Good day, and welcome to the Omega Healthcare First Quarter 2020 Earnings Conference Call and Webcast. All participants will be in 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 Ms.
Michelle Reber, Senior Director, Asset Manager of Operations. Ms. Reber, the floor is yours, ma'am.
Thank you, and good morning. With me today are Omega's CEO, Taylor Pickett CFO, Bob Stevenson COO, Dan Booth 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 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 atwww.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 have 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 Q1 2020 earnings conference call. We are very pleased with our Q1 results that allowed us to comfortably declare a $0.67 per share dividend that will be distributed on May 15. Payout ratio improved as expected to 84% of adjusted FFO and 90% of funds available for distribution. Today, I'm going to focus my comments on the impact of COVID-nineteen on our operating partners and the potential impact on our company as the COVID pandemic evolves.
The following are things that we know. We know the operator reported number of Omega facilities, residents and employees have tested positive for COVID-nineteen. We know that labor and personal protective equipment costs have increased significantly and for facilities with positive cases, the increases can be dramatic. CMS, the federal government and the states have provided meaningful and absolutely essential regulatory and financial support to the skilled nursing facility industry. Census in facilities has declined, at least in part due to the elimination of elective hospital procedures.
What we do not know, we do not know how long since this disruption and elevated COVID-nineteen costs will last and if the funding support from the federal government and the states will be sufficient to cover all of these incremental costs. We do not know the ultimate number of Omega facilities that will have widespread high cost outbreaks of COVID-nineteen. Some longer term observations. The demographics that drive our bullish perspective of increasing demand for needs based skilled nursing care have not changed. There will be increased clinical protocols for infection control within facilities and the monitoring of employees, guests and others entering facilities.
We do not know if future reimbursement rates will be sufficient to cover the increased cost of enhanced infection control and monitoring. We had good financial results in the Q1. Additionally, in April, we have collected virtually all of our rents. Nevertheless, we've withdrawn our 20 20 guidance in recognition of the significant COVID-nineteen driven uncertainty that we face for the remainder of 2020. Lastly, and most importantly, I cannot overstate the tremendous efforts that our operating partners and their staff have undertaken to care for residents within our facilities.
The dedication of the direct caregivers is heartwarming and humbling, dramatically outweighs some of the negative press over the last month. We cannot thank them enough. I will now turn the call over to Bob.
Thanks, Taylor, and good morning. Our NAREIT FFO on a diluted basis was $181,000,000 or $0.77 per share for the quarter as compared to $144,000,000 or $0.67 per diluted share for the Q1 of 2019. Our adjusted FFO was $186,000,000 or $0.79 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 quarter was approximately $253,000,000 versus $224,000,000 for the Q1 of 2019, with the increase primarily resulting from incremental revenue from a combination of over $1,700,000,000 of new investments completed and capital renovations made to our facilities since the Q1 of 2019, as well as lease amendments made during that same time period, and one time revenue collected in the Q1 of 2020 related to security deposits held by OP unitholders due to Omega upon the sale or termination of certain facilities. The increase in revenue was partially offset by reduced revenue related to asset sales, transitions and loan repayments that have occurred throughout 2019 and the timing of cash receipts related to operators on a cash basis.
The $253,000,000 of revenue for the quarter includes approximately $11,000,000 of non cash revenue. For the month of April, we collected 98% of rents, mortgage interest and notes. Our G and A expense was $10,900,000 for the Q1 of 2020, which is typically our highest quarter within the year. We project quarterly G and A expense of between $9,500,000 $10,500,000 for the remainder of 2020. Interest expense for the quarter, when excluding non cash deferred financing costs, was $52,700,000 with a $4,600,000 increase over the Q1 of 2019 resulting from higher outstanding borrowings.
In September 2019, we issued $500,000,000 of 3.5.8 senior notes due October 2029. And in December 2019, we assumed $389,000,000 in HUD debt related to a $735,000,000 acquisition. Our balance sheet remains strong and we continue to take steps to improve our liquidity. Based on the uncertainty in the credit markets that existed in March resulting from COVID-nineteen under an abundance of caution, we borrowed approximately $300,000,000 under our revolving credit facility to provide additional balance sheet liquidity. At April 30, 2020, we had $618,000,000 of outstanding borrowings on our $1,250,000,000 credit facility and we had approximately $490,000,000 in cash and cash equivalents.
We have no significant bond maturities until August 2023. In March, we entered into $400,000,000 of 10 year interest rate swaps at an average swap rate of 0.8 675%. These swaps expire in 2024 and provide us with significant cost certainty upon refinancing of our 2023 bond maturity. While we believe our actions to date provide us with significant liquidity and flexibility to weather a potential pronounced and prolonged impact to our business, we will continue to evaluate any additional steps that may be needed to maintain adequate liquidity. At March 31, approximately 82% of our $5,600,000,000 in debt was fixed.
