CTRE
#Yes, we are firm believers that size really does not determine success on the skilled nursing space.
Healthcare is, if there's ever a business that's a local business, it really is skilled nursing.
If you take some of the great regional, divisional, executive type people from the bigger companies and they want to start their own business, and they start off small, of course, the chances of success are very, very high with them because they have the sophistication and the knowledge of big company systems that are required to manage the change in environment, but they also have the advantage of having that high-touch local ownership feel that a small company brings to the table for both their employees and then their residents and patients.
And their relationships with the hospitals and health plans who are the local decision makers, so I would say we're size agnostic.
Big boys can do great if they have the proper talent in place on the local level, but also, the smaller guys, if they come with the talent and knowledge and commitment to quality care, also will do exceptionally well.
That's a good question and it really depends on the market.
Hospitals are, as you're alluding to, are narrowing their preferred provider networks.
What they look at, at their criteria, there's several points that they look at to determine what facilities should be included in their network for a particular hospital.
I haven't, we haven't seen yet hospitals that are turning down local operators because they're not affiliated with the large regional or national chain.
If you have, as a facility, the data that supports inclusion in that preferred network, those quality outcomes are what's going to drive it, not some arbitrary metric of whether or not you're affiliated with the big chain.
For example, if you're a big part of the chain, but your readmission rate to the hospital is 20%, and you have a small local mom and pop whose readmission rate to the hospital is 5%, the hospital can't ignore that.
And they are always going to, now more than ever, factor in that data more than other considerations before.
Thanks, <UNK>.
Hello, <UNK>.
Yes.
It's about 60/40, SNF to ALF.
No, FAD guidance actually decreased by a penny and that's due to the add backs, typically amortization of deferred financing fees as well as amortization of deferred stock.
Those numbers stayed the same, but we now have a bigger share count, so it's decreasing that add back.
We certainly think about it, but these operators are not new.
They are out there; they're around.
They're already doing things and for them to move into a new facility, new property with ---+ the first thing you do when you move into new property is install your own people, culture and systems.
Addressing CJR, if they are moving into a CJR market, and we have relatively few properties in CJR markets right now, but we expect those programs to expand later.
But if you are moving into CJR market, that's just one of the many things that you would be prepared to address.
And remember, most of our assets are so Medicaid-heavy they weren't getting the hips and knees from, taking into consideration in our underwriting, so it's not as if we're looking at a Medicare average daily census that we expect to shrink.
In fact, there's very little Medicare market share there.
So if they move into a CJR market, as <UNK> alluded to, it's about getting the systems in place to be able to take those patients on a go-forward basis.
I'll let <UNK> talk about the mix of the star ratings, but just a little bit of color about how our operators view it.
We're in the early innings of hospitals using the star ratings for, as a criteria for their preferred networks.
There's obviously the three-star cutoff for the CJR, for the three-night qualifying stay waiver, but what that does is it creates a little bit more time in some cases for the two star or below facilities to qualify to be part of those preferred networks.
In some cases, hospitals have a pretty clear cutoff.
If you aren't three star or above, they are not going to include you, and so it takes some time.
It can take one to two to three years to move significantly from one star up to where you want to be.
Having said that, I sort of started by saying we're in the early innings because that's such a blunt tool for hospitals to use.
It's not effective because it doesn't accurately reflect quality.
That's why they added the readmission rates to the quality measures for the star rating, but the way they did that, to us, doesn't seem to, they fold it under the quality measure component and so it's not going to be as potent of a swing measurement, if you will.
At the end of the day ---+ so we believe that hospitals will evolve and pay more attention to that readmission rate data than to the less sophisticated star rating, if you will.
So as we under-write deals, we look to see what the star rating is and to see if that particular hospital market has a star rating ceiling or floor for their preferred networks and then just how long we think it will take them to get into that market.
Yes, <UNK>, this is <UNK>.
So just let us give you some perspective on that.
In order to move star ratings ---+ star ratings follow a facility for three years and it doesn't matter if the facility has changed hands and has a new operator.
If you walk into a one, it can take you up to three years to rack up enough good survey results to get yourself back up into the four and fives.
