Good morning, and welcome to the 4th Quarter 2020 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Michelle Reber.
Please go ahead.
Thank you and good morning. With me today are Omega's CEO, Taylor Pickett COO, Dan Booth CFO, Bob Stevenson Chief Corporate Development Officer, Steven Insoft and Megan Kroll, 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 ks, 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. 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 Q4 2020 earnings conference call. Today, I will discuss the pandemic and the related government response and support our Q4 financial results, The vaccine rollout and our new Brookdale relationship. I again want to thank our operating partners and their staff who have cared for the tens of thousands of residents within our facilities. I would also like to recognize and thank the federal government and the states For their support of the skilled nursing and assisted living communities.
The allocation and distribution of additional government funding, along with communication And evolution of clinical protocols has been critical in protecting and saving lives as we combat this unprecedented deadly pandemic. Continued federal and state government support will be critical for the skilled nursing and assisted living care settings. The latest round of CARES Act funding Targeted operators that have been disproportionately impacted by the pandemic. We believe at least $23,000,000,000 of CARES Act funding under the Provider Relief Fund Remains unallocated. We are hopeful that new legislation will add to provider relief funding and hopefully will support the industry through its 2021 recovery.
Turning to our financial results. We are very pleased with our 4th quarter results. Our adjusted FFO of $0.81 per share and our funds available for distribution of $0.77 per share Allow us to maintain our quarterly dividend of $0.67 per share. The payout ratio is 83% of adjusted FFO and 87% of funds available for distribution. Additionally,
for the Q4
We collected virtually all of our contractual rents. We continue to gather vaccine rollout data from our operators and can report the following. As of January 31, based on 92% of our facilities reporting in, 95% of facilities have conducted or are scheduled within the next week for 1st dose clinics. The vaccination rate for residents is approximately 69%. The vaccination rate for staff is approximately 36%.
For most facilities, the 2nd dose clinic, which occurs 21 days after the first dose will also incorporate a new day of first doses for those residents or staff Who are not available or who are not prepared for the vaccination during the 1st round clinic. Turning to Brookdale. We are very pleased to have established a relationship with Brookdale via the senior housing facilities and related master lease that we've acquired from Healthpeak. We believe that Brookdale is exceptionally well equipped to address the current COVID-nineteen environment and to prosper as we emerge from the pandemic. They have an excellent leadership team, substantial liquidity to sustain and grow their operations, Low rate, long dated secured debt tied to their owned assets and valuable integrated home health and hospice companies.
We look forward to working with the Brookdale team and possibly identifying new opportunities where we might partner in the future. I will now turn the call over to Bob.
Thanks, Taylor, and good morning. I'd like to start by thanking our operators and their employees for their continued heroic efforts during this pandemic as they are providing essential care to a portion of our elderly population. Turning to our financials for the Q4. Our NAREIT FFO on a diluted basis was $173,000,000 or $0.73 per share for the quarter as compared to $176,000,000 or $0.77 per diluted share for the Q4 of 2019. Our adjusted FFO was $192,000,000 or $0.81 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to net income found in our earnings release, in our supplemental and also on our website.
Revenue for the Q4 was approximately $264,000,000 before adjusting for the non recurring write down of straight line receivables as well as other Non recurring favorable revenue items. Revenue for the quarter included approximately $12,000,000 of non cash revenue. We collected over 99% of our contractual rent, mortgage and interest payments for the Q4 and for January as well, excluding, of course, rental payments due from Daybreak, which is under a forbearance agreement and has not been making payments. Our G and A expense was $10,400,000 The Q4 of 2020, in line with our estimated quarterly G and A expense of between $9,500,000 $10,500,000 Interest expense for the quarter was $56,000,000 with the $4,000,000 increase over the Q3 of 2020, primarily resulting from our October issuance of $700,000,000 of 3.375 percent senior notes due February 2031. Our note issuance was leverage neutral as proceeds were used to repay LIBOR based borrowings, some of which were hedged.
As a result of the repayments, we terminated $225,000,000 of LIBOR based swaps and recorded approximately $12,000,000 in early extinguishment of debt. Our balance sheet remains strong. Throughout 2020, we continue to take steps to improve our liquidity. Our October bond issuance repaid $683,000,000 of short term LIBOR based borrowings. At December 31, 20 20, we had only £74,000,000 sterling borrowings, equivalent to $101,000,000 in U.
S. Borrowings outstanding
under our
$1,250,000,000 credit facility and had approximately $163,000,000 in cash and cash equivalents. We have no bond maturities until August 2023. In March 2020, we entered into $400,000,000 of 10 year interest rate swaps At an average swap rate of approximately 0.87 percent, these swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bond maturity. In the Q4, we issued 4,200,000 shares of common stock through our ATM program, generating $151,000,000 in net cash proceeds. While we believe our actions to date provide us with flexibility to weather a potential prolonged impact of COVID-nineteen on our business.
It also provides significant liquidity to fund potential acquisitions. In 2021, we will continue to evaluate any additional steps that may be necessary to maintain adequate liquidity. At December 31, approximately 95 percent of our $5,200,000,000 in debt was fixed and our funded debt to adjusted annualized EBITDA Was 5 times. Our fixed charge coverage ratio was 4.3 times. When adjusting to include a full quarter Contractual revenue for new investments completed during the quarter as well as eliminating revenue related to assets sold during the quarter, Our pro form a leverage would be roughly 4.99 times.