We had $348,000,000 in cash and our net funded debt to adjusted annualized EBITDA was 5 point 3 eight times. Our fixed charge coverage ratio was 4.1 times. It's important to note, EBITDA on these calculations does not include any revenue related to construction and process associated with 5 new builds scheduled to become operational within the next 12 months. When adjusting to include a full quarter of contractual revenue for acquisitions completed during the quarter and the 5 new builds and then eliminating revenue related to assets sold during the quarter, our pro form a leverage will be roughly 5.2 times. I'll now turn the call over to Steven.
Thanks, Bob, and thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we continue work on our ALF memory care high rise at Second Avenue and 93rd Street in Manhattan. The COVID-nineteen outbreak in New York City has posed challenges to the schedule and cost of the project. While the project is deemed a critical resource due to its licensed nature and construction has been allowed to proceed by the City of New York, the capacity of the construction crew has been meaningfully limited in order to provide a safe working environment. The slowdown of construction, when combined with certain supply chain challenges and the need for innovative enhanced infection control protocols, will delay the opening to Q3 at the earliest and correspondingly increase the project cost.
While the project will cost approximately $310,000,000 an exact estimate of the final cost will be difficult to determine until we have better clarity on the opening date. 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 census was strong in our senior housing portfolio through most of the Q1, we are seeing a 1% to 3% per month occupancy reduction once buildings impose touring and visitation bans. Additionally, senior housing operators to the extent they are private pay and large employers were offered little help from the various fiscal stimulus programs. Including the land and CIP of our New York City project, at the end of the Q1, Omega's senior housing portfolio totaled $1,600,000,000 of investment on our balance sheet.
All of our senior housing assets are in triple net leases. Approximately 50% of our investment is in Maplewood assets, which are in one master lease, and 25% of our assets are in the UK with 2 master leases, 1 for the GoldCare assets and 1 for healthcare homes respectively. The remaining 25% are intermixed with SNF assets in various master leases. Our overall senior housing investment comprises 130 assisted living, independent living and memory care assets in the U. S.
And U. K. This portfolio on a standalone basis saw a slight uptick in lease coverage in the Q4 of 2019. However, recent events will highly likely put downward pressure on that number. While we remain constructive about the prospects of senior housing, the COVID-nineteen outbreak warrants an ongoing evaluation of our development pipeline.
This analysis may take several fiscal quarters as we have an opportunity to see how market demand and facility cost structures adjust. While we further underrate our pipeline development opportunities and make progress on our existing developments, we continue to work with all of our operators on strategic reinvestment in our existing assets. We invested $39,500,000 in the Q1 in new construction and strategic reinvestment. 24 $100,000 of this investment is predominantly related to our active construction projects. The remaining $15,400,000 of this investment was related to our ongoing portfolio CapEx reinvestment program.
I will now turn the call over to Megan.
Thanks, Stephen, and good morning, everyone. As you will hear more about today, this is a high touch industry and therefore, controlling the spread of the virus once it gets in a building is difficult to say the least. Our operators are faced with numerous challenges, not the least of which is adapting to the COVID-nineteen specific infectious disease control guidelines set forth by CMS and the CDC. All new admissions are treated as presumptive positive and quarantined for 14 days. Vendors in most areas are not permitted entry to buildings unless they have food and other deliveries outside for employees to bring in.
Our operators are having to find ways to reconfigure their buildings so that they have dedicated wings for positive or suspected positive residents. They are also looking at their portfolios to determine whether there are buildings that can be solely dedicated to COVID-nineteen patients. We have several instances of that in our portfolio and while the number of these dedicated buildings is likely to grow, we do not believe that it will grow substantially. The challenge of following these best practice protocols is exacerbated by the scarcity of personal protective equipment or PPE, which also comes at an increased cost. While masks are now becoming easier to source, the availability of gowns remains an issue.
Additionally, the lack of availability of testing has only recently started to eat. Department of Health in each state previously determined who got tested. Through much of this pandemic, due to the lack of test kits, even when there was a positive case at the building, oftentimes only those with symptoms and in some states, only those with multiple symptoms would get tested. You can imagine how tough it is to control the spread of this virus, especially as it can be spread asymptomatically when the ability to test is severely limited. Lately, whether it is through departments of health or our operators working with private companies, we are hearing that whole buildings are getting tested, which will obviously add to the number of positive cases, but will also make it easier for our operators to take all necessary steps to control the spread.