So, and again, part of <UNK>'s point was that if you look at the 108 SNFs in our portfolio right now ---+ if I'm doing the math right, 73 of them are three star or above so we're not worried too much about those at all.
And those threes will probably continue to move up toward fours.
And then about three dozen of them are in the one and two star, but two-thirds of those ---+ or about a third of those, are facilities that have recently come into the portfolio and are dragging behind them the prior operator survey history.
One of the great things that we do is that we find assets that, while they are stable, we think that they are under managed and can be significantly improved merely by the insertion of a great operator who is sophisticated, committed and knows what they are doing.
And that's exactly what we've done with those assets, but the Pristine assets have been with us for about six months now and we're just starting to see that movement and the Trillium assets have been with us for a couple of months now and it will be a while before they move up, so that's why we can say that we're pretty happy with the overall distribution.
I think, as it sits, the overall distribution of five star ratings in our portfolio is better than most and we know that these things are barely getting started.
Yes, so when we go from, when we experienced this at the Ensign Group for all of the time that we were there, as you know, our MO there was to take the stress assets and turn them around, largely Medicaid shops, and turn them into skilled short-term rehab facilities.
In this case, as you know, the Pristine buildings were kept ---+ Medicaid shops, but cash flowing really nicely.
Nevertheless, the strategy that Pristine is pursuing is to convert those long-term care shops into more short-term rehab facilities.
So our pro forma matches our experience at Ensign and Chris' experienced before, and that is that you're going to ramp up a little bit the cost structure on the outset to build the clinical capabilities on your nursing and rehab team and you're going to build a little bit, invest a little bit more in marketing in order for that to happen.
While you're doing that, you can still see some modest increases in your skilled mix just by paying attention to it.
That's what our model predicted and that, just in general terms is exactly what we're seeing so far with that transition.
It was about 140% to 150%.
We saw it is somewhere in the 12 to 18 month mark, that he should be somewhere in that range, in the 1.4 to 1.5 times.
Because it was going to take, we thought there would be some incremental expense that they would pick up early on.
Then we thought, call it, months three through nine, we would expect to see them start to hit their stride and fully bake in all of their transitional expenses and really start to hit their stride on the marketing side.
So I would say towards the end of this year, we would expect to see 1.4, 1.5 on an EBITDAR basis.
Well, you know, we said we're pretty optimistic about the pipeline and what we think we can do through the rest of the year and into the future.
But remember, at our size, quarter-by-quarter, looking at acquisitions, it's going to be a little lumpy.
So it would be, while I would love to be able to project that we will replicate Q1 in the other three quarters of the year, or exceed it, I'm not sure that we can do that.
But I do think we'll have a much better year than the $233 million in capital deployment year that we had last year and we are optimistic as we look at the pipeline and the kind of deals that are crossing our desk every day, that the opportunities are going to be out there for us.
You know, it's a little early to tell on that.
I figured we wouldn't have done the deal if we didn't expect that, in time, we would be exercising that.
But they just barely started taking deposits and doing lease up, opening that thing.
They've scheduled a grand opening, I think, for July, right, <UNK>.
End of July.
End of July, which will give them some time to get through sort of the, all of the start up stuff, and I think probably over the next couple of quarters, we will get a much clearer picture of how that thing is going to lease up and how it's going to run.
We sure like the tenant.
We sure like the location.
We definitely like the facility.
It's beautiful.
<UNK> and I were up there not long ago and toured it and it's going to be a great asset and I do think we'll ---+ my expectation is the same as it was.
We will exercise that in due course, but we will see what due course is.
Our operators haven't expressed that concern to us yet.
As we've talked to them about the minimum wage initiatives in their states, they have reassured us that they feel comfortable with their cost structures and being able to absorb that.
In the skilled nursing space, there's not a lot of the labor that's in that minimum wage amount as it stands today anyway.
And there's some optimism in California, for example, that the very strong state association there will be able to help those providers to make up that different as that rolls out over time.
Yes, they have for the present, <UNK>.
The deals that we have in the pipeline now reflect ---+ and then the deals that we did in Q1 were really deals that we made in Q3 and Q4, those deals we closed in Q1.
