for LaVie, it's worth just taking a little half step back at that whole restructure. So to date, the 46 assets that have been sold have generated 515 million proceeds the six assets that still need to be transitioned, that little bit of wood left to chop for Dan, are likely to be sold, and we're looking at a price point north of $40 million. So call it $555, $560 million of sales proceeds from LaVie. The two assets that were released were released for $2 million. And then we have the balance that Dan mentioned are in extremely strong states, North Carolina, Virginia, Mississippi, to a lesser extent, Pennsylvania, that will generate on their own an enormous amount of cash flow, supporting a lot of rent. But as we said, we're still chopping the wood with Levy. So where that ultimately falls is a positive timing, not predictable over the next couple quarters. Then Maplewood is more predictable. We'll have rate increases. normal rate increases in january that covers a big part of the gap but you can continue to have expense pressures in this industry and we continue to look at the fill up of second avenue which is hugely important on an incremental basis and that's really the driver but as dan mentioned we we can map that out principally driven off of the occupancy fill up in second avenue At some point in 24, Maplewood's going to have sufficient cash flow to pay the contractual rent, but that timing's a little bit questionable as well. Longer term, we're really comfortable with both sets of assets.

Okay, thank you. That's helpful. And just a second question. Can you provide, like, more color what have you seen on the labor side and, you know, how states are preparing for the minimum staffing and if you can highlight any states that have, you know, the potential to increase Medicaid rates or like, you know, address minimum staffing with funding, that would be very helpful.

Yeah. I mean, look, I don't know that any states are really addressing the minimum staffing at this point because it's a little too soon to tell what's going to happen there. Comment period is up next week. And so, we're just waiting to see what ends up coming out of it. As you know, there's a delayed implementation for most of it. Certainly the rural areas are going to be hit a little bit harder than the urban areas once it does kick in. In terms of rate setting, again, none of these rates are impacted by the staffing mandate at this point, but we do watch especially our top ten states really carefully and have seen positive things over the last several months, kicking in in July and October. We talked a little bit about Florida and Texas. Last quarter, we did hear from one of our operators that the California 10% FMAP increase is going to continue until they have a rebasing of that rate, which typically happens in January, but might be a little bit delayed. And North Carolina's FMAP got put into their rate as well. So, feeling decent on the reimbursement perspective, but still too soon to tell what's happening with the staffing mandate.

Great. Thank you for taking my questions.

Our next question comes from the line of Michael Griffin with Citi. Please proceed with your question.

Good morning. This is Avery on for Michael Griffin. Question on the levy sales. I'm wondering if you can give us a sense of the per bed valuation on those sales and how many more of the levy assets are targeted for sale, if any?

So as I mentioned, we've got six more assets targeted for sale, either sale or release. And the price per bed over the course of the 48 that we talked about is in a range of between 90 and 100 per bed.

Great. Thank you. And just to follow up, how are you guys thinking about, you know, future equity issuances to fund investment activity versus continuing to tap the debt market? I know you want to keep leverage below that five times. So just how are you thinking about funding needs for investment opportunities?

You know, we sit down and we take an 18-month approach looking at the capital markets and our needs. So, as I said, we have over $2 billion in current liquidity with the combination of the $600 million of cash on our balance sheet, as well as the untapped credit facility. We have access to the ATM. And, again, we don't look at it any day by day, but we have a longer-term approach looking at that. We know we have two debt maturities coming up, one in April of 24. early in 25. So we will be opportunistic if it calls for that.

Great. That's helpful. That's all for me. Thank you.

Our next question comes from the line of Connor Siversky with Wells Fargo. Please proceed with your question.

Good morning out there. Thanks for having me on the call. You know, broadly speaking on acquisitions, external activities. So we've seen a lot of activity in the past three weeks or so, and some transactions have been received better than others. And at the same time, we're fielding a lot of questions for some REITs with the cost of capital on the margin of generating accretion of whether or not they kind of take the jump here and continue to invest. Whereas OHI doesn't have that problem. Your cost of capital is very strong. I mean, do you look at the current environment as an opportunity to really get aggressive and chase acquisitions? Or do you look at something like the minimum staffing requirement and work on those parameters of risk in your underwriting framework and try to be more cautious given what you're seeing right now?

So it's a little bit of a great question. It's a little bit of both, right? We're prepared to allocate as much capital as possible. possible to our existing operators and opportunities but the underwriting has to include some risk adjustment for a variety of things including minimum staffing but that from my perspective we don't take our foot off the pedal it's just incorporating those risks into how we think about allocating capital um you know as dan mentioned we're close to half a billion year to date And the pipeline is pretty robust. So we'll continue to look at very opportunistically at what's out there.