In an industry that was already hampered by staffing shortages, operators are now faced with an additional strain on staffing as any employees with symptoms must quarantine for 2 weeks at home and others have needed to stay home to care for young children due to schools being closed. While we expect agency expense to increase, we believe the larger expense increase will be in the form of hazard pay, bonuses and overtime to permanent staff. Most operators are trying to limit the use of agency as their permanent staff have their culture and protocols ingrained in them. Additionally, operators are striving to keep up the morale of their employees, who in turn work to maintain the morale of residents who are not able to see loved ones. This includes such things as video blasts out to their hero employees or hero banners stressing the entrances to the facilities.
All of these challenges are coming at the same time that occupancy is impacted. With the added expense and strain associated with providing care in these settings, key to our operator success is federal and state support. The Coronavirus Aid, Relief and Economic Security Act or the CARES Act was passed March 27, 2020. That stimulus package included a variety of programs available for the nursing home industry. Payouts under the $100,000,000,000 healthcare fund, which was increased by $75,000,000,000 on April 24, started the week of April 10, with an additional tranche going out starting April 24.
Both tranches have been to Medicare providers only. First tranche was equal to 6.2 percent of all 2019 Medicare billings, but was ultimately netted against the 2nd tranche. The 2nd tranche was equal to 2018 net patient revenue divided by $2,500,000,000,000 which is the total healthcare spend with the resulting percentage multiplied by $50,000,000,000 again with the 1st tranche funds netted against the results. The estimated impact of both tranches combined is an average of approximately $150,000 to $175,000 per facility that provides Medicare services with obvious variances amongst buildings depending on overall revenue. To date, assisted living facilities have not received any payouts under this fund.
And as of now, we believe only those with some level of Medicaid revenue will get a payout in the future. Operators were able to participate in the accelerated and advanced payment program through Medicare, which provided up to 3 months of advanced Medicare billing or some lesser amount at their option. Payback is via recoupment 120 days out over a 3 month period. This program has now been suspended. While some of our operators participated in this program, many others did not, given the short payback window and the lack of visibility into where occupancy would be at the time of payback.
Many of our operators have also taken advantage of the Section 2,302, employer payroll tax deferral, which permits the deferrals employer FICA taxes from March 27, 2020 through December 31, 2020. Repayment is 50% by year end 2021 50% by year end 2022. The 2% Medicare sequester is suspended from May 1 through December 31 this year with a possible 1 year extension. This will have the effect of increasing Medicare rates by 2%. The total estimated impact to our portfolio is $25,000,000 for the May through December period.
The 6.2% FMAP boost, which provides federal funding to state Medicaid programs, is in effect from January 1, 2020, through the end of the month in which the national emergency is lifted. The decision on if and how much to allocate to long term care facilities is left to the discretion of the individual state and to date only a handful of states have made such an allegation. Our thoughts and prayers are with operators and their residents and employees that are affected by COVID-nineteen. We continue to try to find ways to support our operators during these troubling times. As part of that effort, we have instituted regular email blast to share pertinent information as well as to ensure that everyone feels connected to one another.
Those e mail blasts include a variety of topics such as information on the CARES Act, including eligibility, interpretation and best practices, reimbursement information such as the ability to skill in place information on PPE suppliers who have current availability as well as service providers best practice sharing from our operators with respect to various COVID-nineteen clinical protocols and data analytics. Additionally, we have provided some of our operators with short term loans to purchase PPE. Our goal is to continue to be a source of support and information to our operators as they deal with frontline issues. Prior to the development of a vaccine and widespread testing, our operators are faced with figuring out how to navigate what will be the new normal for the industry. As stay at home orders start to lift and the rest of us start to get back to some semblance of normalcy, our operators, their employees and residents will be dealing with this for a long time to come.
Nursing home industry is resilient, but there is no overnight fix to this pandemic as it relates to long term care. We are hopeful that the federal and state governments recognize the ongoing struggles that the nursing home industry will face and will continue to provide the necessary support to ensure that the most vulnerable in the population are cared for appropriately. I will now turn the call over to Dan.
Thanks, Megan, and good morning, everyone. Today, I'm going to stray materially from my usual script and talk about what's on the forefront of everyone's mind, the COVID-nineteen virus and its impact on our operators, their residents and their frontline employees. As you can imagine, the virus has taken an unprecedented toll on our operators and their residents. As of March 15, 2020, we had 0 known cases. As of what we posted on our website this past Friday, we were aware at that time of 4,136 confirmed cases, including residents and employees within 250 facilities with at least 350 deaths.
