CareTrust REIT Inc (CTRE) 2020 Q1 法說會逐字稿

Welcome to CareTrust REIT's First Quarter 2020 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 environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters and may or may not reference other matters affecting the company's business or the businesses of its tenants, including factors that are beyond their control, such as natural disasters, pandemics such as COVID-19 and governmental actions. The company's statements today and its business generally 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 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 F-A-D, 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-Q 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, Vice President of Portfolio Management and Investments. I will now turn the call over to Greg Stapley, CareTrust REIT's Chairman and CEO.

Thank you, Sylvia. Good morning, and welcome, everyone. We'd be remiss if we didn't start today's call with a tribute to the nation's healthcare providers, particularly the frontline staff who are working tirelessly to protect and care for individuals affected by COVID-19. We're especially mindful of the caregivers in our nation's skilled nursing and assisted living facilities who are giving their all to protect the most vulnerable segment of our society. We're gratified by the outpouring of support we have lately seen for them and the great job they're doing under extraordinarily difficult circumstances.

We would also caution in the strongest possible terms those few critics who have not walked in their shoes and who should become much better informed before forming or expressing opinions on what should or should not be expected in these care environments during the current pandemic. With the exception of a few isolated cases, to get all the media attention, our nation's skilled nursing and assisted living providers, from the senior management to the front lines, are doing a remarkable and praiseworthy job.

We're also grateful for our Federal and some state governments who worked quickly to provide financial support and regulatory relief. These common sense adjustments are helping providers deliver the best care possible while dealing with a highly transmissible and initially poorly understood contagion. We applaud the supplemental payments made to date and urge policymakers everywhere to increase their focus and to direct their ongoing funding decisions towards skilled nursing and seniors housing providers who are protecting our most vulnerable elderly and infirm.

We believe that until an effective vaccine is widely available, focusing on rigorous testing and prevention in these places, the very places where a large percentage of the virus target demographic live, will do more to stop the spread and reduce the mortality rate than almost any other effort we can make. Knowing who is contagious has been the missing puzzle piece from the beginning. And when it comes to actually saving lives, the value of immediate result, point-of-care molecular testing cannot be overstated.

I also want to acknowledge the efforts of our outstanding portfolio management team in helping our operators and other friends across the industry as they continue to battle through the pandemic. Dave and Eric, in particular, have stayed close to our tenants. And through these frequent conversations and their own deep backgrounds in healthcare operations, they understand the unique challenges our operators are facing in a very personal and insightful way. Dave will tell you more about it in a moment, but let me just say how proud I am of the way they marshaled our resources to quickly help our tenants get ahead of the curve as worldwide PPE shortages begin to spiral out of control. And we'll continue to look for ways to help and support these tenants.

As for CareTrust, I'm pleased to report that the company is in good shape today, with rents coming in as expected, low leverage, no debt maturities on the horizon before 2024, over $0.5 billion in availability on our revolver, around $45 million in cash on hand, and a payout ratio of only 71% on normalized FAD, notwithstanding the 11% increase in our dividend recently. We are very liquid and well positioned to weather the present storm. While we intend to retain ample liquidity to see us through, should the current environment persist longer than expected, it is exactly for times like these that we keep some dry powder on hand. And as Mark will outline in a moment, we are in a position to continue pursuing compelling opportunities to grow.

Bill will talk about it in greater detail, but let me just say a word about guidance. With much related to the pandemic still unresolved, we acknowledge that any annual earnings guidance offered at this time would seem speculative at best. However, with the support our tenants are receiving, it appears possible that our previously issued guidance could be achieved, although we caution that the unknowns still loom large and will continue to do so for some time.

Believing that the active withdrawing guidance could be regarded as a form of guidance in and of itself, we are accordingly neither updating nor withdrawing our prior guidance. But we are adding the caveat that significant changes in economic and other factors related to the COVID-19 pandemic and the government's responses thereto could alter our outlook in the future. Of course, you knew that already, and it probably feels like we've given with one hand and taken away with the other, but we simply want to convey that despite all the uncertainty, there is a possible path through this for us and our tenants and they and we are working very hard to make that happen.

