CareTrust REIT Inc (CTRE) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the CareTrust REIT Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that this call may be recorded. (Operator Instructions)

I would now like to hand the conference over to Controller, Lauren Beale. Please go ahead.

Welcome to CareTrust REIT's Fourth Quarter and Year-End 2019 Earnings Call. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein. Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust's SEC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC Regulation G. Except as required by law, CareTrust's REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason.

During the call, the company will reference non-GAAP metrics such as EBITDA, FFO and FAD or FAD and normalized EBITDA, FFO and FAD. When viewed together with GAAP results, the company believes these measures can provide a more complete understanding of its business but cautions that they should not be relied upon to the exclusion of GAAP reports.

CareTrust yesterday filed its Form 10-K and accompanying press release and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust's website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period.

Management on the call this morning include Bill Wagner, Chief Financial Officer; Dave Sedgwick, Chief Operating Officer; Mark Lamb, Chief Investment Officer; and Eric Gillis, Director of Asset Management.

I will now turn the call over to Greg Stapley, CareTrust REIT's Chairman and CEO.

Thanks, Lauren, and good morning, everyone, and thanks for being on the call with us today. 2019 gave CareTrust the opportunity to evolve and make changes that we believe position us well for the next phase of our growth. We do worry sometimes that the noise that we experienced in the second half of the year might mask the fact that 2019 was our biggest year ever for acquisitions with over $340 million in new investments made in the year that we're very excited about. More importantly, and part of the reason we're excited is that we made them with outstanding operators who are doing a good job in those facilities. 2019 also required us, as I alluded to, to face some hard realities as we looked across the portfolio. We are pleased to report that we've completed all of our previously announced portfolio changes, re-tenanting some facilities and disposing of others. We also had one unexpected mortgage loan prepayment in the fourth quarter, and we now anticipate another early repayment in the spring. The team will walk through those details in just a minute. The goal, as a reminder of these efforts, has been to rinse out any softness in our portfolio, just to be sure that we always have a solid foundation to build on.

Proceeds from dispositions and loan repayments are already being recycled into more desirable assets with the superior operators. Naturally, until we fully deploy the additional capital, our revenues might run slightly behind where we were before the changes were undertaken. But we're working hard to replace them as aggressively and responsibly as market conditions will allow. Our success in making these changes has reaffirmed our belief that principles of sound stewardship requires not only to grow and diversify earnestly but to also prune the portfolio responsibly from time to time. It also reinforces our commitment to aggressively tackle small problems while they're still small. To that end, we continue to monitor and interact with all of our tenants frequently.

We believe the rigorous application of these operating philosophies will produce the best overall long-term results for CareTrust and our shareholders. In addition, we expect this approach to continue fostering an atmosphere of accountability and high performance, both for us and our operating partners, while helping us build a strong, healthy and expanding organization that can stand the test of time.

With that, I'd like to turn some time over to Dave to talk about the changes we've made in current operations, then Mark will discuss recent acquisitions in the pipeline and Bill will wrap up with the financials and guidance. Dave?

Thanks, Greg, and good morning. On our last call, I provided detailed color on the actions then underway to derisk the portfolio. With the exception of Metron in Michigan, all of those actions were completed in the quarter as I described. We're now watching the performance of the facilities we retained and repositioned closely and are encouraged by most of the progress to date. As a reminder, in Ohio, we moved 4 facilities from Trillium to our master lease with Providence, we recast Trio's rents in their 7 facilities and we sold the remaining 3 Ohio assets to CommuniCare. Our Ohio facilities are now largely performing as expected with these operators. They still have ground to cover before we consider them stabilized, but we believe they're on the right path.

In our seniors housing segment, we replaced one operator with Noble Senior Services without any drop in rent given the incoming operator's outlook for the portfolio. It's still early, but we're encouraged by some of the improvements we've seen to occupancy out of the gate. We'll continue to monitor all of these tenants and their operations closely to be sure pro formas are consistently met and they're on their way to reaching their full potential.

Finally, with regards to Metron, I said on last quarter's call that we expected to sell the portfolio sometime in Q1 of this year. I'm pleased to report that we closed on the sale of all 6 facilities last Friday, February 14, for $36 million. In order to expedite the transaction, we provided short-term seller financing, receiving roughly $3.5 million in cash at closing and carrying the balance of 7.5%. We expect the mortgages will be paid off by March 31.