Suffice it to say, these numbers are only going to climb as this virus continues to spread and more test kits become available within our facilities. Based on discussions with our operators, overall occupancy has declined on average between 3% 6%, while quality mix is down due to the discontinuation of elective surgeries offset slightly by the scaling up of residents that have tested positive for COVID-nineteen or potential cases amongst operators, patient populations. Rather than talk about our coverages, which have stayed virtually steady through the Q4 of 2019 or our new deals or dispositions, which are relatively immaterial in the Q1, I'd like to talk about what is more poignant and timely in today's environment. I'd like to give everyone a sample of a day in the life at our 966 facilities, both SNF's and ALPS. In the aggregate, on any given day, there are an average of approximately 75,000 patients in residence across the facilities, as well as approximately 100,000 full and part time staff providing care on the front lines.
When extrapolating a handful of what are now normal daily routines across Omega's vast numbers of our operators' residents and frontline caregivers, the resulting numbers are staggering. Here are several examples. Every patient is monitored for COVID-nineteen signs and symptoms, including temp and oxygen levels, up to 6 times a day or approximately 450,000 times every day across all Omega facilities. Virtually all of our operator staff of approximately 100,000 are required before starting their shift to have their temperature and oxygen levels taken and in many instances, they have to complete a screening questionnaire. With communal dining no more a possibility, every patient is served meals in their room and many have to be physically fed their meal by hand.
That's 225,000 meals served every day, 1 at a time. Medications are administered 3 to 5 times a day and most residents have to be assisted in taking medications. On average, that's 300,000 times a day our operators are administering medications. Every resident, whether COVID positive or not, has
to have their teeth brushed,
get bathed and get dressed, most with the assistance of our operators' caregivers. Donning and doffing the proper PPE is required for every staff member entering or exiting an isolation unit to care for a COVID positive resident. Normal daily activities, including life enrichment and social well-being, is conducted in every patient room on a daily basis due to restrictions on community settings. Family visits with patients and their loved ones are conducted through windows or on iPads or laptops. If the iPad or laptop is provided by the facility, the equipment must be cleaned and disinfected after every virtual visit.
All levels of therapy are performed in every patient room due to restrictions on having patients in a therapy gym. Our operators' direct care staff has asked to bring a separate change of clothes, change out of their uniform before leaving work and laundry their uniform every day in order to protect their families when they go home. They're asked to quarantine themselves from their family and others so that when they return for their next shift, they don't potentially infect residents. This is but a small sample of what goes on during a day in the life of our operators' caregivers. Can you imagine?
There is no social distancing in a nursing home or assisted living facility. These are high touch face to face activities that occur multiple times per day throughout our nearly 1,000 facilities. These efforts place our operators' frontline caregivers at serious risk of not just quarantine, but of becoming seriously ill or even dying. Unfortunately, these risks carry over to their loved ones as well. These efforts are nothing short of heroic.
Ultimately, it would be both premature and irresponsible to attempt to project the impact of this virus on any given facility's residents or staff, their occupancy, financial performance or otherwise. Until that time comes, when the virus has subsided and some new form of normalcy has returned, Omega, as we have shown in the past, will continue to stand behind our operators, provide support and assistance to their frontline caregivers and continue to tout their day after day heroic efforts. In addition to hundreds of our operators' residents losing their lives, sadly they are also losing their caregivers. As you can imagine, this has a terrible impact on staffers who are unerringly quite scared for not only their own lives, but that of their families. Yet day after day, these dedicated employees keep coming back to work.
Allow me to relay just one of many heroic stories. Recently, one of our operators lost an employee to COVID-nineteen, a lifetime nurse who had been with the facility for just over 1 year. Upon her passing, the decision was made to cease admissions. When the COO informed the facility to redirect 6 pending admissions, the administrator in tears said, Please do not stop sending new residents until I speak to the staff. Within 20 minutes, she texted the COO and said, the team still wants to admit, it's what we do.
We need to do this. This is just one of a 100 stories I have heard personally in the last few weeks. Lastly, as many of you might have noticed and all of our operators have heard or seen, the public media has repeatedly maligned the skilled nursing industry as opposed to portraying their frontline caregivers as compassionate, courageous, heroic human beings who are risking their lives trying to make a difference by saving the lives of our most vulnerable population. Omega, along with Akka and our operators, intends to try and rectify this negative messaging with real stories of what is occurring on a daily basis on the front lines. We just hope they will start to listen.
I will now open the call up for questions.
Thank you, sir. We will now begin the question and answer And the first question we have will come from Connor Seversky of Berenberg. Please go ahead.
Good morning, everybody, and thank
you very much for having me. Hope you all are well. We appreciate very much your efforts to support the operators under the current environment. First question on PDPM, don't want to lose sight of the impact amidst the ongoing pandemic. Has there been any commentary from your operators in regard to functioning under the new framework in this extraordinary situation?
Well, I mean, obviously, the framework has changed. A lot of what PDPM did was change the dynamics of therapy, right. So it moved individual therapy protocols to group and concurrent therapies. With the discontinuation of the use of therapy gyms, those have all gone away. As I indicated in my talking points, all therapy this thing place in the patient room.