With that, I'd like to turn some time over to Dave to expand upon COVID-19's impact on the industry and our portfolio. Then Mark will discuss recent acquisitions in the pipeline, and Bill will wrap up with the financials. Dave?

Thanks, Greg, and good morning. I want to spend my time with you addressing the common questions we've been receiving related to the pandemic's impact on operations. It wasn't too long ago that several of us were operating facilities. I hope that our experience plus the constant communication we've maintained with our tenants since March will help us provide you with a clear sense of what's happening. As of this week, we have 29 facilities across 8 operators reporting at least one positive COVID patient case. While we recognize that those figures are of some interest to you, we have generally viewed the running COVID counts as a bit of a red herring due to the inconsistency in testing practices industry-wide. Early on, our thesis was that any report of COVID cases would be grossly inaccurate and lower than the true numbers.

Our expectation has been that most facilities, including some of the very best ones, will deal with COVID at some level. We believe those expectations are being borne out. Although to date, we see significant variances from market to market, and we'd be happy to be wrong on that. Skilled nursing facilities have the protocols and staff for isolation precautions. And routinely treat and contain highly infectious patients with contagions like C. diff or MRSA or norovirus. They're good at it.

What has made COVID-19 different and particularly devilish are the asymptomatic but contagious carriers who can escape detection by even the best clinicians and protocols and infect others. Without readily available testing for the virus, identifying infected individuals has been extremely difficult. Add to that a sudden scarcity of personal protective equipment, and even the best providers have been working with one arm tied behind their backs. With only limited and delayed testing options, when a suspected COVID infection is identified, wider testing at the facility often leads to the surprising discovery of dozens of other residents and staff also infected.

In a minority of cases, we've seen the virus spread like wildfire, resulting in multiple COVID-related fatalities. Those relatively few cases are the ones that make the news. However, in most cases, operators are able to contain and isolate and successfully care for the COVID patients in the facilities, only sending out to the hospitals the most critical patients, usually only those requiring ventilators.

For our part, very early on, we saw that PPE and testing were critically important to our operators' ability to contain the virus and treat COVID patients in a controlled fashion. But our operators reported that their relatively small PPE orders were unable to get the attention of the big medical suppliers. We began an accelerated dialogue with all of our operators, and discovered a reliable source for reasonably priced PPE. We leveraged our portfolio size to get the attention of the supplier and placed a 7-figure order in behalf of our operators. Not only did they get more PPE and get it sooner, we estimate that our bulk order resulted in roughly $2 million of combined savings for our smaller tenants. This week, we're working on another order of PPE for them.

In addition to PPE, testing is the other problem that needs to be solved. We believe that the Abbott style molecular test, which will tell you in minutes at the point of care, is what our facilities need now. Unfortunately, sales are currently restricted to hospitals, clinics and laboratories. We need the White House to raise skilled nursing to that same priority as soon as possible. With good information, skilled nursing providers will be able to be instrumental in helping turn the corner on the spread of the virus.

Next, let me address occupancy. First, overall occupancy for seniors housing in April compared to March held steady. These residents, generally speaking, are in much better health to begin with than those in nursing homes. In April, we saw more move-ins than expected. We believe this is largely due to the positioning of our mid-market facilities as more needs-based than the more expensive private pay AL options. Our seniors housing operators report that prospective residents and their children after being in quarantine for several weeks and often together, are coming to the realization that they could not get the assistance needed in their homes, and they couldn't afford to wait to move into assisted living.

On the skilled nursing front, occupancy has declined. Outside of the COVID hotspots, hospitals have been in a hurry up and wait mode, running incredibly low occupancies. They have largely stopped noncritical and elective procedures and emergency department volumes have reportedly dropped significantly. Therefore, the skilled nursing facilities that depend most on short-term rehab patients coming from hospitals are being hardest hit.