It's important to note we have lowered our leverage 5 consecutive quarters with the goal of maintaining our leverage at less than 5 times. As stated in our press release, due to the continued uncertainty related to the COVID-nineteen pandemic, Its impact on the financial performance of our operators and the extent of future necessary government support to our operators, We will not be providing 2021 earnings guidance. I will now turn the call over to Dan.
Thanks, Bob, and good morning, everyone. As of December 31, 2020, Omega had an operating asset portfolio of 949 with over 95,000 operating beds. These facilities were spread across 69 third party operators and located within 39 states in the United Kingdom. Trailing 12 month operator EBITDARM and EBITDAR coverage For our core portfolio increased during the Q3 of 2020 to 1.87 and 1.51 times respectively versus 1.84 and 1.48 times, respectively, for the trailing 12 month period ended June 30, 2020. These numbers were negatively impacted by a number of external factors as a direct result of COVID-nineteen, including a significant drop in patient census And a dramatic spike in operating expenses, particularly labor costs and personal protective equipment or PPE.
These negative results were more than offset in the 2nd and third quarters by the positive impact of federal stimulus funds, which were distributed in accordance with the CARES Act. During the Q3, our operators cumulatively recorded approximately $102,000,000 in federal stimulus funds as compared to approximately $175,000,000 recorded during the Q2. Trailing 12 month operator EBITDARM and EBITDAR coverage Would have decreased during the Q3 of 2020 to 1.53 and 1.18 times respectively as compared to 1.61 and 1.26 times, respectively, for the Q2 when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the standalone quarter ended September 30, 2020 for
our
core portfolio was 1.44 times, including federal stimulus funds And 0.97 times excluding the $102,000,000 of federal stimulus funds versus 1.87 times and 1.05 times with and without the $175,000,000 in federal stimulus funds respectively for the 2nd quarter. Overall operator performance continued to be significantly affected in the 3rd and 4th quarters of 2020 due to the ongoing impact of COVID-nineteen. While the Q3 and the start of the Q4 of 2020 saw moderating of new COVID cases, The spike in outbreaks reported nationwide during the holiday season did not spare nursing home residents and employees late in Q4. Cumulative occupancy percentage for our core portfolio were at a pre COVID rate of 84% in January of 2020, flattened out to around 75% throughout the fall months and subsequently dropped to 72.9% in December of 2020. Based upon what Omega has received in terms of occupancy reporting for January to date, occupancy has continued to decline slightly, averaging approximately 72.1%.
We are cautiously optimistic that the rollout of vaccines, which began in late December of 2020 and is continued in earnest throughout January 2021 will provide an important catalyst for improving occupancy statistics as infection rates decline and visitation restrictions begin to ease. In addition to COVID's negative effect on occupancy, the virus has also caused a significant spike in operating expenses, particularly labor costs And PPE. Per patient day operating expenses for our core portfolio increased approximately $40 from pre COVID levels in January 2020 to November 2020, the latest stats available. Turning to new investments. On November 1, 2020, Omega completed a $78,000,000 purchase lease transaction for 7 skilled nursing facilities in Virginia.
The facilities were added to an existing operator's master lease for an initial cash yield of 9.5% with 2% annual escalators. New investments for the year ended December 31, 2020, totaled approximately $260,000,000 including $113,000,000 in capital expenditures. Turning to subsequent events. As mentioned by Taylor, on January 20, 2021, Omega closed on the purchase of 24 senior housing facilities from Healthpeak for $510,000,000 The acquisition included the assumption of an in place master lease with Brookdale Senior Living, the leading operator of senior living communities throughout the United States. The portfolio primarily consists of assisted living, independent living and memory care facilities, With a total of 2,552 units located across 11 states.
The facilities will generate Approximately $43,500,000 in contractual 2021 cash rent with annual escalators of 2.4%. Turning to dispositions. During the Q4 of 2020, Omega divested 16 facilities for total proceeds of $64,000,000 For the year ended December 31, 2020, Omega strategically divested a total of 35 facilities for $181,000,000 Last but certainly not least, I would once again like to recognize and applaud our operator's tireless, selfless efforts, particularly those employees on the front line. Thank you for your unwavering commitment to the health and welfare of our nation's most frail and vulnerable elderly population. I will now turn the call over to Megan.
Thanks, Dan, and good morning, everyone. Since our last earnings The $175,000,000,000 provider relief fund was increased by $3,000,000,000 as a result of the $900,000,000,000 stimulus package signed in December 2020. Of that fund, approximately $23,000,000,000 remains unallocated. In terms of previously allocated funds still in the process of being paid out, as previously mentioned, on July 22, A Medicare certified nursing home targeted infection control fund of $5,000,000,000 was announced. Dollars 2,500,000,000 was paid out in August And an additional $2,000,000,000 is set up as a quality incentive payment program with payments based on a facility's ability to maintain a rate of infection below the county infection rate and a death rate below a national performance threshold for nursing home residents.