This quarter continues what we believe is the new gold standard for reporting with our top 10 tenant lease coverage slide in our supplemental. We're showing you EBITDAR and EBITDARM coverage by tenant for approximately 84% of our annualized rental revenue. One quarter to the next does not make a trend. But with time, you'll be able to have a stronger sense of how these operators are performing.

Looking at the broader industry, there are basically 3 areas of interest to us and our operators: first, PDPM; second, CMS' recent statement about Medicaid; and third, the impact of these things on deal flow, which I'll let Mark discuss.

First, regarding PDPM, it's really too early from our perspective to make conclusions about PDPM's impact on the industry as a whole. There's certainly anecdotal evidence that some providers have benefited from PDPM as expected with improved daily Medicare rates and lower therapy costs. We've also heard others have been hurt by it. So we're frequently asked whether PDPM might significantly miss its budget-neutrality target prompting a take-back or other draconian change by CMS. We believe that PDPM's change to set rates from patient characteristics rather than from therapy volume is a much better approach and will produce better outcomes, and we applaud CMS' efforts here. So even if the budget projections turn out to be a little bit off, we hope and expect that CMS will have the flexibility to thoroughly assess the impact before making adjustments, if any.

Second, we've also lately been asked quite a bit about CMS' recent comments about their proposed Medicaid Fiscal Accountability Rule, or MFAR. We believe that recent comments by CMS reassuring the industry that they have no plans to cut Medicaid payments or otherwise pull the rug out from under those states with supplemental payment systems should effectively allay fears of a significant impact in the near term. We don't expect the conversation to go away, however, and we'll be tracking the discussion as it affects the states where we have assets.

And with that, I'll hand it over to Mark to talk about the pipeline. Mark?

Thanks, Dave, and hello, everyone. In Q4, and since, we have closed approximately $48.5 million in new investments. This includes a 70-bed skilled nursing facility located in Modesto, California, for which we paid $8.7 million and a 99-bed SNF and 72-unit assisted living facility campus in Sacramento that we picked up for $14.2 million, both of which have been leased to our existing tenant Kalesta Healthcare. Scheduled cash rent for the first 2 years of approximately $3.9 million has been added to Kalesta's master lease with us, and both facilities are performing ahead of expectations.

We deployed $18.5 million to acquire Cascadia of Boise, a brand-new state-of-the-art 99-bed skilled nursing facility located across the street from Saint Alphonsus Medical Center in Boise, Idaho, adding $1.67 million in new rent to our master lease with Cascadia Healthcare. You may recall that we jointly developed this asset with Cascadia under a preferred equity financing arrangement, which allowed us to get the property at an advantageous price while allowing them to lease it from us at a rent that was below market for a new asset of this quality. This was our second new build with the Cascadia team, and we look forward to more new construction with them in the near future.

Lastly, we just acquired Barton Creek Assisted Living, a 62-unit memory care facility located on the campus of Lake View Hospital in Bountiful, Utah. We leased Barton Creek to our outstanding existing senior housing tenant, Bayshire Senior Communities, adding just under $600,000 in rental revenue to their master lease with us. We look forward to further growth with Bayshire as well. The numbers quoted for all these deals were inclusive of transaction costs, and the initial cash yields are all disclosed in our supplemental.

Our total investments for 2019 exceeded $340 million, which was our best year ever, all at a blended yield of 8.8%.

Turning to the market. We've seen it heat up a bit over the last few weeks, but prior to that it was very slow, especially on the SNF side. As Dave mentioned, we suspect that some SNF operators who might otherwise be sellers have been on the sidelines waiting to see how PDPM might shake out. We believe this is a temporary phenomenon, but it might be making deal flow a bit lighter at present. It certainly makes valuation of the deals we do seem a bit more complicated in the short run. We are working through that, and we have no reason not to expect to get our fair share of acquisitions this year.