By contrast, the facilities that primarily care for the long-term Medicaid residents are less sensitive to the sharp decline in hospital census. Our SNF portfolio consists of approximately 75% Medicaid residents and 16% short-term Medicare or managed care patients, also referred to as skilled patients. Not including Ensign, who will report for themselves next week, our overall skilled nursing portfolio occupancy dropped 370 bps in April. But the higher-margin skilled occupancy increased in April by 240 bps, providing additional revenue to offset the occupancy loss.

Now on the surface, any drop in census may be a concern. However, I want to make sure you understand an important lever that the current state of emergency grants to operators to help mitigate transfers to hospitals. It's called skilling in place. Before the state of emergency, a long-term Medicaid resident would have to have a serious change of condition, requiring hospitalization for at least 3 days to qualify for Medicare skilled services. Today, because the government has waived the 3-day qualifying stay rule, patients who have a change of condition, including, but not limited to those who test positive or are suspected to be positive for COVID may be immediately billed at the much higher skilled patient or Medicare rate without going to the hospital.

Let me just give you a little illustration. Today, a hypothetical Medicaid resident has a serious change of condition, but is stable enough to be cared for in the facility. A new care plan is formulated, appropriate care is rendered. Now Medicaid and Medicare rates vary widely by geography and patient. But say that yesterday, Medicaid was paying about $200 a day for that resident. Today, Medicare begins paying $800 a day for that patient. So while we have seen parts of our portfolio experience drops in overall occupancy, the increase we've seen in skilled mix, which can offset the financial hit from census declines. This emergency measure is one of several ways the government is helping operators bridge this difficult high-risk phase of the pandemic. And no doubt, you're already familiar with some of the others.

For example, the Family First Coronavirus Response Act. Under the Families First Act, a temporary 6.2% increase in Federal Medical Assistance Percentages or FMAP, was approved retroactive to January 1, 2020, and several states have directed FMAP funds to SNFs, which has included some of our tenants. A couple of examples. The state of Washington raised the Medicaid daily rate by $29 and the state of Louisiana raised the Medicaid rate -- daily rate by $12. Our estimated impact to our portfolio is approximately $5 million. There's also the Coronavirus Aid, Relief, and Economic Security Act and its several component owners.

Under the CARES Act, a substantial number of our tenants have received or are expected to receive assistance from a $100 billion fund provided for eligible health care providers, which includes operators of SNFs. Additionally, a payroll protection program was established under the CARES Act to provide forgivable small business administration loans to eligible businesses, and many of our tenants qualify. The CARES Act also includes a temporary suspension from May 1, 2020, through December 31, 2020, of a 2% Medicare sequestration cut and a deferral of employers' social security remittances through December 31, 2020. The combined CARES Act estimated benefit for our portfolio is approximately $60 million.

Looking forward, as we weigh the several headwinds, along with the support provided to date, we see a path for our operators to continue to care for their residents, keep their caregivers fully employed and pay their rent as they fulfill their role as a critical part of the solution to the crisis. Thanks to the emergency measures taken by state and federal officials, liquidity has actually improved for most of our operators, including those who have been on our watch list in recent quarters. In April, we collected 99.3% of contract rents. And as we sit here today, we've collected 99.8% of May rents. With that, I'll pass the call over to Mark to talk about investments. Mark?

Thanks, Dave, and hello, everyone. We kicked off the year with 2 previously announced transactions, which totaled $25 million in new investments. In mid-January, we acquired Cascadia of Boise for $18.5 million. Cascadia of Boise is a brand-new, state-of-the-art, 99-bed skilled nursing facility located across the street from St. Alphonsus Regional Medical Center in Boise, Idaho, adding $1.67 million in new rent to our master lease with Cascadia Healthcare. A month later, in mid-February, we acquired Barton Creek Assisted Living, a 62-unit memory care facility located on the campus of Lake View Hospital in Bountiful, Utah. We tacked this acquisition on to our lease with Bayshire Senior Communities, which added about $600,000 in rental revenue to their master lease with us. The numbers quoted for these deals were inclusive of transaction costs, and the initial yields are all disclosed in our supplemental.