Payments are made based on monthly performance from September through December. The September payout was made in October at $330,000,000 With the October payout being made in December at $530,000,000 and the November payout just starting to go out last week. With respect to the Phase 2 general distribution announced in September, due to the fact that HHS hadn't previously tracked assisted living facilities, A lengthy tax identification process delayed the payout for many assisted living providers to December early January. This allocation was an application process for up to 2% of 2019 patient revenues from Medicaid, Children's Health Insurance Program and assisted living providers. The $20,000,000,000 Phase 3 general distribution announced in October was increased to $24,500,000,000 once all applications were received and reviewed.
Available to all healthcare providers previously eligible for payouts, Both SNF and ALKS were able to apply. Dollars 10,000,000,000 was paid out in December, with the remainder expected to be paid out within the coming weeks. Payouts were based on the change in net operating income related to patient care for the first half of twenty twenty as compared to the first half of twenty nineteen with a stated payout of 88%. That said, all previous federal stimulus money received to offset these numbers, bringing that percentage down substantially for many. In addition to financial support, With COVID cases on the rise in the latter part of the year and the corresponding increased testing requirements, the federal government's efforts The supplies provided by the government coupled with easier and cheaper access to testing supplies has provided for quicker turnaround of test results and therefore the ability to respond time near to outbreaks.
It cannot be stressed enough how crucial the government support thus far has been to the long term care industry during this turbulent time. However, even post vaccine rollout, the effects of this pandemic will be long lasting. We are hopeful that the new administration will recognize the urgency of this matter and will quickly expand on support efforts to this vital industry. I'll now turn the call over to Steven.
Thanks, Megan, and thanks to everyone on the line today for joining. In conjunction with Maplewood Senior Living, we have completed work on our ALF Memory Care high rise at Second Avenue and 93rd Street Manhattan. The opening of the project is pending licensure by the New York State Department of Health. We are in ongoing communication with the DOH and understand that while they are The final project cost is expected to be approximately $310,000,000 The COVID-nineteen pandemic poses certain challenges unique to senior housing operators, including increased costs, the challenges of managing COVID positive patients and meaningful practical limitations on admissions. While they very much appreciate the help they have received, Private Pay senior housing operators have not seen the level of government support provided to other areas of senior care.
We saw challenges to our senior housing occupancy throughout the Q3 with variations tied to when and where COVID outbreaks were encountered. However, we have seen evidence of stabilization and strengthening of Sensus in certain markets. By example, our Maplewood portfolio, which is concentrated The early affected Metro New York and Boston markets saw meaningful census erosion early in the pandemic with 2nd quarter census hitting a low point of 80.4% in early June. That said, their portfolio occupancy had returned to 84.5% at the end of August and increased Further to 85.6 percent in the month of November. We find this resiliency in occupancy to be encouraging, but still have a way to go The pandemic driven top and bottom line risk to our ALF operators is behind us.
Including the land and CIP at the end of the 4th quarter, Omega Senior Housing Portfolio Totaled $1,600,000,000 of investment on our balance sheet. This total does not include our recent Brookdale investment, which closed after year end. All of our senior housing assets are in triple net master leases. Excluding our 24 recently acquired Brookdale assets, Our overall senior housing investment comprises 129 assisted living, independent living and memory care assets in the U. S.
And UK. As expected, this portfolio on a standalone basis had its trailing 12 month EBITDAR lease coverage fall 4 basis points to 1.12 times in the Q3 of 20 With COVID outbreaks affecting different markets at different times, it is reasonable to think that coverage may see additional downward pressure during Ground up development. While we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets. We invested $19,400,000 in the 4th quarter in new construction and strategic reinvestment. Dollars 12,800,000 of this investment is predominantly related to our active Construction Projects.
The remaining $6,600,000 of this investment was related to our ongoing portfolio CapEx reinvestment program. I will now open the call up for questions.
We will now begin the question and answer session. The first question comes from Connor Seversky with Berenberg. Please go ahead.
Good morning, everybody, and thank you very much for having me on the call. Just to start, curious about Brookdale as it was the subject of Some lease revisions with some of your peers this year. So anecdotally, I'm just wondering how do those conversations progress with the operator as you near closing? Second to that, what does rent coverage look like currently? And then what kind of occupancy rebound might you be expecting for this portfolio as we look forward in the next couple of years?
So most of our conversations took place obviously with the seller, health peak Concerning the Brookdale portfolio, we did have an opportunity to have a lengthy conference call with the management team, but we definitely became comfortable and are comfortable with the management team and The prospects for this portfolio going forward. The coverage ratios were looking at Then as we look at our overall portfolio on a trailing 12 month basis through September 30, the coverage was right around 1 to 1 with federal At about 0.9 without as of once again trailing 12 months September 30th. We do expect that to improve. The occupancy It's taken a hit due to COVID. We expect that to turn around.
So, I think in the latter part of 2021, we would think that this portfolio would Rebound to pre COVID performance. That's a guess at this point, but that's our expectations.
Okay. Thanks for that. That's help. Go ahead.
I just want to make sure I covered everything, Conor.
Okay. Thanks for that. That's helpful color. And then just double checking on pricing, so $43,000,000 in rents over $510,000,000 acquisition costs is about 8.5%. Are there any sort of CapEx expectations that you're aware of for this portfolio?