So it's dramatically changed what they had put in place 6 months ago from a daily living basis. So yes, it's I mean, we're not losing sight of it, but what they put in place is totally different today.
Okay. Thank you. Appreciate the color there. And then on rent coverage, it seems like a few operators have moved into lower buckets. I mean, can you provide any color as to the extent of these moves, if the characteristics of these operators had changed meaningfully through the Q4 of 2019?
No, really not. This is what we've seen over and over again. A lot of folks are kind of right on the fence line on these buckets. And they tend to move back and forth from the 1st to the 2nd quarter. We had a movement downward.
2nd to 3rd quarter, we pretty much moved back up. And then once again, in the Q4, we had a movement back down. They're not always the same operators, but they did tend to shift around. A lot of them settle the fence, so to speak.
Okay. Thanks for that. And then on further iterations of the CARES Act, I mean, is there any expectation that there would be a provision from Medicaid at some point?
We're hopeful. There's no clarity on that at this point, but we are certainly hopeful. So 5 are the largest percentage of the population. So we hope they get their fair share.
Right, right. And then last one for me, just quickly on external activity. I noticed you were able to sell several assets year to date. Mean what kind of buyers are still out there in the markets? And then what would it take for OHI maybe to come more comfortable in acquisitions here?
I think acquisition and disposition activity has gone from choppy to very, very choppy. It's difficult to do due diligence on a facility that can't enter in a 3rd party consultants come into your building. So it's gotten quite choppy. The number of deals that we see out in the market has gone down considerably. There are still deals being marketed at this point.
Whether they ultimately trade, I can't tell you. But there are still some deals, but it's very few and far between. I think we need to see a lot, lot, lot more clarity on where this virus ends up before we start to seriously look and talk about investing dollars in the coming quarters.
Okay. That's all for me for now. Thank you very much.
Next, we have Tayo Okusanya of Mizuho.
Yes. Good morning, everyone. Hope everyone is safe and healthy. Just first of all, to follow-up on Conor's question about PDPM. I guess, again, we've gotten the full quarter of PDPM in the 4th quarter rent coverage statistics.
But your rent coverage statistics were still fairly flat, even though PDPM, I think most people expected that it would bring those numbers up. Could you just talk a little bit about what happened in the Q4 and why coverage ratios didn't go up more?
So the coverage in the Q4 actually was up over the Q3 and the Q2. But as happens often on December, you have a lot of accrual adjustments. Some years it goes up, some years it goes down. In this particular year, a lot of the accrual adjustments went the wrong way. And so December was down thus the quarter was down.
But otherwise, it was a good quarter.
Okay. That's helpful. And then second question, color you gave around occupancy trends for senior housing and skilled nursing in the middle of the pandemic. You talked about declines of 1% to 3% on the senior housing side, 2% to 6% on the skilled side. Are those declines kind of April over March?
Is it April versus I'm just trying to understand how quickly those declines happen and what the implications could be going forward for rent coverage?
Okay. So that's a good question because I wasn't specific. And the reason is that it's not specific. It's not in a specific point in time. The last reported period for occupancy is December 31.
The decline that I was talking about really was based upon our conversations that we have with our operator, polling if you will of some of our larger operators, where on average they were seeing a decline between somewhere at 3% to 6%. Obviously, we've seen facilities in certain markets with very little if not no occupancy decline and then certain COVID facilities that are where the COVID is widespread where the occupancy has gone down considerably more. So the 3% to 6% is not based on a specific point in time, it's based upon pulling of our operators throughout basically about 2 week period within the month of April. And that's just what they've shared with us. And so that's what we wanted to talk about.
It's also kind of what we've heard from the industry as a whole. So it's not period over period, it's just what they have seen in the as this COVID virus started to take have impact, that's what they've seen the drop off be somewhere in the neighborhood of 3% to 6%.
Got you. I have had this kind of talks about is the biggest piece of the drop off just is it really the lack of admissions? Is it just nothing coming in from the elective surgery? And I'm just kind of curious what the biggest drivers of those declines are, if they share that information?
So, yes, they do. It's not specific. It's kind of a combination of all the above. It's the discharges from the hospitals have gone down, a lot of it due to elective surgeries being cut off completely. Unfortunately, you've got a higher number of deaths in the facilities.
And then you've got a number of
more or
higher number of rehospitalizations because as patients become sicker and sicker with the COVID, a lot of times they need to be sent back to the hospital because once they hit acute care or even intensive care levels that they have to be treated in the hospital. So they have to go back to the hospital. So I would say it's really kind of a combination of those three things that are driving the occupancy down on the skilled side.