As we assess the current investment market, we've seen volumes drop off significantly as operators pivot from actively selling to taking an all-hands on deck approach to battle COVID-19 in their buildings and portfolios. For deals currently on the market, there is a significant delta between sellers' expectations and buyers' ability to underwrite and value deals with a number of unknowns to forward-looking run rate revenues as well as expenses. The ability to underwrite deals side-by-side with our operators has never been more important than it is in this current environment.

Speaking of underwriting, we continue to look for mismanaged assets that are moderately performing where operators can come in and make day 1 changes to both revenue and expense items. How we account for COVID-19 changes to revenue and expenses is facility dependent and we are closely working with our operators to bake in necessary adjustments to account for potential challenges going forward. Finding operators who are both interested in and capable of growing during these difficult times is extremely challenging, as you can understand. Different spots in our portfolio have had -- have been less impacted by COVID-19, and some of those operators are interested in growing despite the prevailing challenges.

As many banks and traditional buyers have headed to the sidelines both voluntarily and involuntarily, we feel like our balance sheet, which was built for times like this, combined with our execution ability and closing certainty, provide us with a competitive advantage as we continue to work to grow our portfolio. The current pipeline sits in the $100 million to $125 million range. It consists of our bread and butter singles and doubles, but also includes some portfolio opportunities that we are really excited about. We intend to leverage our existing lease coverage for a majority of the opportunities while continuing to look for opportunities to add a new relationship or 2 as we match assets with operator skill sets. 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 16% over the prior year quarter to $32.33 million or $0.34 per share and normalized FAD also grew by 16% to $33.7 million or $0.35 per share. Our payout ratio remains at or among the lowest of our peers at approximately 74% on normalized FFO and 71% on normalized FAD. Leverage continues to be at all-time lows at a net debt to normalized EBITDA ratio of 3.5x and a net debt to enterprise value of 28% as of quarter end. And our fixed charge coverage ratio is approximately 6.4x. During the quarter, we put in place a new $500 million ATM and $150 million stock buyback plan. Neither have been utilized to date.

Our liquidity remains strong with more than $45 million of cash on hand, $525 million of availability under our revolver, and we produced roughly $10 million of cash per quarter, even after our recent 11% increase in our dividend. Cash collections for contractual cash rent in May were 99.3% and are up so far in May at 99.8%. While we aren't withdrawing our previously issued guidance for 2020, given where we stand today, let me give you some additional color on some of those assumptions that were used in that guidance that had us for the year at normalized FFO per share of $1.32 to $1.34 and normalized FAD per share of $1.38 to $1.40 based on a diluted weighted average share count of 95.6 million shares.

Total contractual cash rents were projected at approximately $167 million for the year, which included $100,000 of straight-line rent and assumed CPI at 1.75%. No additional investments were made since our last call, so no material adjustments to this number. Interest income was projected to be around $1.3 million. I expect this to be a bit bigger given the $32 million mortgage loan payoff is now expected to be 1 month later than previously expected as well as the recently redone short-term seller financing that we made on the Michigan assets will now be paid off in Q2. These expected payoffs will further strengthen our liquidity. And together with cash on hand, and should we decide to, enable us to fully pay down our outstanding borrowings under our revolver.

Interest expense was projected to be approximately $26 million. This assumed a LIBOR rate of 1.75%, which is a lot higher than it is today. Given the LIBOR rate and assuming we pay down the line a bit with our excess cash on hand, I would expect interest expense to come in a bit lower. Interest expense also included roughly $2 million of amortization of deferred financing fees, and I don't think there will be any change there. We projected G&A of approximately $13.9 million to $15.8 million, which includes roughly $3.7 million of amortization of stock comp. This range is still pretty reasonable.

As Greg noted in yesterday's press release and again in his remarks today, although there is a lot of uncertainty around what comes next in the pandemic, our tenants are performing, and we expect they will be able to continue doing so for the foreseeable future, so to withdraw guidance for us seems premature at best right now. We simply point out the obvious that significant developments in the COVID-19 pandemic and the government's responses thereto could alter our outlook in the future. Exactly how it might be altered depends on whose crystal ball you prefer to look at. As for us, we'll be staying close to our tenants and working hard to help them and by extension us, to navigate our way through the remainder of this thing. With that, I'll turn it back to Greg.