On the senior housing side, there are plenty of assisted living and memory care deals out there right now, but most don't fit with our or our operators' objectives. So meaningful opportunities for us in that asset class have been fewer and farther between. But we are getting a few, as you just saw with the Barton Creek deal, which we are very excited about. The pipeline, as we sit here today, is right around $150 million and consists of a few singles and a few small- to mid-size portfolios. We anticipate placing a majority of the buildings with our existing operating partners, but we anticipate bringing some new relationships into the CareTrust family as a result of these opportunities in the pipe, operators who we know very well and have had substantive conversations with over the past few years. Please remember that when we quote our pipe, we only quote deals that we are actively pursuing, which meet the yield coverage and other underwriting standards we have in place from time-to-time and then only if we have a reasonable level of confidence that we can lock them up and close them.

And now I'll turn it over to Bill to discuss the financials.

Thanks, Mark. For the quarter, normalized FFO grew by 20% over the prior year quarter to $32.5 million or $0.34 per share, and normalized FAD grew by 22% to $34.1 million or $0.36 per share. Our payout ratio remains at or among the lowest of our peers at approximately 66% on normalized FFO and 63% on normalized FAD. Leverage continues to be at all-time lows, at a net debt-to-normalized EBITDA ratio of 3.3x and a net debt-to-enterprise value of 21% as of quarter end.

Updated guidance for 2020, we expect normalized FFO per share of $1.32 to $1.34 and normalized FAD per share of $1.38 to $1.40. This guidance includes all investments and dispositions made to date, expected loan payoffs in Q1 of approximately $32 million, the sale of our one remaining independent living facility in Q1, a diluted weighted average share count of 95.6 million shares and also relies on the following assumptions: one, no additional investments or dispositions other than the ones I mentioned nor any further debt or equity issuances this year; two, inflation-based rent escalations, which account for almost all of our escalators at an average of 1.75%. Our total rental revenues for the year, again, including only acquisitions made to date, are projected at approximately $167 million, which includes $77,000 of straight-line rent. Lastly, not included in this amount are tenant reimbursements, which we previously accounted for on their own line item in the income statement. Due to the new leasing standard, this is now grouped with rental revenues.

Three, interest income of approximately $1.3 million. This is down $2.5 million due to an unexpected loan payoff in Q4 of last year as well as the now expected payoff of the loan we made to CommuniCare when we sold them 3 Ohio assets. This decrease was slightly offset by the short-term loan we made in conjunction with the sale of our Michigan assets.

Four, interest expense of approximately $26 million. In our calculations, we have assumed a LIBOR rate of 1.75% and a grid-based margin rate of 125 bps on the revolver and 150 bps on the 7-year term loan. Interest expense also includes roughly $2 million of amortization of deferred financing fees.

And five, we are projecting G&A of approximately $13.9 million to $15.8 million. Our G&A projection also includes roughly $3.7 million of amortization of stock comp. This range is up approximately $2 million on both the low and the high end from our previous guidance due to expected new hires we intend to make to strengthen our team and increased wages and stock comp.

Our leverage and liquidity positions continue to remain strong. We did not sell any shares under our $300 million ATM that we put up last year, and our revolver balance currently sits at $75 million. So our credit stats calculated on a run rate basis as of today: our net debt-to-EBITDA is approximately 3.6x, leverage is about 20% of enterprise value and our fixed charge coverage ratio is approximately 6.4x. We also have $12 million of cash on hand.

Finally, you'll notice that we put back into our Q4 supplemental the portfolio performance by asset type based on all the feedback we received since we last took it out.

And with that, I'll turn it back to Greg.

Thanks, Bill. There's one more bit of news we'd like to share with you before we open up for questions today. While our first priority will always be the creation of long-term value for shareholders, we believe that sustainable development practices and consistent attention to social and governance priorities can help enhance that value over time. We're pleased to report that yesterday we published a number of policy statements covering corporate responsibility. While many of these statements simply memorialize our existing practices and philosophies, the exercise has given us the opportunity to get these core values on paper and share them both internally and externally.