Okay. That's helpful. Last one for me. From a financial aid perspective, I guess at this point, what else would Omega or the industry at large like to see from the federal government or from state agencies in regards to health for the overall industry? Is it a specific allocation from the Cures Act?
I'm just kind of curious how the industry is thinking about what else they need.
Yes, Tayo, I think it is the Cares Act. There's a substantial amount of money that has not been allocated out of the CARES Act. And as Dan briefly mentioned, none of the CARES Act money has addressed the Medicaid population and skilled nursing facilities. So the thought is that we'll see some additional allocations of dollars that correlate to Medicaid activity and facilities and then likely some allocation of dollars that correlate to positive COVID outbreaks and facilities where you see dramatic cost increases. I think those are the 2 prongs that have been discussed.
And hopefully we see HHS move that forward.
And next we have Jonathan Hughes of Raymond James.
I appreciate all the prepared remarks and efforts from you, your partners and caregivers during this difficult time. Can you talk about the tenants that maybe ask for rent deferrals, if any, in April May, what percentage of monthly rents they comprise, how much you might plan to grant in the mix of SNFs versus seniors housing?
It's early in May, right? But as of today, with the 5th, we've gotten no request for rent
And Jonathan, just to clarify, the April, the 2% of rent that we haven't collected we're in discussions we're in discussions with our tenants about the status of those rents. But we have not we don't have any formal deferrals of any rent at this point in time.
Did any tenants ask for deferrals in April? I know you said May there hasn't been any yet, but I mean it's only 5 days in.
Not more than a couple, 3. It was
immaterial and none that we
Okay. And the mix of those handful that asked, I mean, were they SNFs, were there some seniors housing in there? Just trying to understand
who might be asking.
Yes, SNAP operators
for the
most part.
All right. On the Second Avenue project, I know that's being delayed now until Q3 of this year at the earliest. Is Maplewood paying rent until that delivery date? Or has that been renegotiated to match up with when that project is operational?
Maplewood continues to pay rent. They have a line of credit that has adequate collateral. Frankly, we're in conversations with Maplewood now because the plan was to open earlier. But we haven't concluded any of those discussions at this point in time.
Okay. And then last one for me on the guidance withdrawal, a bit of a higher level question. Why did you decide to pull this versus adjusted? I mean, at the end of the day, you are triple net lease REIT with no external growth guidance. You've collected most of, I mean, 98% of your rent from last month.
And it
seems like you could
at least maybe maintain a run rate figure. And I understand guidance is being withdrawn everywhere across the REIT space in Corporate America and there's no shortage of uncertainty. But there was another triple net lease healthcare REIT that maintained their run rate guidance last week. So I'm just trying to better understand what you see that caused you to pull, if you can share your thought process there about the outlook? Thanks.
Yes. I think it really comes to duration and depth of the pandemic, Jonathan. It's just no one is going to be able to give you data around that. And we know the government support to date has been critical to this industry. And we don't know what the next round of government support is going to look like.
So you combine that with just an unknown timeframe. I think the important thing from our perspective is we look at the end of this pandemic whenever that comes And the demographics, all the drivers of our business, and we don't see any reason that our business doesn't return substantially to where it is today. But in the interim, it's just a big question mark. And that's what we're reflecting and pulling the guidance. We would just be guessing and I'd rather not do that.
Okay.
Next we have Nick Yulico of Scotiabank.
Thanks. I just wanted to go back to the occupancy drop that you talked about from surveying operators. What were the operators telling you in terms of thoughts about whether it could get worse from here? And also if you're hearing any sort of early expectations about how states opening up elective procedures again for hospitals, Any anecdotes on how that is already, I know it's very early, but maybe helping the occupancy number for skilled nursing?
Yes. So I mean, none of my operators were out going out on a limb trying to predict what this virus is going to do in the future. So have no idea what's going to how that's going to affect occupancy. Obviously, if it continues to rabbits their facilities and becomes more widespread, occupancy is going to continue to suffer. If it starts to lighten up, occupancy should theoretically improve.
We've heard rumors that certain states might start to open up. I haven't heard of any specific state that has actually said that they're going to start to allow elective surgeries, but I might have missed it. At this point, I know none that have specifically stated a date for when they would start to open up the doors for elective surgeries.
Okay. I guess, I mean, obviously, that's a key component for getting the skilled nursing industry back to normal. When you look at the amount of federal aid that's been given so far to the industry and you run some math about occupancy pressures that operators are facing, short term expense pressures. What is your sense here about when you need to see the hospital system returning back to normal so that skilled nursing can return back to normal? Do your operators have a lifeline until June, July?
How should we think about that?