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

(Operator Instructions) Your first question comes from Jordan Sadler from KeyBanc Capital Markets.

My first question relates to skilling in place, Dave. I appreciate the insights and all the detail there. Can all of your operators -- do all of your operators have the potential to access these programs? I mean are they Medicare billing?

Yes. So the ability to skill in place is available to all skilled nursing Medicare providers today. And it is -- like I said, it's not limited to those who test positive or are suspected for COVID. It's really, in the lingo of the operators or the clinicians, is the change of conditions that's observed. So that could be a fever. It could be a whole host of new symptoms that result -- has resulted in the past of needing to send a patient to the hospital to then be treated in the hospital for a few days and come back. And then when the patient comes back, they come back as skilled or Medicare. Now you identify the symptoms, you get a doctor's order for some skilled services. And immediately, you're -- you've converted that Medicaid resident to a Medicare or skilled patient.

That's interesting. You mentioned, I think, in maybe some of the prepared remarks, but also in the press release last night and in Greg's comments that -- the ability to sort of share best practices. Does this sort of fall under that umbrella? In other words, were some doing this more effectively in late March and into April -- I guess, in April than others?

Yes. I think everybody -- yes, it does fall into that category of best practices. We've also been sharing best practices around responding to a positive case of COVID. There's -- it's been actually pretty remarkable to see how open and sharing our operators have been, not just with us and each other, but throughout the whole industry. There've been a lot of sharing of case studies of what to do and what not to do when you get a positive case. And so we share that. We share leads on PPE. We've shared a ton of information as we've gotten into the weeds early, early on, on the testing front, and the differences between the serological and the molecular tests. We've shared that widely with our operators as well. And we pushed as far as we could with Abbott, in particular, to get those tests for our operators until we hit a bit of a wall there. So there's a lot of -- we're doing everything we can do as a landlord to help.

Can you maybe elaborate there also just on the -- yes, the lab test. I mean you did mention what you need out of the White House in order to get those. But -- so where do you stand on terms of testing? What are your operators doing right now in terms of testing either employees versus residents? And what does availability look like of tests?

I'd say that the common approach to testing is still fairly dictated by the local availability of tests and directions by local authorities. Generally speaking, testing is not done proactively on all residents and employees and patients. Although that does vary by geographies. There have been some places like -- not in our portfolio, but just as an example, like Detroit, where the city of Detroit mandated that all nursing home patients get tested regardless of signs or symptoms. But that's uncommon. What's more common is that once a patient presents signs or symptoms, that patient gets tested. And in the result of a positive case, then the rest of the facility would get tested, including staff.

It can be frustrating to wait for those results to come in. Even though they're doing the molecular test, which tests for the active virus in your system, it can take 2 to 4 days, sometimes to get those test results back. And that's why we have been pushing as hard as we can to get the point-of-care testing available to our operators. It's our understanding based on conversations, both with Abbott and with our industry representatives and lobbyists that Abbott has been restricted to only sell those point-of-care tests to labs, hospitals and clinics.

And it would really take White House intervention and direction to elevate skilled nursing to that same priority. And so we're calling on them to do that because that's ultimately, we think the missing -- a very important missing ingredient in our ability -- in our operators' ability to discover the asymptomatic contagious cook, nurse, housekeeper or patient.

Okay. That's helpful color. One last one, in terms of the conversations with tenants, I mean, it looks like there's been quite a bit of success. And Greg, you had a comment about deferrals being a solution looking for a problem. Can you maybe elaborate a little bit there in terms of what the dialogue is like with patient -- sorry, with your tenants? Does everybody seem to have adequate resources, liquidity to be able to function through this? What's your sense?