Yes. As part of the transaction, There was a $30,000,000 capital improvement line, which obviously we will And it runs through 2025. So yes, we expect to put that money to work and improve on these
Okay. And then one more from me. Just anecdotally, I'm thinking about a read across from one of the hospital operators that reported earlier last week, Seeing that admissions have picked up meaningfully for inpatient procedures, I'm just wondering if there's any commentary from your operators in regard to referrals to SNFs, If that kind of dynamic is improving somewhat as we approach the end of the year.
Connor, it's Taylor Pickett. I think it's just a little too early to talk about trends there, but obviously that's a good one. And we haven't heard from our operators Any uptick in occupancy as a result of that, but I would be surprised if a month or 2 from now we don't One quick thing I'd like to add just to be clear on returns on the Brookdale portfolio. The $30,000,000 of committed CapEx Has a 7% yield attached to
it. Okay, great. That's all from me.
I'll leave the floor. Thank you.
Thank you.
The next question comes from Aaron Hecht with JMP Securities. Please go
ahead. Good
Wondering on the Brookfield deal, Brookdale, If they offered you the opportunity to transition to idea, would you take that or would you have to think about it? Where would you stand on that opportunity if it was presented?
So, as you know, we don't have any idea in our portfolio. And it's a model that we're not necessarily uncomfortable with. But I think, from our perspective, the Triple debt structure for this portfolio is the right one. So I don't think you'll see us looking at any type of conversion there.
Got you. And what made this deal particularly interesting or
What made
you excited about it given the operating difficulties that everyone's having and that coverage was Around one times with occupancy being pressured in the Q4, is it just a recovery play on new normal? Is there something else within the portfolio that you saw as attractive? Any sort of insight on that would be helpful.
Sure. So you hit on a couple of points. Long term, meaning 2, 3 years out, we think This portfolio is going to do well, very well. And when you think about buying it At an 8.5% yield, that's pretty favorable pricing that reflects any perceived risk long term, which Frankly, we don't see. We think this portfolio has lots of opportunity to grow cash flow.
If it's been successful in the past, I The CapEx will be helpful. And then on the short term side of it, call that the next couple of years, Brookdale has A great balance sheet, ton of liquidity, receiving government support and the facility portfolio that we've acquired It has held up well through the pandemic. So I think you Put those two things together and the strategy from our perspective is completely rational in terms of how you allocate capital.
Right. And then just bigger picture for Omega, does this deal kind of mark a point where there's a shift at all in your preference For senior housing over skilled nursing or did you just like the package too much to pass on it?
Is there
a change going on there fundamentally?
The interesting thing is, we had very little senior housing in our portfolio 7 years ago. And we've grown that side of the portfolio every year since then, And we continue to look. So we haven't had a goal of becoming fifty-fifty, but We're now a little bit over 20% senior housing. And I think that just comes down to the model of finding the right folks Partner with and finding opportunities where our cost of capital isn't doesn't make a deal dilutive, And we'll continue to pursue those. So no shift in overall strategy, just a continuation of looking at that segment of the business And growing it with partners that we want to grow within the future.
Appreciate that guys. Nice quarter. I'll jump back in the queue.
Thank you.
The next Question comes from Jonathan Hughes with Raymond James. Please go ahead.
Hey, good morning. I was hoping you could walk us Through the decision not
to give
guidance. You've already collected virtually all January rents. The Brookdale deal was already completed and financed, and we've had other sectors like office and apartments That are much more volatile, give Q1 and even full year guidance. So I know your operators are dependent upon government support, but That's somewhat been the case for 20 years. So I guess just could you give us some more thoughts and color on what's holding you back from providing any guidance?
I think it's just an abundance of caution in what could be a highly volatile environment. And when you think about the government support in this business, there are certain operators That need more support soon. And if they don't get it in the near term, They will have issues. And then I think the other thing that's important, Jonathan, is we still have for those operators that took advanced Medicare drawdowns, that payback starts April 1st, And that payback is just an offset against your Medicare receipts otherwise. So there's those two elements of volatility that We're very hopeful that the new administration acts quickly as it relates to those two issues.
But if they don't, We could see some issues before the end of the quarter. And so we're just very, very cautious About guidance. And frankly, it's if you think about it with the steady portfolio And our earnings in Q4 Q1 isn't going to differ much if we collect all of our reps. So I'm not sure that it's Actually, all that helpful when it's all said and done.
Okay. I guess kind of bringing up the operators that Maybe keep you up at night. I know we've got a couple of large ones that are on cash basis. Did you get any updates From operators where the auditors force them to kind of give the going concern language and flip from and would maybe lead you to flip from accrual to cash basis accounting? Are there any operators on the fringe?
Hey, Jonathan, it's Bob. Yes, so during the quarter, we did move one additional operator Who had a feeling concern opinion from straight line to a cash basis immaterial about 0.3% of our annualized revenue, and we did write off just $600,000 of Straight line revenue related to that operator.
Okay. That's helpful. And then just One more for me then. As we look at underwriting sniffs or you look at underwriting sniffs today, what's the most Cool thing there. Is it just lack of operators willing to take new buildings?
Is it lack of sizable portfolios? Overall Uncertainty with that ability to pay rent, given there's concerns and uncertainty about the administration, the 3 night stay rule has Helps, obviously support operators, but it's made underwriting in a normalized environment a little more difficult. And I know the Brookdale portfolio With unique opportunity with someone you bought from in the past, but just curious what's the biggest hindrance to getting snip acquisitions done in this environment?