Among other things, we've updated our internal code of conduct and business ethics. We've also crafted a vendor code of business ethics, and we'll soon begin distributing it to every vendor with whom we have a material relationship. We likewise have memorialized our positions -- our policies on human rights, human capital and environmental responsibility. One of the more unique policies is our new tenant code of conduct and corporate responsibility. It creates a model for a new kind of responsible partnership between triple net landlords and tenants. We believe it is a first of its kind document for a fully triple net non-shop non-RIDEA REIT. Our hope is that this partnership approach will allow us and our triple net tenants to make cooperatively the kinds of positive changes that landlords who have full control over their properties can make unilaterally. We also hope that it may actually distinguish us as a more attractive capital partner for prospective tenants in the future. This will be an ongoing project and actually implementing that program and procuring volume from tenants will take some time. So going forward, we will be working on a periodic reporting pattern that our stakeholders can look to in order to gauge our continued progress on this front. And all of these policies can be found on the Investors section of our website.

We hope that this discussion has been helpful to you. We thank you again for your continued interest and support. And with that, we'll be happy to answer questions. Michelle?

(Operator Instructions) Our first question comes from Chad Vanacore of Stifel.

This is Seth Canetto on for Chad. Dave, in your opening commentary, you mentioned MFAR, the Medicaid Fiscal Accountability Rule, can you just tell us how much of that revenue in your existing portfolio could be impacted by that? I think it impacts Texas, Utah and Indiana.

Yes. So MFAR is -- yes, at this point, we've seen really unified opposition from hospitals and insurers and everyone, even bipartisan opposition from governors to senators to the rule as it's been written. The public comment period closed on January 31, and CMS now has about 4,000 comments to go through before they decide whether to finalize the rule or change it. We don't expect that there will be significant impact based on everything we've read so far. There's basically the provider taxes methodology, which is largely employed by almost all the states. If there's a problem that CMS has with a particular state's criteria, they're going to have time to change how they do things to show that there is quality outcomes as part of the measurement or whatever CMS is looking for. So we don't expect that to go away. I think the UPL component is probably the one that's the most largely at risk. But again, there's going to be a period of several years for these operators and states to work out something or transition to something else away from UPL to something else to protect that revenue. The Medicaid revenue, as you know, in skilled nursing is just not rich enough to cut. Medicaid knows that. They've signaled that they're not in -- their intention is not to cut the Medicaid funding from this. And so we think it's really an attempt for transparency and accountability that CMS wants to see. So we're not really projecting or giving out any guidance or numbers as to a threat to the cut in revenue. That we don't expect.

Okay, great. That's very helpful. But does it impact your underwriting of potential acquisitions in certain states?

Seth, it's Mark. I think if you look at states that are affected by UPL, you have states like Texas, which is -- kind of has something called QUIP. And we don't underwrite QUIP into our new acquisitions. So I think other states that -- it's a little bit more embedded, say, maybe Idaho or Montana. In there, we're very careful in terms of how we use that revenue stream and how we value that revenue stream. But like most of our peers, we don't ever value UPL as we look to acquire assets.

Okay. Perfect. And then just shifting to the top 10 operators in your portfolio. I think it was [well sung] that you guys provide the coverage metrics for those. But if I look at it, it seems like most of the operators are flat to slightly up, which is great. But the 2 that jumped out to me were the Providence Group coverage and the Premier. And I know we talked last quarter that you mentioned Premier has one building in particular that's causing a temporary drag on their coverage, but is there anything else meaningful that's dragging down that operator? And then should we expect Providence Group coverage to rebound from PDPM?

So with regards to Premier, the story there really hasn't changed from last quarter. So we would expect to see coverage start to stabilize here in 2020 as those regulatory challenges that they had were kind of throughout 2019 for the majority of the year. So you're probably not going to start to see that until we start to see Q1 numbers come in, which you're not going to see until Q2. And then with regards to Providence, yes, the dip there is really -- simply ties to the addition of the Ohio portfolio that they stepped into. That dragged their coverage down, and they'll take their time to stabilize that part. The buildings they're doing as they expected when you take over some underperforming assets, it takes a little bit of time to get those things stabilized. And so we're not concerned about that. We think that, that's going to eventually in 2020 start to show better coverage.

Our next question comes from Jordan Sadler of KeyBanc Capital Markets.

I just wanted to follow up on the coverage. I guess I saw it a little differently sequentially. I know this has been outside of sort of Ensign that we don't see that sequential softening, but I know that it's only through 3Q. I'm just kind of curious in terms of the expectations as we go forward, will the recent trends be sustained or you think, ultimately, there will be a reversal either following reimbursement or just as a result of sort of the individual business plans with some of the operators that you've signed on over the years?