Yes. Our sense is that the relief that's come from the -- from CNS and from the states with how they've responded as well has provided adequate liquidity to get through the phase that we're in right now. In fact, perversely, some of our operators who have been maybe operating more at the margins in recent quarters from a liquidity standpoint, are stronger than they had been in the past because of the assistance, the relief that they've gotten. And so that's part -- that will be part of any deferral type of conversation. It won't be -- we wouldn't take a deferral request at face value. We'd really dig in deep and look at the fundamentals and layer in all of the relief that's available and being received. And as you go through that exercise, you see fairly quickly that our operators are actually in a pretty strong position right now.

Your next question comes from Steven Valiquette from Barclays.

So the federal government stimulus to the skilled nursing industry has been fairly visible and transparent to investors so far. But in your press release, you also made some references to relief and/or support from some of the state governments to the SNF industry as well. So I guess I'm curious if you're able just to give a little more color on some of the state-level help. Is it just Medicaid rate increases or other components? And which states in particular are noteworthy from your perspective?

This is Eric. We had several states that received the FMAP funds -- well, all the states received the FMAP funds from the government, but we have several that have pushed those funds to skilled nursing facilities. And so Washington, being one, Louisiana, Montana and a couple of others where our facilities reside. So we've seen -- most of those have been retroactive back to March and will continue through this pandemic. So like Dave said earlier in his comments, we're estimating that impact to the portfolio to be around $5 million.

Okay. One other quick follow-up. So while the liquidity has improved for your operators, which is certainly good news and arguably the most important variable at the end of the day from a REIT perspective. I guess is there any color on exactly which components of the federal stimulus will be included versus excluded in the EBITDA that's going to be reported back to you from your operators when calculating coverage ratios going forward? Is that something you're worried about? Or is that something you think will sort itself out and there shouldn't be too much mystery or let's just say, different variations of EBITDA are being reported back to you from your operators?

Yes. We're still kind of wading through that right now and probably have a better color on that next quarter.

The good news is that Eric and his team follow these tenants facility by facility, operation by operation at a very granular level. And I think we'll have -- we'll be really well equipped to understand exactly how the stimulus or supplemental payment money has impacted them as well as how their operations have had to necessarily change in response to the pandemic, we'll be able to match those up pretty well. So again, it's an ongoing process. We're far -- it's far from over, and we hope to have more clarity on that near term.

Your next question comes from Daniel Bernstein from Capital One.

I wanted to see -- where do you think the opportunities will be from an acquisition investment side coming out of COVID? Obviously, the SNFs have some implicit support from government. Maybe cap rates don't move there, but seniors -- some senior operators are certainly struggling, and maybe we see cap rates go up. So I just wanted to kind of pick your brain on where those opportunities might be in the next 3, 6, 9 months, maybe even longer.

Dan, it's Mark. I'll give it a crack, and then Greg can jump in. I think the most -- the opportunities on the forefront, potentially in the short run, should be the small mom-and-pops that have incurred additional expense both on the labor and on the supply side. And particularly, facilities that were largely Medicaid that maybe didn't get as much of a boost aren't taking advantage of skilling in place and have experienced major increases to labor costs. We had a facility here in Southern California that was a mom-and-pop owner and they sort of kind of lost their way and the building was fully evacuated about 3 weeks ago, it was in the news, pretty widely reported.

So I'd say opportunities like that where they don't have multiple facilities to pool resources and frankly, just aren't sophisticated to take advantage of what's in front of them. So I'd say mom-and-pops, first and foremost, on the SNF side, maybe a little more medium or longer term is -- the bigger operators may start to look at nonstrategic assets even more and potentially prune outlying assets that are harder to get to in markets that just aren't necessarily in their footprint. So I'd say that on the skilled side.

And then on the assisted living side or the seniors housing side, I think we'll have to wait and see. Obviously, we have most of our facilities in secondary and tertiary markets. And I think once potential new regulations come out there, I think the seniors housing side is going to be interesting to watch over the next 3, 4 quarters to see what operators view as the right operating expense run rate. And to really understand how occupancy impacts will take place, particularly on the assisted living side that may or may not be needs-based. Do potential residents stay home? Does unemployment stay high? Does the adult child, all of a sudden, care for mom or dad? We saw that in the downturn in '08, the impact of the adult child, taking on more responsibility for their parents. So I think as we get a better glimpse into occupancy over the next 3 or 4 quarters, I think that will help us determine where we think pricing will go on the seniors housing side.

