Omega Healthcare Investors Inc (OHI) 2017 Q1 法說會逐字稿

Good morning, and welcome to the Omega Healthcare First Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note, today’s event is being recorded. I would now like to turn the conference over to Michele Reber. Please go ahead.

Good morning. With me today are Omega's CEO, Taylor Pickett; CFO, Bob Stephenson; COO, Dan Booth; Chief Corporate Development Officer, Steven Insoft; and SVP Operations, Jeff Marshall. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions and our business and portfolio outlook, generally. These forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including, without limitation, our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as FFO, adjusted FFO, FAD and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the Financial Information section of our website at www.omegahealthcare.com, and in the case of FFO and adjusted FFO, in our press release issued today. I will now turn the call over to Taylor.

Thanks, Michele. Good morning, and thank you for joining Omega's first quarter 2017 earnings conference call. Adjusted FFO for the first quarter is $0.86 per share. Funds available for distribution, FAD, for the quarter is $0.77 per share. We increased our quarterly common dividend by $0.01 to $0.63 per share. We've now increased the dividend 19 consecutive quarters. The dividend payout ratio remains very conservative at 73% of adjusted FFO and 82% of FAD. Our adjusted FFO guidance for 2017 remains unchanged at $3.40 to $3.44 per share.

We continue to work with our operators to identify opportunities to improve portfolios via asset repositioning, including sales and asset transfers.

Our balance sheet leverage and debt maturity stack was further improved with the issuance of $700 million in new bonds and the redemption of our last $400 million high-yield bonds and the reduction of nearly $300 million in variable rate debt. Our offering was well received and reflects our ongoing commitment to an extremely derisked balance sheet with no bond maturity prior to 2023.

On our last call, I discussed a number of issues that our operators are managing through this year. Labor incentives both continue to be challenges, but as expected, our operators have generally managed to maintain cash flows, the expense management and active marketing and quality programs, which has resulted in a small increase in trailing 12-month coverage.

Turning to the Department of Justice investigations that we reported last year. We've been advised of one more top 10 operator that has been contacted by the DoJ. One top 10 operator is now in discussions with the Department of Justice with respect to potential settlement. At this time, it's too early to determine the outcome of this operator's settlement discussions or any of the other DoJ inquiries.

I've asked Jeff Marshall, our Senior Vice President, Operations, to join us today to discuss skilled nursing facility payment reform. In addition to his role in the operations department, Jeff leads our efforts on the reimbursement front. Jeff will speak after Bob who will now review our first quarter financial results.

Thanks, Taylor, and good morning. Our reportable FFO on a diluted basis was $181 million or $0.88 per share for the quarter as compared to $153.6 million or $0.77 per share for the first quarter of 2016. Our adjusted FFO was $176.7 million or $0.86 per share for the quarter, and excludes the impact of a $10.4 million contractual settlement, $2.4 million in provision for uncollectible accounts, $3.7 million of noncash stock-based compensation expense and $41,000 of acquisition cost. Operating revenue for the quarter was approximately $232 million versus $213 million for the first quarter of 2016. The increase was primarily a result of incremental revenue from over $800 million of new investments completed since the first quarter of 2016. The $232 million of revenue for the quarter includes approximately $18 million of noncash revenue.

Our G&A expense was $8.8 million for the quarter, and is in line with our 2017 quarterly G&A expense guidance of $8 million to $9 million per quarter as provided in our February earnings call.

In addition, we expect our 2017 quarterly noncash stock-based composition expense to be approximately $3.7 million, consistent with our first quarter.

As Taylor stated, we continue to work with our operators to identify opportunities to improve portfolios via asset repositioning, including sales and asset transfers. As a result, in the first quarter, we recorded $2.4 million in provision for uncollectible accounts to reduce 7 assets, classified as direct financing lease assets to an estimated selling price of approximately $34 million, and we recorded $7.6 million in real estate impairments to reduce 3 additional facilities to their estimated selling price.

Interest expense for the quarter, when excluding noncash deferred financing cost and refinancing cost, was $45 million versus $37.2 million for the same period in 2016. The $7.8 million increase in interest expense resulted from higher debt balances associated with financings related to our 2016 investments and a higher blended cost of debt, primarily a result of converting our $250 million term loan from floating to fixed rate on December 31, 2016, and overall higher LIBOR rates.