Okay. And then just to follow up on that point. So earlier in the call, Megan mentioned that the labor environment remains more challenged in the rural areas versus the urban areas. I mean, does this also, you know, imply a willingness for OHI maybe to sell out of those rural assets in favor of the concentration in urban areas?

Well, you've seen us sort the portfolio pretty actively for a number of years, and obviously through COVID, we've done a lot of that. I would say that there's not a whole lot more to do, but when you think about much of our disposition activity, it has followed that pathway. A little more rural, a little more labor challenged. So I... I don't have an expectation of big dispositions, but we'll continue to sort the portfolio as we always have.

Got it. Thank you for the time.

Our next question comes from the line of Juan Sanabria with BMO. Please proceed with your question. Juan, your line is live. Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Yeah, thanks. I just want to circle back on Guardian. I mean, how much interest did you receive when those assets kind of came to the market? I mean, it sounds like you have one specific operator you're pretty far along with right now, but did you run a process or did you target a few operators? I guess, how did that initially work?

Yeah, so we have existing operators in the state of Pennsylvania, and then, of course, we know other operators in the state, and also in the state of West Virginia. So we reach out to operators that we know, first and foremost, that we do business with, and also operators that we know are in the state of Pennsylvania and still doing business. So it's a pretty broad net that we throw out there looking for new operators, and it just is a matter of narrowing it down to the right one.

And then I guess how much interest when you started offering up those assets to potential operators, how much interest were they in those properties? And then kind of off of that, I mean, can you provide some color on how those assets are performing today and will these new operators be willing to step in at a stabilized rent rate or do you need to have some type of ramp up as operations kind of stabilize and improve?

Those are the discussions that we're having as we speak. It's a good question. Those facilities are not performing exceedingly well, and I would say there was interest, but it wasn't an overwhelming amount of bids that were put in at the end of the day. Okay, great. Thank you.

Our next question comes from the line of Nicholas Ulico with Scotiabank. Please proceed with your question.

Hi, thanks. Bob, I guess maybe just going back to the, you know, the cash on the balance sheet, trying to get a better feel for how we should think about, you know, how much of that could be earmarked for investments versus you did talk about, you know, the debt maturities you do have in April.

Yeah, Nick, again, take a big picture approach to that. I mean, because cash is fungible. We're sitting with $600 million today. If we could deploy that, the pipeline's choppy. It's robust but choppy. If we could deploy it right away in acquisitions, that would be the first dollar spent, absolutely. But, again, we'll sit down and look based on the pipeline and based on that debt maturity coming up, how we want to fund it. I mean, right now, you know, we have the cash and we have the availability. and we do have the ATM.

Okay. Thanks. And then, and then second question is just going back to Levy. And if we think about, you've now moved through most of the, you know, transitions or, um, asset sales, um, what, um, uh, do you have a sense for, you know, I know there's still, I guess some, some reinvestment that could happen with proceeds, but, you know, as we think about prior rent on Levy, when it was sort of fully paying versus now what you're going to get in terms of new rent, rent equivalents. Is there any percentage number you can give us on a rough feel about how that played out? Is it going to be 70%, 80%? I think you said 80% in the past about sort of a recapture rate on operators going through a transition and asset sales like this.

You're exactly right. We were pretty conservative in our thinking there, Nick. I think when this is resolved, we'll be pushing 90% or north.

Great. Thanks, everyone.

Our next question comes from the line of Alec Sajan with Robert W. Baird. Please proceed with your question.

Hi. Thank you for taking my question. Just a question on the Guardian assets. What's the historical timing of releasing those senior housing assets?

Do you mean just in general or specific to Guardian? I mean, you know, it depends. In general, it could take anywhere from three to 12 months. It's pretty wide range depending on whether it's a sale and the sale is being financed or whether it's just a re-tenanting.

Thank you. And the second one is, have labor costs slash shortages actually gotten better, or has it just stopped getting worse?

I definitely think it's getting better from what we hear from our operators. I mean, we are seeing agency come down quarter over quarter, which is a good sign. And operators are definitely feeling less tension there, but it still exists, right? So it's going to take some time before that rights itself. I definitely think it's improving.

Thanks. And last one, how much did you guys buy the Libby assets for, and what was that?