That's really great color. The other questions I had here are the upper end of your range on the debt side is 5.0 net debt to EBITDA. How willing are you to go up to that level? I mean you could -- by my calculations, you could do about $250 million of acquisitions without raising equity, but do you really want to go back up to 5.0 or keep the leverage a little bit lower? I mean maybe it depends on the opportunities, but just kind of -- judge your inclinations for that.

Your instincts on that are good, Dan. It would be entirely opportunity dependent. We are willing to go there than no, we don't want to. But that's why we keep the dry powder that we keep. And if there were a super compelling opportunity of size or a series of them with size, we would have no problem going there. My expectation is that as we started to go there that possibly, the equity capital markets would come back a little better for us, seeing how accretive a deal like that could be, and that we probably wouldn't have to go there. So while we say that we're willing to go there, we are. While we say that we don't want to go there, we don't. Our expectation is that we could do a lot without ever having to get there.

. And then the last question I had is really maybe more theoretical on the regulatory side. The 3-day rule has kind of at least temporarily gone away, but could that permanently go away? I mean it seems like it's fairly cost efficient, should save Medicare money if you don't have hospitalizations, and the SNFs can take care of those residents. So kind of I don't know if you want to put odds on it, but what were your thoughts on some of these regulations that are temporarily helping SNFs becoming more permanent?

SNFs have been pushing for the elimination of the 3-day qualifying stay rule for years. And suddenly, into the pandemic, we have that. And my -- our hope is that the powers that be will look at the results of that and how much money they save the system. I mean Dave gave you the example of a patient going from $200 to $800 a day by -- under skilling in place. And you might look at it and go, wow, that's a ton of increased cost. But in truth, it's a ton of decreased cost because the hospital that you wouldn't previously had to send them to was going to charge far more than $800 for those 2 or 3 days or 4 days that the patient was going to be there before they came back to the SNF.

So the 3-day qualifying stay is really a [sod] to the acute care lobby. And its elimination would not only save the system money but would provide much needed help and support to the skilled nursing industry, which is a critical component in the healthcare continuum and really the lowest cost environment in which a lot of services can be delivered, some of which are not being delivered there now simply because of regulatory limitations like the 3 day qualified rule.

Your next question comes from Michael Carroll from RBC Capital Markets.

Greg or David, I just wanted to kind of touch on about -- on the amount of liquidity that your tenants have gotten from all these packages. I guess how long can they survive this? I'm assuming that there has been some type of operational deterioration, correct me if I'm wrong on that, by the way, related to this COVID impact and maybe that will improve as the elective surgeries start back up. But how much longer do these tenants have before, I guess, some issues would arise? I mean is it a couple of quarters or is it a couple of months? Or how would you quantify that?

Well, Mike, I'm not going to show off our crystal ball for that because that's really a tough one to answer. It's really tough to predict the future. All we can feel really confident about saying is that right now, they're fine. But to predict how long this is going to last and how long it's going to take for hospitals to recover their occupancy and kind of get back to normal would be a risky bet to make on a call like this.

Mike, it's Greg. There's a ton of variables involved in answering a question like that. It's just too many to predict what's going to happen on the other end of this. Are all nursing homes -- is there going to be a waiver of the 3-day qualifying stay that's permanent? That would be helpful. Is PPE going to be used in more different ways or stocked in more different ways? Is it going to become more affordable as more manufacturers come online? What is going to be the expectation for infection control coming out of this? Are facilities going to be mandated to have a higher percentage of isolation rooms or to provide and negative pressure environments that -- what are they going to do? Nobody knows the answer to those things, we're busy dealing with the present. And so I'm sorry, it's -- we can't give you a better visibility into how long our tenants will go on the current stimulus. But right now, they're in pretty good shape. And we think they could -- they will be, as Bill said, in good shape for the foreseeable future.