Well, Jordan, I'd say each of these operators has their own unique story and hard to paint a broad brush over all the top 10 tenants. So I guess what we could say is that -- what I would expect if I were you is to see coverage kind of go up and down slightly from quarter-to-quarter for a whole host of reasons that operators have good quarters and then some challenges and -- so we don't expect to draw much in terms of the conclusion from one quarter to the next. But as you string 4 or 5 quarters together, you can really see how these guys are performing.

Okay. And then as it relates to the pipeline, Dave, I guess, while I have you here, maybe, Mark, you want to jump in. What is the expectation in terms of timing based on sort of your commentary about what we're seeing in the fourth quarter and sort of expectations potentially of sellers versus of you guys and any buyers in the first half of this year?

Yes. So I think you can bifurcate. There's a lot of senior housing and assisted living out on the market. So I obviously stated that in the prepared remarks. On the SNF side, we have seen an uptick over the last couple weeks in the pipeline. I'm not sure if that's operators coming off the sidelines from PDPM, they've kind of seen enough and they're ready to sell. Or if folks were just looking to get pieces of their portfolio of fixed. So we're a little bit unsure as to why the uptick has taken place. But we are encouraged by the deal flow that has come in of late. And we obviously head into the NIC in 2 weeks and would expect to see additional deals there. So we're cautiously optimistic that we're going to start to see kind of more normalized flow in skilled nursing deals that we've seen in the past.

Jordan, it's Greg. Let me just add that -- and we've already indicated that the latter part of last year, the deal flow felt kind of light. And so as the pipeline just starts to refill now, you can probably anticipate that the acquisition volume will probably be loaded toward the middle and back of the year more heavily at this point, assuming that what we're seeing right now holds.

Can you characterize the uptick? Is it many individual like one-off and one- and two-off sort of properties that have come to market over the last year-to-date? Or has it been a couple of portfolios that have come to market that have characterized the tick up?

Yes I think -- yes. So it's all. So it's continued divestitures of nonstrategic assets for regional operators. It's maybe a mom or pop that are looking to exit. And then you have small- to mid-sized portfolios of, say, 4 to 10 assets that you have groups that are looking to get out altogether. So it's not -- I think, obviously, cap rates are what they are, particularly in certain regions, California, the Southeast, the Mid-Atlantic, still are very, very competitive from a geographic perspective. So -- but there's not -- it's not like a flood of mom-and-pops or it's not a flood of, say, traditionally Medicaid operators. It's really kind of a catch-all of people paring down their portfolios and then some people just getting out of the business.

Our next question comes from Steven Valiquette of Barclays.

So 2 questions here. First, this one's kind of long-winded, so I apologize in advance. But just your comments around PDPM were helpful. And just a quick follow-up question on that topic is really just given the timing each year of when proposed rate updates come out, let's say, around May 1 each year for proposed rates and final rates published around August 1, my personal view is that there was probably only a small chance that CMS would have enough data to really make any sort of well informed decision around hitting versus missing budget-neutrality targets to change SNF Medicare reimbursement for fiscal '21 related to PDPM. So I guess the question is, whatever the revenue and profit trends are for SNF operators in the first 6 months around PDPM, do you and/or industry insiders, in general, think it was realistic for CMS to make any quick adjustments to SNF reimbursement for fiscal 2021 over the next 6 months or so? Or would they more likely want to see 1 to 2 years of financial trend to make an adjustment for maybe fiscal '22 at the earliest? Hopefully, that question makes sense.

Yes, it does. We think it's less -- we think it's more likely that they would not be making a big decision based on the limited information they've received so far. So we agree with you there. We think Mark Parkinson, recently Head of AHCA, has basically suggested the same. So we would be surprised if they made a major change later on this late summer, early fall. Although -- however, there's precedent for being surprised by CMS. And so you can't sleep on it. But the short answer is, yes, we agree that it would be surprising based on limited information that they have so far to make big changes.

Okay, that's helpful. And then just a follow-up quickly on that last line of discussion around SNF transaction flow overall across the industry. There was another large health care REIT company that talked about today's skilled nursing market pricing is so hot, they'd rather be a seller instead of a buyer. I don't know if that was a comment that you caught or not, but just curious if you want to comment further on if other operators have that view, how you kind of think along those lines -- not operator but another REIT, just to be clear, sorry about that.