Yes. Fair question, Nick. I don't we don't know. We know that there's still a fair amount of CARES Act money that hasn't been distributed. If that's distributed reasonably consistently with what we've seen and the pandemic clears out by some point in the summer.
I think put all that together and you go the impact isn't going to be that dramatic. But if things stretch out into the fall, it's going to be difficult without another round of government support, which obviously we can only guess whether that would happen or not. So I think this is what we know today and you look at it and you go, okay, if we start to see Texas and other states open up elective surgery, That's going to be helpful. I think the other thing we don't know is human behavior in terms of individuals willing to go to the hospital for that elective surgery and how fast that ramps up, then it's a TBD. But, yes, I get what you're saying.
I think that's yet another reason we've tried to pull back. The only other comment I would make is every Friday we posted up on our website what we've heard from our operators in terms of facilities with cases. The one thing that's a little bit positive is at least the velocity of growth in the facilities week to week has declined a little bit. So if that's another indicator, then that will be helpful from an overall occupancy perspective. We have buildings where we haven't had COVID positive cases and the occupancies have remained relatively stable.
So all that goes into the equation. Hopefully, that's enough color. I mean, ultimately, I don't have the answer.
Yes, I understand. It's a little tough to gauge. I guess, just last question, Taylor. How are you thinking about rent deferral requests if they come in? I get that there hasn't been many yet, but as you're saying, it feels like the industry in the short run is facing more pressure.
You get through this period and then you get back to normal and there are a lot of benefits that are in place via PDPM, the removal of sequestration cuts. So if you're getting a rent deferral request this month, next month, what is your approach going to be? Are you going to make sure that the operator has fully exhausted every sort of federal program out there? Are you going to are you more likely to give a deferral versus some sort of permanent level of a rent cut? How should we think about what could still play out here for your portfolio?
Yes. You've described it. So the first step is have our operators exhausted all the opportunities that might be out there in terms of liquidity? And do we have a good sense of that liquidity picture on a forward basis? And then step 2, if we need to support that liquidity would likely be in the form of deferral that would hang up in the balance sheet and hopefully be recouped when all of this normalizes.
I think rent cuts, rent cuts are only going to come in an environment where you think we're not going to return to where we left or somewhere in that zip code. And I just don't see that today as we look at the landscape in front of us.
Next, we have Nick Joseph of Citi.
Thanks. Just maybe in terms of May rent collections, I recognize we're very early in the month and that rent is due maybe throughout the month and not necessarily on the first. I was wondering if there's any trends you've seen at least for the 1st few days of May relative to where you were on collections for the 1st few days of April?
Yes. No trends. I mean, it's just too early. We've had the normal payers that we would expect early in the month, but our rents are not all in the 1st of the month. They go throughout the month.
It's contract by contract. So really nothing to glean from any pattern for the 1st couple of days in May.
So far, given the rent request comments earlier, there's no indications that May collections would be different from April, at least thus far?
Well, again, it's just too early to know. But based on the couple of days we've seen and the dialogue that Dan and his team have had with our operators, I'd say it's similar to April at this point in time.
Thanks. And then maybe just following up on the coverage and PDPM discussion from earlier. Is it fair to assume that coverage when you report next quarter given that it's a quarter delayed and 12 months trailing, coverage level should actually be higher a quarter from now and then we'll start to see the impact of COVID and subsequent reports from there?
Well, you're going to see some impact of COVID in March. And so I'm very hesitant to talk about Q1 coverage given the fact that we had COVID related activity occurring in our facilities in March. Just too early to predict, but we'll provide color around the Q1 in terms of what we saw pre COVID expenses hitting facilities.
Thanks.
The next question we have will come from Daniel Bernstein of Capital
Good morning. And again, thanks for all the color and we wish all your tenants and their residents well. Wanted to touch on expenses, which it seems to me that expenses are one of the larger issues. Can you you talk a little bit about where the expenses at seniors housing and skilled nursing were kind of equitable in terms of their increases? Or are you seeing differences in expense needs between the seniors housing and skilled nursing facilities?
And then maybe following up on that, what do you think of the permanence of those increases in expenses or decrease in margins? Is it too early to predict that? Or is that something that we need to think about for the long term as a kind of a permanent margin decrease for those asset classes?
Well, I mean, listen, labor was tight before we got into this pandemic. Labor has become increasingly tight and the costs have gone up pretty much across the board in both SNPs and ALFs. PP and E, obviously, something that's gone up considerably. A lot of PPE wasn't used in house before this pandemic and was only used sparingly in SNFs. On the backside of this pandemic, I'm pretty sure that you're going to still have a fair amount of PP and E being utilized for some time in the future.
So I think part of that cost will remain in place. Labor, it's easy to increase labor costs. It's hard to walk them back. I think in part some of those labor costs will stay higher than they were before we got into this situation. But in order to try to quantify that would be impossible at this point.