For modeling purposes, our guidance assumes 2017 interest expense will increase by approximately $1 million to $2 million over first quarter, primarily resulting from the $700 million in bonds issued in April and higher LIBOR rates.

Turning to the balance sheet. During the quarter, we sold 15 facilities for approximately $46 million, recognizing a gain of slightly over $7 million. We've recorded approximately $700,000 of Q1 revenue related to these 15 facilities. 11 of the 15 facilities were classified as assets held-for-sale at December 31, 2016. At March 31, we had 9 facilities valued at $23 million classified as held-for-sale.

As Taylor mentioned, in April, we completed the issuance of $700 million new bonds by issuing $550 million 4.75% notes due 2028 and issuing $150 million of our existing $250 million 4.5% notes due 2025, making that issue index eligible.

The transaction funded on April 4 and proceeds from the bond deal were used to redeem our $400 million 5.875% notes due 2024, prepay a $200 million term loan and the balance to repay credit facility borrowings.

Our balance sheet remains exceptionally strong for the 3-month period ended March 31, 2017, our net debt to adjusted annualized EBITDA was 4.78x and our fixed charge coverage ratio was 4.5x.

I will now turn the call over to Jeff.

Thanks, Bob, and good morning. With so much attention paid in the past year to government payment reform affecting skilled nursing facilities, we thought it would be appropriate to briefly summarize the status of such payment and regulatory reform and the changes we are seeing with the new CMS administration so far in 2017.

In the federal government's efforts to reduce the annual escalation in Medicare costs in both acute and post-acute sectors, while encouraging an emphasis on value over volume of services, several alternative payment models have been initiated to date. First, Medicare Advantage managed care, which commenced in 2006 as Part C programs and now accounts for about 33% of SNF Medicare beneficiaries. Second, Accountable Care Organizations, which commenced in 2010 under the Affordable Care Act and now account for about 16% of SNF Medicare beneficiaries. Third, CMS' Medicare fee-for-service bundling programs starting in 2013, with a voluntary Bundled Payments for Care Improvement or BPCI program involving selected diagnoses and about 5% of the nation's SNFs. Continuing in April 2016, with the mandatory Comprehensive Care for Joint Replacement or CJR bundles that cover about 7% of Medicare fee-for-service revenue. And most recently with the July 2017 mandatory episode payment models for heart attacks, bypass surgery and surgical hip and femur fracture surgery that cover about 8% of Medicare fee-for-service revenue. Fourth, a quality reporting program under the 2015 impact legislation that penalizes Medicare payments by 2%, commencing in October 2017 for any SNF's failure to report on specified new quality measures. And fifth, a value-based purchasing program under the 2014 PAMA legislation that discounts SNF Medicare fee-for-service payments by 2%, commencing October 2018 with reimbursement of discounts to SNFs based on comparative rehospitalization metrics.

On the regulatory front, CMS' most compressive overhaul of SNF operating and compliance guidelines in 25 years began a 3-year phased implementation in late 2016. On the enforcement front, regional RAC auditors, along with the office of Inspector General and Department of Justice continue their efforts to evaluate SNF Medicare claims for any excessive therapy charges, while CMS continues development of a new SNF Medicare payment system that would effectively shift funding away from therapy services toward complex nursing services. Even though SNFs have had to deal with this wide array of Medicare payment and regulatory reform concepts, the good news is that: One, the impact of Medicare Advantage managed care on SNF revenue per patient day is stabilizing. Two, demand for SNF Medicare post-acute care services is rising nationally. Three, SNF quality of care is improving as documented by new CMS quality measures. And four, the new CMS administration has shown an initial willingness to slow down the pace of reform both by delaying the episode payment model implementation to at least October 2017, and by issuing last week, this year's SNF Medicare notice of proposed rulemaking. In this proposed rule, SNF Medicare fee-for-service rates are slated to increase 1% effective October 2017, which is the maximum amount pursuant to the 2015 MACRA Doc Fix legislation and more than the MedPAC's recommended 0 increase. And CMS requests ideas from the industry to reduce existing regulatory and payment burdens in several areas.

Further, instead of implementing the new Medicare payment system under development for several years, CMS issued a separate pre-roll for its new patient characteristic-based payment methodology to solicit comments from the industry for further study.