Okay. Great. And Greg, can -- you talk on a little bit about your seniors housing operators. I guess how are they being impacted by this? I know you recently transitioned a few assets. And I know there has been, what, Premier has had some tight coverage that you've been comfortable with because of their corporate guarantees. I mean the -- I'm assuming they're going to see some pretty big impacts related to COVID given what we've heard from the rest of the seniors housing space. I guess what's your thoughts on those tenants? And what gives you confidence that they're still well positioned?

Well, a couple of things there. This is Dave. Like I said in my remarks, occupancy stayed flat in the month of April, which was really encouraging. I think part of the reason for that as we talk to our operators about the somewhat surprising level of new admissions that they had. What -- I think it relates, Mike, to the fact that these are kind of the mid-market position, secondary market offerings. And as prospective residents have been sheltering in place on their own or with their children, they've realized that they need care, and they can't afford to wait for it. Maybe that high end private pay only prospective resident could afford to wait a little bit longer. But it's been our experience thus far that many of our prospective residents can't wait -- couldn't wait and so went ahead and moved in. That's been helpful.

And another thing that is maybe a little bit unique to our seniors housing portfolio compared to our peers is the amount of Medicaid that we have in it. It's roughly something like 30%-ish of our seniors housing residents are under Medicaid. And so if there's another round of stimulus that's been talked about but hasn't really crystallized yet that's related to Medicaid providers as opposed to the first tranches related to Medicare providers, then conceptually, those Medicaid seniors housing providers would benefit from that as well. So just based on the information that we have so far, we feel like those guys are, so far, weathering the storm pretty well.

Your next question comes from Todd Stender from Wells Fargo.

Dave, I appreciate your information and really context around that 3-day qualifying stay rule. Is there an expiration on that? I know you guys kind of fleshed that out a little bit. But at this point, is it truly open-ended?

I believe that, that stays in place as long as the state of emergency is in place. My understanding, Todd, is that as soon as the President rescinds the state of emergency, then that -- those regulations will stay in place until the end of the quarter, wherein President Trump removes that emergency status.

So it's a national issue, maybe not state by state, it sounds like.

That's right.

Okay. That's helpful. And then how are you -- and then maybe, I guess, we'll save the next piece. My next question has to do if this is national or is this state by state. The -- for operators to maybe have insulation from any litigation cost liability coming out of this as their tenants and patients have contracted COVID, what do you know as of this point? And then maybe also for yourself, if you have any exposure or potential exposure?

Yes. No, we wouldn't expect any exposure for us as the landlord. But what we understand is that it's a work in progress, both on the national and state levels. We've seen some states enact legislation to address it, which we're happy to see. But there's also talk in D.C. about something on a national basis, but nothing has been settled at that level yet.

Okay. And last one, maybe for Bill. The revised Metron loan, I know the bulk has been paid back, but there's still a portion outstanding. The original coupon was 7.5%, but the new coupon drifts quite a bit lower. Just wanted to see how do you determine the new rate. I guess we're used to seeing loans sit north of 7%, maybe 9%, but this one is on the lower side. How did you get there?

We got there as a partner to a lender who is bridging the Metron assets to HUD. So we're in it on a temporary basis. So we looked at it as it's just a little upside over for another month or 2.

Todd, it's Greg. I would also add that we got a nice loan fee on the front of that to really actually, depending on how long it takes them to pay that off, which we don't expect to take very long, actually juices that return quite nicely.

All right. That's helpful. So you're not in this for 18 months. This is just your...

No.

You're closer to the bridge financing and then they'll have to ride that out separately.

Yes, a very short-term bridge.

And I show no further questions at this time. I will now turn it back to management for any closing remarks.

Thanks, Sylvia, and thanks, everybody, for being on the call. We appreciate this, and if any of you have questions, in addition to the ones that have been asked today, we're happy to take them. Just give us a call. Take care.

Ladies and gentlemen, this does conclude today's conference. We thank you for your participation and ask that you please disconnect at this time.