Yes. Yes, Steve, it's Greg. I think that's an interesting comment. All of our lease -- all of our properties are subject to long-term leases. And if we had a tenant who was actually doing so well that the property was -- could go out and command a super high price, we'd have to not only probably split the -- any gain on a sale with them just to pay them to terminate their lease, but we'd have to give up a very good lease with very good coverage. So we would not be sellers of good assets in this market, the kind that would command those kind of premiums. And -- but on the other side, it sure is making it challenging to find assets that we can get into at the right price. We're getting them, but it is hard work and requires us to be out there beating the bushes pretty hard. So the $340 million that we did last year in acquisitions, which was predominantly SNFs, was significant for us. And we hope that we can replicate that or something like it this year.

Our next question comes from Michael Carroll of RBC Capital Markets.

Greg, I want to touch on, I guess, in the earnings release you kind of highlighted that there are a few tenants still on your watchlist. Can you provide some color to that? And how should we think about that? How big are those tenants and why are they on your watchlist?

Yes, I think I'd characterize them as smaller tenants, Mike. And we said in the past, and I know it's probably not appreciated, but we've said in the past that everybody is on our watchlist, but I know what you're asking. And we do stay close to them and -- but there are a couple of tenants, there are the obvious ones. I mean you can look at the top 10 list and see a couple of depressed coverages there that have been on our watchlist for a while. Dave has already talked about what the prospects for those 2 tenants are. In the non-top 10, we're still watching like the new -- Noble, the new tenant that we just brought in, they're doing a great job. And -- but it's -- that's still a very fresh relationship and so we tend to stay closer to it.

But beyond that, I mean, the portfolio is pretty stable, and things are going fairly well. Even the ones that you see there up in the top 10 list, there's a very good reason why Providence is as depressed as Dave described. [It's layered] in some turnarounds into their coverage. And that was basically 1 month, it was only September. They took over September 1 in those 3 Ohio assets. So their coverage you might see going forward when the fourth quarter drops in, could be even a little bit lower, but it's really not cause for alarm because the rest of the portfolio is doing fine, and it just affects the full quarter in those 3 assets on the overall number. And then Premier, we still really like those guys. We're happy that the regulatory issues that we described to you before seem to be behind them now. And it will take a little while for that coverage to pop back up because, as you know, we report coverage on a quarter lag. But it is onward and upward for them right now. And we're cautiously optimistic, but staying super close to them and every little thing that they're doing, which we can't direct, but we can sure monitor closely for progress and to be sure there is no further cause for concern there. Is that helpful?

It is. So I guess, I just want to make sure I understand. So there's nothing new that you're tracking necessarily. It's just tenants that have tight coverage or recently transitioned that you're staying close to, but not necessarily expecting any type of problems here in the near term?

Exactly.

Okay, great. And then, Bill, can you talk a little bit about the guidance change? And I picked up, I guess, your G&A is up $0.02 for expected hirings. Can you talk a little bit about that? Who do you plan on hiring? It seems to be a pretty big tick up in G&A. Is this a senior person or is it just multiple lower-level people to keep up the growth?

Yes. I'm going to take that one, Mike. We -- I don't think it was full two cents for new hiring. There's some additional comp in there that started to flow in, stock comp and other things that's impacting that. But we've -- if nothing else, we hope we're a learning organization. And as we've progressed through some of the challenges that we had in the latter half of last year, we've come to realize that we are going to have to evolve a bit in order to prepare for the next 5 years. So we are -- we've run this thing kind of on a shoestring with a skeleton crew for a while. And it's just going to take a little bit more going forward as we mature. So we are going to be changing some of Eric's roles and he's been our Director of Asset Management and Portfolio Management and Tenant Relations and has been wearing a lot of hats. And we actually want to expand what Eric is doing for us, which means that we need to come back and backfill with some additional strength on the asset management side. So we're going to be out here in near term, looking for help in asset management and we expect that to be a fairly senior level person or people to help us sort of get to where we really want to be as a growing REIT.

Okay, great. And then just last question for me is, did you disclose the expected loan payment that you plan on receiving in spring? I mean, how big is that? And is there a specific operator that relates to?