Well, I think for starters, there's just not a lot of deals out there in the market. We've seen some and But not a lot and they've been pretty small trades. The other component of it is the ability to underwrite In this particular environment, right, you have to add back stimulus, you've got occupancies that have gone down. All the things that we talked about, operating expenses have gone up. So, you really have to look at Either pre COVID operating performance or projections going into 2021 and really now into 2022.
So it makes the underwriting Quite a bit more difficult, but also anytime once you do get into the underwriting and you have to go to the next step, which is looking at your real estate having 3rd party reports, that's a challenge, having any type of third parties go and visit facilities and go through facilities With visitation rights as such as they are right now. So underwriting snips in this market is challenging. I think the biggest thing is Just the financial underwriting of operating performance in 2020, you really have to do a lot of dig, deep digging into the In the individual facility in the markets and where they were before COVID and where we expect them to be post COVID. So it's just more challenging, I think. But We're still obviously looking at a lot of deals.
We still continue to look at deals and we'll still continue to underwrite deals. Hopefully, that picks up as we get a little bit more clarity on where occupancy rates are going to go.
All right. Thanks for the time.
Thanks, John.
The next question comes from Daniel Bernstein with Capital One. Please go ahead.
Good morning. Just a follow-up question there. How would you characterize the general State of distressed opportunities for maybe seniors versus skilled nursing. You just made some comments that it's hard to underwrite. There's not that many deals out there, but are you anticipating more distressed opportunities In seniors and skilled as
the year goes
on, are you hearing some rumblings out there?
Really not as much as you might think given the environment we're in. And I attribute a lot of that to substantial government support that we've seen to date and are now seeing in the assisted living So, will we see distress? Yes, I think at some point, we might, Dan, but But I don't think it's Q1 or Q2. I think it's probably further out in the year.
Okay. And I guess, would you say it's probably more on the senior side than skilled nursing side? Because You made the acquisition of Brookdale assets, but then there's you had some comments there Why you're not giving guidance and it kind of gives me a sense that maybe there's some yes, maybe the I always kind of thought maybe the stress on senior housing would lead to more Opportunities there, but I guess I'm getting a little bit of a mixed message. Maybe there'll be stress everywhere. Just trying to understand maybe where that tilt might be.
Yes. I think it just comes down to government support. We still they still the government still has completed the payout of the latest round of $24,500,000,000 There's $14,500,000,000 that hasn't been allocated and a good chunk of that is likely to go to assisted living providers. So I think it's just the unknown of where does the government support fall And then if it doesn't fall sufficiently, how much distress comes out of that? I just don't think we see it Q1 Sure.
Okay. And then the other question I was thinking about here is the Ohio Governor Was proposing to buy back, I guess, dollars 50,000,000 of licenses or beds to reduce Supply given how low occupancy has gone in SNF space. And I don't know if you looked at that or other governors considering that, but What does that do? I mean, if you reduce the supply out there, because I know you put out some presentation showing If you got 5 or 10 years, there's going to actually be not enough supply for the demographic. So I don't know if you have any thoughts or if you talk to operators about the possibility of selling beds back to the state.
I have two comments around that. One is beds in Ohio have traded for many, many years. You'll see, beds move around county lines and where there's So there's been a market for beds in Ohio and the $10,000 a bed price tag I think they were talking about It reflects the market trade that we've seen over a long period of time. But I will point out the one other thing That was mentioned in that article, and it's the reality is If Ohio were to do that, they're going to be very careful in terms of geographies because there are counties where there's not sufficient Geographies and really isn't a new story. You think about Texas with 70% occupancy and rural Texas in many places even lower.
So, I don't know that that's particularly meaningful.
And
to your point, you take beds Out of service, it's very expensive and tough to put them back in service. So I don't know that we'll see that as a trend.
Okay. And then one last question. You've been doing a great job of deleveraging the balance sheet, improving the balance sheet. I guess the goal is to be sub-five, but is there a kind of a bottom on that goal? I mean is it 4.5, is it 4.0, Just kind of trying to get a sense of where you want to where you ultimately really want to go on leverage.
Hey, Dan, we've always publicly stated to be between 4 times and 5 times. The sweet spot probably is about 4.75 times In that range, we don't get any credit if
we're at one time we were below
4 times and we get no credit for that. So And I think running the business with the risk profile is 4.75% in that rate plus or minus a little bit.
Okay. I'll hop off. I appreciate the time guys. Good quarter.
Thanks, Dan.
The next question comes from Joshua Dennerlein with Bank of America. Please go ahead. Yes.
Hey, good morning, guys. Just kind of curious on how the Maplewood portfolio is weathering the pandemic and Maybe if there's any discussions around the Upper East Side building since it's been about a year since they started paying rent on that, but it's still not open.
Sure. Stephen, do you want
to take that?
Yes, sure.
So from an overall, what I call ex Upper Eastside portfolio standpoint, census is creeping upward. As I mentioned in my prepared remarks, And even through January, it's over 85%. Maple has done a particularly strong job managing Census and is marketed through the pandemic, obviously has cost pressures like everybody else does. Upper East side, We've got reason to believe from the communications with the Department of Health and State that it could be a couple of weeks before they Are green lighting us. I'm somewhat hesitant to be overly optimistic on timing.