Some of those assets date back to 1995, I think, 1998. I don't know off the top of my head. Some of those assets have been on our balance sheet for over 20 years.

Thank you for the time today.

Our next question comes from the line of John Palowski with Green Street. Please proceed with your question.

Thanks for the time. Megan, question for you on just sector-wide occupancy. Just curious why occupancy you think hasn't seen a bigger benefit from just the cumulative closures of facilities over the last several years?

You know, I think, look, we've seen a large percentage of our portfolio actually recover. So it is very specific to the region that you're in. And if you look at, you know, Florida, for instance, the staffing issues there are just so strong that that's why the occupancy hasn't recovered. So I think when you look at different places, you're going to have a different story there.

As the months and years roll along again with just supply being down, it would suggest, you know, kind of almost a structural change in demand if a significant amount of regions aren't back to a pre-COVID occupancy, which, again, should be adjusted higher for closure. So are you incrementally more concerned about it's broader than just labor issues delaying the recovery in occupancy?

No, I mean, look, I think it's going to get there. We've got demographics on our side that's coming into play. And quite frankly, at some point, as those demographics come back into play, we're going to have maybe a shortage of nursing homes in certain areas.

Okay. Last question for me. Just curious whether you think Guardian could be a leading indicator for other operators that may just be fatigued and then staring out at a burdensome case. labor mandate? Do you see other operators? Do you see this beginning of a wave of additional operators exiting the business?

No, I think Guardian's really idiosyncratic, very unique. If you look through the rest of the portfolio, it just doesn't have similar issues. I will say that the state of Pennsylvania in general has become a little bit more difficult operating environment. And so there's a bit of that, and we do have a decent presence in the state of Pennsylvania. But most of that is with operators in big master leases where a little bit of pressure they're feeling in Pennsylvania is offset by really good results in other geographies. Now, I don't, it may be a little bit of an indicator in Pennsylvania for Pennsylvania only operators, but we really don't have that as an issue.

Okay. Thank you for your time.

Our next question comes from the line of Juan Santabria with BMO. Please proceed with your question. Juan, your line is live. Our next question comes from the line of Ayo Afusana with Deutsche Bank. Please proceed with your question.

Hi, yes, good morning, everyone. So the question I have is, it sounds pretty much like fundamentals are kind of all moving in the right direction at this point. And I guess, again, there's still some tenants that on the margin are still having issues. So I'm trying to understand thematically, you know, where the pressure points still remain and whether indeed, you know, all this is slowly behind us and things will be hunky-dory going forward or if there's still kind of issues out there that could still persist for longer than anticipated. It sounds like part of it is occupancy and just kind of labor constraints making it very hard to drive occupancy higher. I'm curious if any of it is just as Medicare Advantage continues to grow, the pressure it's putting on profitability. I'm just kind of curious where else there could be some potential fundamental issues one has to worry about in terms of just operator profitability.

Yeah, Tayo. I think the short answer is what you said in the beginning. The fundamentals are all strong. And the residual cleanup that we have now is just that. We've been in the business for three decades, and you're always going to have certain issues that come up in this business. But I think that's what we're going to be looking at. in the back half of 2024 just sort of normal way business medicare advantage it's been around forever i don't see there's really no incremental pressure there i think the market's really sorted itself well in terms of operators that can provide the clinical care for the advantage providers that works effectively and we're aligned with um most of our big operators are already aligned with those organizations so I feel good about all of that. And look, we've been pretty transparent. We've solved dozens of issues. We're down to a handful. And I think we have a lot of visibility around them.

That's helpful. And then just one other quick one. Did you discuss the cap rate or the NOI associated with the Levy sales in November to $205 million?

Now, as Dan mentioned, really it's per bed sale prices, which hover that it's between 90 and 100,000 a bed is where Florida's traded. Those facilities all have some turnaround component in them, so the cap rate really doesn't mean anything.

But can you give us a sense what NOI kind of disappears from you guys as a result of those sales?

Yeah, it goes back to the last couple of – the last part of the restructuring, and Dan's working through that, which is disposing of the six properties that remain, two in Florida and four in Louisiana, and then the appropriate rent around the retained portfolio, which that portfolio has a very substantial cash flow. So I think there will be a lot of value there. But that is a TBD that Dan's working through.

Fair enough. Thank you.

There are no other questions in the queue. I'd like to hand the call back to Taylor Pickett for closing remarks.

Thanks, Doug. Thanks everyone for joining today. As always, please reach out to the team with any follow-up questions you may have. Have a great day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.