The deals that we have in the pipeline now that would be our Q3 and Q4 deals this year do reflect the increased underwriting standards that we imposed at the end of 2015.
Whether that holds or not is a question mark.
I think we're going to see some of the buyers who have been absent from the market for the past three or four months start to return now and we'll just have to see if most of them have been expressed the same thing we have that they think that cap rates should tick up a little bit, but we'll see if that discipline holds.
Yes, but we aren't pursuing them.
No, our expectations haven't changed, but remember that our view seems to be slightly different from some of the others.
Whereas there tends to be a prevailing view amongst healthcare REITs that when you see an asset that's new and beautiful and 98% occupied and has a 60% skilled mix and is hitting on all cylinders, that's the asset that you want to go out and pay top dollar for, pay a premium for.
And in our view, that asset really, and you may skim your coverage down for that and we've seen a lot of folks do that historically.
We don't like that.
We think that, that asset has no place to go but down, so if it's already at 98% occupancy and 60% skill mix, we darn well better get 1-5 coverage on that asset, and in that environment, we tend to be not competitive on price.
The assets that we like are the ones that are 80% occupied, but stabilized and cash flowing, that have some upside left in them; there's some meat on the bone there for a new operator coming in that we would be bringing.
We can get those at a much better price.
We'd actually skinny the coverage on that one before we'd skinny the coverage on the first one with the premium price, because if we know the operator, we know their business plan, and we, with our background and perspective as operators, can say yes, that's very likely to work.
That's one that we might stretch for and skinny our coverage down on a tad to keep our yield up and let them grow into that coverage, which they would typically do in our underwriting within 12 to 24 months.
So we might skinny that coverage down to 1-4 or even a little below that on an asset that we view as stable with great upside.
Every tenant could be audited, <UNK>, but we don't expect any disruption from RAC audits.
RAC audits have been around for a long, long time and the only reason they have been in the news lately is that the CMS sort of alerted RAC auditors about some new things that they thought they ought to look for.
But those new things aren't really the kinds of things that our tenants are typically dealing with, so no, the short answer to your question is no.
We don't see a big issue there.
We're just staring at it for a minute.
There's a couple new tenants in there in the existing pipe.
Out of eight or nine deals, six or seven of them are going to go to exiting tenants, should we close them, and then the rest would be new folks coming in.
Yes, this is <UNK>.
I can give some color on that since it's my responsibility.
In building out our reporting calendar for this quarter, I incorrectly assumed that we were still a non-accelerator filer.
We actually became an accelerated filer at year-end.
A non-accelerated allows for 45 days, whereas accelerated filer is 40 days and we reported on day 41, so technically, we were non-timely, which required us to file the Form 12b-25.
Yes, that's a great question.
So what we've said from the beginning was that we were going to not try and get our leverage metrics down to where we want them to be all in one jump, that we would ratchet those down, do deals, raise equity, do deals, raise debt equity and try and be smart about it and we have.
That's exactly what we've done, is ratcheted down and so our target range on a debt to EBITDA basis is about 4.5 to 5.5 times.
We might float a little bit above that.
We have the debt capacity to do that on a revolver, to make acquisitions, but we would then want to bring that back down again.
And if we can keep the debt to enterprise in the 30% to 40% range, we believe that's optimal for us and that's where investors would like us to be as well.
So we will not be willing to go too high above those ranges and we will always seek deals that are accretive and worth whatever we're paying for them to make sure that we return value to shareholders when we do.
So we met with them a couple of weeks ago when we also met with S&P and they're just looking, they wanted to see the transition of Pristine into our portfolio and see these first-quarter numbers.
So now that we've reported, I'll be circling back with them and getting a better feel for where they are at.
But when we presented, they had, when they originally came out with their rating, they had given us like five targets, what could change our rating up.
And when we went in and presented the numbers, we felt we checked each one of those five criteria.
So it is the hope that they will see that as well and see the progress that we've made, like S&P did, and give us an upgrade, a notch upgrade as well this year.
Thank you.
Thanks, everybody.
We appreciate you being with us and we welcome you to give us a ring any time you have any other questions.
Thanks, Sabrina, and everyone else.