In terms of the extra costs that you're seeing on the development side, especially for Second Avenue, Can you talk a little bit more detail on what those costs are? What changes are being made to the facility and are those kind of changes or maybe some architectural changes or design changes, I assume that's something that's going to be more permanent within the industry, both seniors and skilled. I don't know if you could just give a little bit more clarity on the architectural design issues that you're seeing in second half and then how that applies going forward?
Stephen, do you want to take that?
Sure. The cost increases that we're estimating at Second Avenue because of the COVID-nineteen pandemic have more to do with just cost of delays. And then there are some increases in the ordinary course that you might expect as time goes on. As far as architectural changes, that building was and is effectively beyond the state at which it would create additional architectural changes to the building. We're just putting finishes at this point.
There's some discussion around negative pressure rooms going forward in some of the development activity. But beyond that, none of that affects Second Avenue.
Okay.
There's been some talk as well that whether telehealth or telemedicine, tele rehab might be a threat to seniors housing or skilled nursing. Do you guys have any views on that?
I think it ends up as a benefit and a very big percentage of our skilled nursing facility operators were using telehealth well before this pandemic arose. It stretches the ability from a caregiver perspective. It allows you to take care of residents in place for longer versus hospitalizations, particularly useful in rural settings. So I think it's a plus from skilled nursing facility setting and frankly from a higher acuity senior housing setting, I think you have the same answer.
Next, we have Lukas Hartwich of Green Street Advisors.
Thanks. Hey, guys. Can you provide more context for the $150,000 per property of government assistance that was received. I'm just curious how helpful that is. Maybe if you could provide what's the average OpEx per facility in your portfolio?
Well, obviously, the $150,000 to $175,000 that we which is an average buy facility that they received was extremely helpful. I mean, it's obviously helped offset a lot of the increased costs that they were seeing. So it was hugely important. Average OpEx cost per facility, I don't even want to try to go there. I don't know.
Is there some context for the $150,000,000 like does that cover 2 months of OpEx? Is there some sort of number on that that you can estimate?
Yes, I think that's a fair
without the Dan and his team can circle back up and get you the exact number. But a couple of months that sounds about right. In terms of not COVID OpEx, COVID related OpEx are seeing dramatic cost increases.
Perfect. And then I was hoping you could provide a little more context on just market level performance. Are there pockets of strength, weakness, anything there would be helpful?
Well, I mean, COVID has affected has obviously targeted some markets, if that's what you mean. I mean, obviously, the most heavily targeted has been New York, New Jersey, where Omega doesn't really have a presence other than the Second Avenue building, which is still under construction. You've seen some other hotspots and was one in Washington. We've seen it in the Detroit metropolitan area, South Florida, New Orleans, some of those still remain hot areas. Obviously, a large portion of kind of the upper Midwest has been left largely alone in terms of the numbers that we're seeing.
So yes, there are different markets that have been much more heavily affected than others.
I guess, I meant more specifically for Omega's portfolio, maybe EBITDARM, what's happening to EBITDARM or anything like that, Because we can see the case count by market and you guys provide some case counts by portfolio. But really, it's hard to draw a conclusion then on what that does to revenue and EBITDARM and all that occupancy, all those metrics?
And as it relates to EBITDARM, we don't have that data. It's premature to even start to think about EBITDARM. We'll have to factor in the government payments. We don't know the exact expenses. We just need a lot more data there.
The one other piece of color I guess I can give you is when you look at our facility count at 250 positive facilities as of April 30, 27%, 28% of our overall portfolio. Our understanding is that's reasonably consistent with what we're hearing from a national perspective in terms of facilities with positive cases. So for what it's worth, that's about the percentage. And to the extent that we're starting to see teamingly facility count growth decline,
that's good news.
Next, we have Joshua Dennerlein of Bank of America.
Hey, good morning, everyone. Just a quick one for me. For the 2% of tenants that didn't pay, was there any common theme across these operators on why they didn't pay? Did were they harder hit with COVID-nineteen? Did they have lower coverage?
Just any insight there would be helpful.
No, actually, there was not. I would have to say people wanting to kind of hoard liquidity at this point, but other than that there's no real rhyme or reason.
Okay. All right. That's it for me. All my other questions are answered. Thanks, guys.
Thank you.
Well, at this time, there appears to be no further questions. We'll go ahead and conclude today's question and answer session. I would now like to turn the conference call back over to the management team for any closing remarks.
Thanks, Mike. Thank you everyone for joining our call today and please stay safe.
And we thank you, sir, also to the rest of management team for your time today. And again, you also please stay safe. At this time, the conference call has now ended. At this time, you may disconnect your lines. Thank you.