Well, that's probably the best case when they do Final walk through surveys, if everything goes well, I think great, but there could always be a life safety matter or 2 that has to be remedied, which could delay A week or so. So it's imminent. And hopefully, We will be talking about how many folks are moving in the building come a quarter from now, if everything goes according to plan.
Yes, thanks. It's a great building. I remember looking at it Over a year ago. So, I'll yield before everything else is answered. Thanks guys.
Thank you.
The next question comes from Nick Yulico with Scotiabank. Please go ahead.
Thanks. Good morning, everyone. I guess going back to the cash basis tenants, can you just remind us At this point, what percentage of revenue is on a cash basis? And I guess if we relate that back to Page 6 in the supplement where you guys give the breakdown in coverage, Is that also are those tenants also then reflected in this page or are they not reflected in this page?
Hey, Nick, it's Bob. So on an annualized basis, around 14% of our The fractional would be on a cash basis. So that's One additional operator since last quarter, but the percentage stayed about the same, as I said, because it was only 0.3% with the new operator.
I apologize. Did you say 14%? Correct. Okay. And then as we relate this back to Page 6, right, and we see the buckets of coverage, where certain operators have lower coverage, Are those is that 14% of the company reflected on this page?
Or any of those get removed?
No, they're all reflected.
Okay, got it. All right, got it. So I guess, I mean, maybe you could just kind of We're out of way with this because I know you did talk about in relation to the guidance some worries about The reason why you didn't give guidance is because it could be maybe some operators having some problems if They if you don't get additional government stimulus, but if you're already I guess, if we look at this page, right, Page 6 is supplemental where you have the Two buckets that have lower coverage adds up to about 10% of the company. If you're saying 14% of that of Tenants are already on a cash basis. That would be more than these 2 buckets.
So I'm just trying to understand if you face incremental pressure from tenants, Have you already are you already accounting for that by virtue of the fact that those tenants are on a cash basis? Or is there some additional impact that we should think about that could happen?
Yes. So I'll have Dan jump in if he has any thoughts about this. But And the interesting thing is you look at Genesis as one of the big tenants that went on a cash basis. We're just a portion of the Genesis world, and our portfolio Does reasonably well. So as you think about coverages in those buckets, Genesis isn't in those lower two Fockets.
And I think that Gimo might be the same, Dan, is that right?
Correct. Yes. So
The cash base decision was driven by the accounting rules, where the accountants are looking forward and saying, But for government assistance, the next year could be troublesome for these operators, and that's a fact. They just happen to have Audits where those are where the opinions come out. So I don't know if that ties together with where you're headed, Nick, but
There's not a correlation between those operators that got put on a cash basis and the low coverage bucket, just not.
And Nick, just one other point there. Genesis and AGMO are 11% of the 14%. So we're in the fall camp.
Got it. Okay. And so maybe the other way to ask this is, right, so obviously moving Tenants too. To a cash basis, there's a straight line rent impact. But can you just remind us where for the tenants that are on a cash basis right now, Where they are on payment on a cash basis versus their contractual rent on just sort of a rough feel for that?
Because that would obviously be the other incremental pressure, I guess, you could face, is that you just have lower cash collections on those tenants.
So it's as we stated, we've been collecting over 99% of our contractual revenue Each quarter in 2020. And if you look at our AR, it's $10,000,000 of contractual AR on our books, but that's really all mortgage interest, which is booked in arrears. So Less than I think it's only a couple of $100 in total is true normal AR.
Okay, got it. That's helpful. Just one other clarification question, when you were talking about the Brookdale coverage earlier, Was that EBITDAR or EBITDAR M coverage?
It was EBITDAR coverage. Okay.
All right. Thanks, everyone.
Thanks, Nick. Thanks, Nick.
The next question comes from Onitayo Okusanya with Mizuho, please go ahead.
Yes. Good morning, everyone. Two questions from me. First one around Brookdale. Again, appreciate all the color you've given.
Could you talk about the underwriting of the portfolio And kind of what kind of worst case scenario could kind of occur that would still ensure that the transaction created value for shareholders?
Well, I mean, we underwrote the portfolio, obviously, on a pre COVID Operating performance basis, we looked at how they had done, obviously, throughout 2020, and they had actually fared Quite a bit better than the comparables. And then, of course, we look to 2021 beyond and what it will From a sensitivity standpoint for the occupancy, what they would need to go up to bring this thing back to Coverage is more consistent with our overall portfolio and it wasn't material. So There wasn't a whole we didn't feel there was a whole lot of downside to this acquisition. We felt that Looking out 2021 and particularly into 2022, there was quite a bit of upside. You throw on the fact that we've as we mentioned, we've $30,000,000 of capital committed, which we hope to put to work in the short term, which will hopefully translate into It's more set into higher census.
So, Michael, so again, just kind of playing devil's advocate here, Dan. If we did have a scenario where All these variants become the dominant variant. The vaccine is not very good versus all these variants. We kind of go back into further lockdown. Occupancy keep dropping.