Notably, CMS' overall model is designed to be budget neutral with the current system. This consultative approach signals a more business-friendly CMS that could also consider the industry's previous comments regarding survey relief and elimination of the previously proposed ban on arbitration agreements.

As for SNF Medicaid programs, which cover almost 2/3 of SNF residents nationally and which utilize managed care for about 76% of its SNF's beneficiaries, no significant reform efforts impacting rates are expected this year. As with payment and regulatory reforms implemented to date, SNFs will continue to exhibit operating flexibility with any future reforms initiated by government agencies trying to address the inevitable budget and access issues presented by the coming industry tailwinds of aging demographics.

I will now turn the call over to Dan.

Thanks, Jeff, and good morning, everyone. As of March 31, 2017, Omega had an operating asset portfolio of 972 facilities, with approximately 99,000 operating beds.

These facilities were spread across 77 third-party operators and located within 41 states and the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our portfolio increased slightly during the fourth quarter of 2016 to 1.69x and 1.33x, respectively versus 1.68x and 1.31x, respectively for the trailing 12-month period ended September 30, 2016. The pressures on portfolio performance experienced in 2016, such as increased labor costs and decreased lengths of stay have begun to show some signs of stability in the fourth quarter results, as well as year-to-date results in the first quarter.

One private top 10 operator, of note, however, felt the performance pressure more than most. This was exacerbated in 2016 by complete replacement of senior management early in the year.

The new management team well known and respected by Omega worked throughout 2016 to transform the culture of the company, which included changing out many facility-level management teams. During this transition period, the company's operational performance suffered such that the portfolio dipped below 1x EBITDAR coverage for the trailing 12 months ended December 31, 2016.

In an effort to assist the company during this transitional period, Omega embarked on an effort to sell off the company's northwest region, which consisted of 7 facilities. This region has struggled of late and given its geographical remoteness, has been difficult to oversee.

We anticipate the sale of all 7 facilities in that region to be completed by the second quarter of 2017, with 3 facilities having already been sold.

We continue to work with our operators to provide support for the challenges currently facing our industry. Accordingly, to-date, in 2017, Omega has repositioned a number of assets within our portfolio, including the sale of 20 facilities and the closing of 2 additional facilities. We expect to continue these repositioning efforts throughout 2017. New investments during the first quarter of 2017 were limited to the purchase of a single 60-unit assisted living facility for $7.5 million. In addition, Omega funded $30 million of capital expenditures. As of today, Omega has approximately $1.28 billion of combined cash and revolver availability to fund future investments and provide capital funds to our existing tenant base.

I will now turn the call over to Steven.

Thanks, Dan, and thanks to everyone on the phone for joining today. In conjunction with Maplewood Senior Living, we finished demolition on our planned 215,000-square-foot ALF/memory care high-rise at Second Avenue and 93rd street in Manhattan. The project is expected to cost approximately $250 million and is scheduled to open in mid-2019. While we're very excited about the prospects of the New York City project, it is also very important to highlight that at the end of the first quarter, Omega senior housing portfolio totaled $1.3 billion of investment on our balance sheet. While anchored by our growing relationship with Maplewood Senior Living in the best-in-class properties as well as Healthcare Homes in the U.K., our overall senior housing investment comprises 115 assisted living, independent living and memory care assets. On a stand-alone basis, this portfolio not only covers its lease obligations at approximately 1.2x EBITDAR, but also represents one of the larger senior housing portfolios amongst the publicly listed health care REITs. Our ability to successfully continue to grow this important components of our portfolio is highlighted by the 12 Maplewood facilities and the related pipeline, is predicated on coupling our tenants' operating capabilities with our commitment to having in-house design and construction expertise.

Through the same capability, we invested $30 million in the first quarter in new construction and strategic reinvestment. We currently have over 90 active capital reinvestment projects at the end of Q1, 14 of these projects represent new construction with a total budget of approximately $500 million, inclusive of Manhattan and are actively being funded.

We have $184 million of construction in process on our balance sheet as of 3/31/17. The remaining projects encompass $166 million of committed capital, $110 million of which has been funded through the end of the first quarter.

Thanks, Steven. This concludes our prepared comments. We will now open the call up for questions.

(Operator Instructions) Today's first question comes from Chad Vanacore of Stifel.

