Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Second-quarter FAD of $0.68 per share exceeded expectations and is projected to improve further.
- Dividend payout ratio has dropped below 100% and is expected to continue decreasing.
- AFFO guidance for 2024 has been increased to a range of $2.78 to $2.84 per share.
- Successful acquisition of the remaining 51% joint venture interest in 63 UK facilities, now fully owned by Omega Healthcare Investors Inc (OHI, Financial).
- Occupancy for the core portfolio has increased from 74.6% in January 2022 to 80.8% as of mid-July 2024.
Negative Points
- The interest rate on the assumed debt from the UK acquisition is significantly above market rates at 10.38%.
- LaVie filed for Chapter 11 bankruptcy protection, indicating financial instability among some operators.
- The staffing mandate finalized in April poses challenges for facilities to meet requirements, with ongoing lawsuits to overturn it.
- Revenue increase for the second quarter was modest, from $250 million in Q2 2023 to $253 million in Q2 2024.
- The Guardian portfolio required a transition to a new operator due to non-payment in Q1, indicating operational challenges.
Q & A Highlights
Q: Hi. Good morning. Thank you for the prepared remarks and commentary. I was hoping you could share some details of what the investment pipeline looks like today in terms of size, yields, skilled nursing versus assisted living, and then acquisitions versus loans.
A: Sure. So as we indicated last quarter and remains today, our pipeline is very active. We're seeing a lot of deals both here in the States and over in the UK. Our average yield is a little north of 10%, which is consistent with what we're seeing in the market. If you compare that -- as we indicated on the call, we did just over $700 million of deals through July of 2024. If you compare that to last year, we had done just over $300 million of deals through the same time period. So we've more than doubled that. And once again, that's as a result of a very active pipeline.
Q: Are you seeing any more private capital competitors come back to the space? Or are they still largely on the sidelines due to the challenging bank lending environment?
A: So we haven't seen them. So if they've come back, we're not seeing them in any material form.
Q: The equity raise via the ATM in the quarter, I think it was the most in second quarter last year and obviously, as an accretive source of capital to fund acquisitions. And leverage is now sub-5 times. There's plenty of capacity on the revolver. Hoping you could just talk more about how you think of funding investment activity going forward and early thoughts on addressing the 2025 debt maturities.
A: Absolutely. I think your first statement hit the debt. We could do all acquisitions accretively using equity right now, and we want to continue to maintain our leverage less than 5 times. So I would look -- looking forward, we'll continue to do that.
Q: And then just thoughts on the maturities for next year?
A: Yeah. We have $400 million coming up in January 15, and we'll get in front of that similar to the way we got in front of our $400 million that we just paid off in April. So in the fourth quarter, we'll sit down and look at the market to see whether it's bond for bond. But more likely, it would be equity.
Q: I'm wondering if you could give us some more color just on the buyout of your partner's stake in the Cindat joint venture. Can you give us a sense -- were there any capital or liquidity constraints that your partner had that might have been wanting to -- for them to sell their stake, driving force behind that? And then you quoted the interest rate on it. If you were to refi it, I guess, when the back comes due next year, how much benefit from the accretion do you think you'd get?
A: The relationship within the JV, when we first set it up, we had buy-sell provisions. And we just felt like the timing was good from a market perspective to trigger that. The 51% partner had the opportunity to match the bid and take us out, and they elected not to do so. We thought we got it at a really attractive price when you look at 10% yields ultimately on that asset. Unfortunately, it came with a piece of paper that's not all that attractive. Our cost of capital, debt capital would be about 6%. So you look at the differential there, it's 4.38% on $243 million. I mean, that's essentially the pickup with the refi.
Q: Just on the Guardian portfolio. Just wanted to get a sense, is there something that the new operator is doing differently that Guardian wasn't? I thought Pennsylvania was a relatively tough case to operate in, but any color you have there would be helpful.
A: The facilities in Pennsylvania were struggling, I can tell you that. We moved in the second quarter. We set up a unique rent structure that was -- had basically a revenue [kicker] embedded in it if the operator performed well, which they did. The kicker, if you will, kicked in in the second quarter. We were able to receive the higher rent, and we expect that to go forward through the remainder of the year.
Q: You have a decent number of mortgage and other real estate-backed investments maturing in '24 and '25. Can you talk about the plans for those and the opportunity to refi -- to put that capital to work at a similar rate or how you think that plays out for earnings?
A: So we've got -- they're one thing mortgages that are coming due over the course of the next, call it, 12 months. No one in particular is that material. We expect some of those to pay off, and we expect some of this to be extended. I don't think we're going to see a lot of dollars rolling back, but yeah, there were short-term volume ones for the most part, a little mess sprinkled in there.
Q: The investment environment has been pretty favorable this year. Can you talk about what you're seeing more in -- particularly in the UK, where it seems like you've had more opportunities recently? How much do you think you might put to work there and what the opportunity set looks like going forward?
A: Both the States and the UK is quite active right now. I think what we have going for us in the UK is that there's not as many capital players over there just yet. I mean, they had a quicker recovery overall from COVID. So we got in there pretty quick, and we haven't seen a lot of capital players come into that market yet. So we're able to pick and choose. And we're being opportunistic at this point in the UK, looking at really all facets of there-ons.
Q: Can you just give an update on the Second Avenue Maplewood project, what your thoughts are on lease up, how you think that develops into the back half of '24 and early '25?
A: Yeah. So Second Avenue continues to ramp up in a market where there's a lot of new products. I mean, we're the first in, but there's three buildings that followed us in Manhattan. And we're doing well, 67% occupied and will continue to trend up. But remember also, the building has matured so you have residents that pass away and are being backfilled with new residents. So it's -- I'm not sure. It's tough to predict when we get to 90%, but there's certainly a pathway and they continue to do well.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