You don't think there's any kind of downside risk at that point, just kind of given the rent coverage is below one time at
Well, the one thing to bear in mind, Tayo, is it's a we've got Full Brookdale credit. And so I think at that point, you have to look to their balance sheet, Which has huge amount of liquidity and a lot of long dated low rate Yes, it's their own portfolio. So when we did our work from a credit perspective And thinking about what I think is highly unlikely, but that downside scenario, There's very little likelihood that Brookdale if Brookdale doesn't survive through this, then there's going to be A lot of other damage in the industry, enormous amounts. I think they're really well suited. And that corporate Guarantee sitting behind all this is extremely valuable.
Got you. Okay, that's helpful. Second question, if you don't mind. Megan's comments earlier on just about what was going on from a regulatory perspective was helpful. It's clear with the new administration, there's a lot of uncertainty.
Could you just talk a little bit about, again, your lobbying groups and exactly what they are trying to do and what they are trying to on a going forward basis and how they kind of see things possibly shaking out in regards to future For the further support for the skilled nursing and senior housing industry?
Maggie, do you want to address that?
Sure. I mean, I think the American Healthcare Association is still running the same agenda that they did with the prior administration, But it's really too soon to tell what's going to happen there, only because folks are new into HHS. The Provider Relief Fund folks haven't And so they're still lining everything up, but it's a little too soon to tell, but they'll still continue pushing the agenda for the long term care industry.
Got you. And anything in regards to a lot of the chatter we're hearing about home health, Like this administration kind of preferring home health as the preferred post acute care setting. Does any of that stuff kind of Come up and what are you kind of hearing along those lines?
I mean, on the home health side, again, I think You've got a lot of folks going into home health who are COVID recovery patients. So as COVID goes away, it will just be something that we have to watch to see if there Continued increase there, I think it will likely move back into the snip industry.
Got you. All right. Thank you.
The next question comes from Nick Joseph with Citi. Please go ahead.
Hey, it's Michael Bilerman here with Nick.
So I just want to
come back on the Brookdale transaction. The $43,000,000 of rents, What does that represent? Is that a re straight lining of GAAP under for the next 7 years? Is that current cash? And if it's current cash, what are the bumps that are in those leases between now and the end of the lease term?
And maybe you can talk about what the renewal options are That Brookdale has at the end of the lease term.
So the $43,500,000 is the 2021 contractual rent is not straight line, it's cash. And it escalates through the term of the lease by
Sorry, what was that increase?
2.4% per annum. Okay. And then Brookdale has 2 10 year renewal options.
And what are those renewal options based on? Is that A market rent, is it a negotiation? What's their right?
No. It's the current rent at that time escalated. So there's no reset rights and it's at their discretion.
And in terms of the increases in the coverage Talking about I assume that coverage is a probably a last 12 months coverage. And I think you talked about being at close to one times. I would imagine that Brookdale got a bunch of stimulus that probably positively impacted that number. In addition, the fundamentals weakened throughout the year, The likelihood is that coverage is going to get hell of a lot weaker this year. How do you think about how you're going to book The rents in terms of this year and whether you would have to take a reserve given the fact that the coverage will be so low in the near
We don't expect it to be that low in the near term. I think I quoted the coverages that we're seeing. There wasn't a lot of federal stimulus money going into ALKS through September 30. Actually, we anticipate More to come out with what's remaining in federal stimulus funds. So actually that stimulus money should actually pick up For Alst in general and for Brookdale in this portfolio specifically.
So we think that Assistance will help. And then as we said, the occupancy of the portfolio was not hit as far as A lot of the comparables that we looked at in this market. So, we don't think they fell as Far as many and we think so they don't have as far to climb back up to what was normal before. So We don't see this portfolio diving into the steepening.
Right. So your $8,500,000 that you quoted is a current cash on that $43,000,000 on a GAAP basis, the yield is north of 9
It's about 9.2, and we will focus on a straight line basis as Currently.
And your auditors don't want you to take any reserve given where coverage or the trend line is on operating fundamentals?
Not this time, no.
Okay. Nick, do you have one as well?
Yes. I just want to follow-up on the guidance question. So 4th quarter run rate, I guess, was $0.81 right? So that annualizes to $3.25 I know there's some give and takes with the transaction activity and then Obviously Brookdale, but there are asset sales and equity issuance. So I was just wondering if $0.81 is the right run rate going forward, recognizing, of course, Kind of the uncertainty around rent collections and government stimulus going forward, but at least looking past Q4, how to think about that $0.81
Well, I mean, you kind of said what the uncertainties are. You have timing of that with new deals, you had Brookdale pro form a. I also stated that we're looking to continue to produce our leverage. So the additional shares, if we Have any will impact that as well. And then the asset sales, so I wish I had the crystal ball to tell you exactly that, but there are a lot of moving parts.
We feel pretty good with the Q4 going into Q1. And then beyond It's all those moving parts.
Thank you.
The next question comes from Rich Anderson with SMBC. Please go ahead.
Thanks. Good morning. So when you look at the Brookdale Steel, is there an element of distress there in your opinion? I mean, if you put a 6 cap on that rental rate, $43,500,000 you get to $725,000,000 value. Did that how much does that play a role in your decision to Pull the trigger on this one.
And also, were you offered more? Could you have gotten more out of peak if you wanted it?