Mike, it's Bill. Yes, that loan is -- relates to the 3 properties we sold to CommuniCare. We now expect their financing to come through a lot sooner than what we had previously anticipated. And that's really 2 loans. It's a mortgage loan as well as a working capital loan, and they total about $32 million. And now we expect to get them just after Q1.

Our next question comes from Connor Siversky of Berenberg.

Just a quick question on the property you picked up in Utah. Can you just touch on some of the market dynamics there, maybe what you like, what you don't like? And is there somewhere you'd be looking to expand the portfolio in the future?

Yes, this is Mark. I think in that particular part of Salt Lake City, just north of Salt Lake City, one, the facility is located on-campus of the hospital. There's a class A brand new build that is kind of attracting a different type of customer. And the property that we picked up is, I would say, kind of A-minus, B-plus, and it's going to be a little bit more affordable, great physical plant, great location with respect to amenities and ancillary services. And just allows our operator who had a desire to grow his footprint up into Utah. We've seen opportunities up there in the past and just haven't been able to pair the asset with an operator that we liked. And so in this instance, the stars somewhat aligned and our operator really felt like he could bring his model of working closely with health systems and insurance companies as well as, obviously, the private pay patients that were already there inside the facility. So he felt like he could bring his model that he's proving out here in Southern California and can expand it to Utah.

All right. And then just a little more general skilled nursing, the Certificate of Need laws. Are you seeing any plans or maybe any narrative of relaxation to the law in any particular states?

No, not -- I think there had been talks about -- in Texas, they were handing out [bed] licenses and better rights maybe 1 year, 1.5 years ago a little too easily. We've seen that kind of pare back a little bit. There's some discussion last year when the legislative session was open that maybe they would put some sort of stay on the ability for developers to attain better rights. But that obviously didn't even make it to the floor. So I would say that's probably the last -- those were the last whispers that we have heard in the states that we know well, but no other discussions that we've heard of.

Okay. And one last one for me. Looking at 2019 investments, blended yield 8.8%, are you comfortable at that level? Would you go any lower? Or just kind of provide some kind of color going forward.

Yes, this is Greg. It's interesting, we were just having a conversation about that yesterday and wondering if the lower cap rates demands that we're seeing from sellers are sort of becoming a new normal. I don't think we -- I don't think it is, but it might be a little too early to tell. So look, what we've said recently and still believe is that while yields are important, coverage is more important. And so we've increasingly placed a stronger emphasis on coverage going into the deals that we've been going into lately. And if that means that we give up some yield and go below 9%, below 8.8% to get that, we're comfortable with that. Our cost of capital has been steadily ratcheting down over the past couple of years. And we can still feel pretty good about our ability to get the spreads that we want, even at lower cap rates and higher coverages.

Our next question comes from Todd Stender of Wells Fargo.

And then Greg, kind of in that theme of coverage with the newly built Cascadia of Boise. To make that financial commitment a couple of years ago, you obviously had some underwriting and some coverage assumptions. How does that play out compared to maybe what you'd underwrite it today?

I'm going to let Mark take that one, Todd.

No, I think it's -- they're obviously -- the building is still maturing. I think when we closed on it, the occupancy was probably low 70s. Skilled mix was, I think, kind of mid-teens. So we expect probably on the skilled mix side that will level out probably in the mid-to-high 20s. In occupancy, we would expect to see probably in the high 80s, low 90s. So we feel like there's definitely some runway left for that asset. Cascadia's overall portfolio coverage is very, very strong. So we're not -- we actually triggered the option, call it a little bit earlier because their coverage was so good and that allowed them to kind of keep rents at numbers that they felt like were manageable, but then also felt like our coverage still had room to run. So I think it will be interesting when that asset levels out, it will be -- should -- we would expect it to be well north of $1.5 million.

All right. That's helpful. And then not sure if I missed this, with the Priority Life Care transition to Noble, we see a lot of transitions just with operators getting swapped out. And this one sounds like the way you guys describe it, no rent leakage, but certainly, there's a lot of mechanics behind this. Can you speak to Noble? Can you speak to what triggered the transition? And then maybe any financial or CapEx commitment you're making to the facilities?

Well, sure. What triggered the transition was a conversation last year with the outgoing operator Priority Life Care about their outlook for the facilities and their strategic decision as a company to want to focus more on kind of the consulting and management fee business as opposed to owning the operations outright.