Well,
sure. From our perspective, we think long term that portfolio We'll have the kind of values that you've talked about in terms of 6 type cap rates. And In the interim, you've heard all the questions about the short term and how you Maneuver through the pandemic. And so I think from our perspective, the timing was right in the cycle, and We appreciate the balance sheet that Brookdale has.
I guess I'm thinking in terms of it, is it a trade? You Essentially saw value that you can trade in and out of over the course of the next couple of years?
No. From our perspective, It's long term. Okay. But like everything, there's always a potential for a trade, but that's not how we This portfolio?
Could you have gotten more?
Yes. I don't think
so. No. You mean Other assets? Other additional sales that they were contemplating or talking to? Yes.
We didn't look, but most of them were shopping. We did not
Okay. Second question is, when you think about this recovery post pandemic and skilled nursing versus senior housing, I imagine since you guys are triple net that you think both will kind of have a recovery thesis maybe equivalent to one another. But the fact of the matter is skilled got stimulus and senior housing relatively speaking did not and the perception will probably be that senior housing will be the winner among those 2 in the recovery cycle of all this. Do you agree with that? And is that why you're kind of getting more in the way of senior housing exposure?
Or do you disagree with that? Probably your answer. And think that it will be sort of equivalent on both sides in terms of the recovery?
Yes. I think the one recovery is going to be driven principally by occupancy. And so to the extent that We have a big base of Medicaid residents in the skilled side of the house. I think the recovery rates as it relates So Medicaid and Senior Housing, those pieces of occupancy Are likely to track along at a similar rate, where you have a couple new residents a month and it takes a while to fill. Then on the Medicare side of the equation within skilled, which is a much smaller population with much bigger turnover, I think you could see a more rapid rebound.
So when you correlate it altogether, I would argue that skilled probably comes back a little bit faster because of the Medicare component, but that stable base of Medicaid probably tracks very similar
Okay. And then real quick last one, the 36% rate for the healthcare service folks. Is that because they refused largely or it's just taking time to get to them?
Megan has done some work around this.
Do you
want to talk about it, Megan?
Yes. I mean, on the employee side, It's not that they're not having it offered to them in terms of these clinics that are happening, but I think you're seeing 2 things. 1 is Refusal only because there's still a lot of education that's happening by our operators with the employees and that's why there's a 3rd clinic that was added on to continue that education effort. But the other piece is, we had a large number of cases in December and you can't get the So that is playing into some of that as well. So we do expect and have been hearing anecdotally from operators that those numbers are starting to creep up with that second clinic coming in and people getting the first dose during the second clinic.
But It is still off from where I think everybody had hoped it would be.
Must be though frustrating though you want to see these people get vaccinated. From your perspective, Probably like come on, throw us a bone, get vaccinated. But anyway, that's my idea.
I I think as long as you get most of the residents vaccinated, you're in a much better position and we're seeing those numbers go up as well with the second
Thank you.
The next question comes from Todd Skender with Wells Fargo. Please go ahead.
Hi. Thanks for staying on. And most of my questions are on the Brookdale portfolio have been answered. But just when it comes to the asset sales, Q4 activity and then I think you've completed some already in Q1. Anything you can share about how it's impacting your Top ten roster, any movement there just as I look at tenant concentration maybe coming down a little bit?
Nothing of any significance, Todd.
Okay. And then when you lay, I guess, for tenant wise, Brookdale now is going to be in your top And roster, is that fair to say?
Yes.
All right, great. That's it for me. Thank you.
Thanks a lot.
The next question comes from Lukas Hartwich with Green Street Advisors. Please go ahead.
Thanks. Good morning. You touched on this a bit already, but I'd love to go a little bit deeper. The home health industry is really pounding the table that Market share gains relative to SNFs are permitted and likely to continue to increase even post COVID. And it sounds like you disagree.
And I Would love to go a little bit deeper and what your thoughts are around those comments from the home health industry.
Well, so my first comment This is nothing new. The trend of moving towards home health as much as possible has been going on for Years. And so to the extent the pandemic perhaps accelerated some marginal patients, That I don't think that's problematic because it's a trend that we've seen and frankly we need to see Given the demographic that's coming our way. And the idea when you look at Our facilities and the activities of daily living and the increase in acuity over the last decade, There are very few of those residents that you could pull out of that setting and take care of in the home setting for less economics. In fact, the cost would be meaningfully higher in the home setting.
So I appreciate The commentary around it, but I think it's all on the margin and we've seen it for a long time. So if it meant 1 And I have no clue what it means. You're going to get that back very rapidly with demographics that are already here.
That's helpful. Thanks. And then it also looks like based on your comments earlier that there is pent up demand For the Maplewood portfolio with the lease up from around 80% to well over 85% occupancy in a pretty short timeframe. So I'm just curious, did you see that elsewhere in your portfolio? Is that something you kind of expect in a post COVID world to be common experience?
I think that is more to do with the highly desirable nature of the Maplewood assets, where they have Had waiting lists in many assets. And so As residents got more comfortable with the setting, they moved in. But that is the good news that we saw folks Who had the opportunity to move in, who did, because they had a need and they were on the wait list. So that's the good side. We have not seen that In other parts of our portfolio, I would attribute it to Maplewood's marketing efforts and waiting list.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks.
Thanks very much. Thanks for joining us today.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.