We took that opportunity to look for a new operator and found Noble. And we've been really pleased with them. We've committed some CapEx dollars to these facilities and will help them to reach their goals of maximizing the census potential that's there. It's kind of a story of an operator that is switching their strategy and at the same time finding another operator whose strategy really fits these buildings perfectly well. And so we were able to make that change.

All right. That's helpful. And just last one. The seller financing that you're providing for Metron, the loan payoff period seems pretty tight. They have to pay it back by the end of March. I assume they're not getting HUD financing, that takes forever. But what kind of access to capital do they have? And if they don't pay it off on time, what are some of the assumptions there?

Yes. So they're going to be pursuing a bridge to HUD financing. And really the only reason we stepped in to do the seller financing like we did is because a couple of things. It really brought certainty to the transaction as soon as humanly possible after the state of Michigan approved the CON and the licensing would be approved. So we wanted to -- as soon as we got that approval, we wanted to be able to close just to bring certainty and closure to the deal. And it provides us with a little bit more income as we'll be able to get interest income for the second half of February and all of March that we wouldn't have gotten otherwise. So that's really what was behind it. It's just being able to bring this transaction, which had -- which is a lengthy process, particularly with all of the dynamics involved with this operator and in Michigan, to an end.

(Operator Instructions) Our next question comes from John Kim of BMO Capital Markets.

I was wondering if you could comment on Premier and its ability to stay current on rents. It looks like your assets would then represent almost half of their managed communities. And I know you expect some stabilization, but I was just wondering about their financial stability.

Yes. We -- I'm not sure that we can say much more than the color we've given last quarter and on this call today. They're current. We've got personal guarantees. They are performing better today than they had in the quarters that you're looking at on the coverage slide. So we don't have any reason to believe that they won't be able to continue to pay the rent.

I think, Bill, you mentioned on an earlier answer to a question about the CommuniCare loan being paid down early, but I thought you mentioned on the last call that you expected that to be paid down in March. So I just wanted to clarify that statement.

In our -- on the last call, I had that CommuniCare loan being paid off later in 2020 than what I have in this round of guidance. So if I misstated, then I apologize. I don't think I did though.

I wasn't sure if it was that or it was related to the Trillium financing. So I'm not sure if that's the same assets.

No. Both the loans -- the loan that got paid off in Q4 as well as this CommuniCare loan I had extended in the back half -- I had being paid off in the back half of 2020. And that's accounting for about $2.4 million to $2.5 million of change from last quarter to this quarter in the guidance.

Have you utilized the ATM in January?

No, we have not.

Is there anything we should read into that, just the lack of utilization, both at the fourth quarter and this year as far as potential timing of acquisitions?

I wouldn't read into it. I mean our net debt-to-EBITDA is at an all-time low. Interest rates are an all-time low, to use a little -- to run the line out a little bit is -- seems practical to me. But again, the ATM is another great tool in our toolbox.

Yes. John, it's Greg. I would just add that we've always viewed the ATM as a perfect vehicle for match funding our acquisitions. But if you look at what's happened, we've had some acquisitions in the past 4 months, but we've also had the loan repayments and the sale of Metron coming and just felt like we didn't really need to turn the thing on because we were going to have the capital to redeploy. So that's really the whole story right there.

So as far as acquisition volume on a net basis this year, do you think it's going to be closer to $340 million like you did last year or $112 million like the prior year?

We sure hope so. I mean, it's so hard to make a prediction like that, John, because you can have a pipeline that's $340 million and think that you're going to close most of it and then for some reason you only close a little of it. So we'll announce those deals as they come. We certainly have our own hopes and goals. But it is definitely a tough environment out there, tough -- it's a bit of a seller's market and PDPM creates sort of a complication overhang on valuations. And we're just working through all that. But as we said in our prepared remarks, we do believe that we will get our fair share of the transaction volume.

There are no further questions. I'd like to turn the call back over to Greg Stapley for any closing remarks.

Thanks, everybody. We really appreciate you being on the call today. And if you have additional questions, you know where to find us. We're always open to talk. We'll be out and about over the next few months at several conference -- investor conferences and other things. So we look forward to seeing you. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.