So just thinking about in respect to the large tenant whose coverage slipped to under 1x. Does the sale of those facilities that you mentioned, does that address most of the issues? And then where does coverage go from there?

Yes, I can speak a little bit. I'd just like to expand a bit on, not just the management changes, but the business changes that occurred over the last 12 months. Really what happened was tenant wasn't reimbursement driven. They rebranded their business, they moved the corporate headquarters, they implemented a centralized referral and admissions call center, they modified their care delivery staffing model and they changed the entire culture to one of personal accountability. And those changes are major and took a fairly long time and there was some disruption in cash flows which we see coming through coverage. But to answer your question a little more specifically, our preliminary first quarter results for the tenant show coverage at 1.09, that is exclusive of the Northwest and we think that 1.09 trend should continue to be favorable as they fully implement all the things we just talked about.

All right. So it doesn't sound like this is widespread, sounds like it's contained. What about the cash collection issue? It seemed to appear that on the supplemental that they were in arrears. So where is cash collection now?

Well, it's still where it was. We're about 45 days past due in terms of lease recognition. We expect that will be caught up over the course of the next several months. But that remains to be same.

All right. And then, just thinking about your overall portfolio. If you had to say what percentage of facilities were underperforming compared to which ones are improving? How would you break that down?

When you look quarter-to-quarter, well over half of our tenant base actually improved quarter-to-quarter. But it's right on the (inaudible) , you're not seeing big movement. And so we feel pretty good that we're seeing a reasonably stable environment. And just to reiterate, the one tenant that moved a lot is fairly big. So it has a little bit of an impact on the overall coverages. So frankly, our coverages look pretty good from our perspective. And the one tenant that moved, didn't have anything to do with the external environment from a reimbursement perspective. And frankly, the revenues are fairly stable. All these changes you see flow principally through the expense line. So more up than down, but it's all on the (inaudible) , it's very, very consistent among our tenants.

And our next question comes from Nick Yulico of UBS.

On the -- on your cash flow statement, your operating cash flow was down year-over-year. Does have a big -- looks like there was an issue similar to your accounts receivable. Can you explain what's going on there?

Nick, I'll give you a call following on that. I don't have that statement in front of me to go through all the little details, because there's a number of little details. But one piece is what we just talked about on the -- that receivable.

Okay. So -- but was this a situation where you gave any sort of lease inducement?

No, no, no, not at all.

Okay. And so going back to this tenant who is not current on rent, sounds like they missed a rent payment in the first quarter. I'm confused as to why then your guidance for the year doesn't get reflected? Why wasn't the guidance reduced if you have a tenant that's not paying rent? And still hasn't paid rent?

Well, it's -- well, they're 45 days past due, so it's a month and a half. We spent an enormous amount of time understanding the plan, and we look at Q1 with 1.09 coverage. Once the Northwest sale is executed, which we're halfway through, and we look at their plan going out throughout the rest of the year, and it's pretty clear if they hit their plan that we're going to be back to current. But frankly, at 45 days past due, to start fiddling around with guidance, just doesn't make any sense, we feel pretty comfortable that they're going to come back with coverages at their previous level, which is (inaudible).

Okay. But just so I make sure I understand this. Even if their coverage comes back, they still missed the whole rent payment, right? So why would their -- just because if their coverage gets -- improves going forward, why does that give you confidence that they'd be able to repay the rent payment that they already missed?

Because by definition, if their coverage comes back, they have cash in excess of the rental obligation, which is cash that would then be paid to us. We're first in line, they can't move that cash outside their entity, that depends.

Okay. Just one other question is on Consulate. They are one of your tenants. They have had some issues with some verdicts against them. Can you just explain what's your comfort level with that tenant right now? And whether they are also facing any sort of issue where they may not have paid rent or there is a worry that they might not be able to pay rent?

They're current. Our portfolio with them is small relative to all of Consulate, it performs extremely well. So we don't think there will be any -- that the rent payment is going to continue to be paid and there won't be any interruption in that payment stream. As you know, they're going through the court process in Florida, they filed a motion to dismiss, the judge is going to hear that, but in the meantime, the judge has also stayed any action, as he made the statement, "I'm not going to affect the lives of 15,000 residents in the state of Florida."

Okay, yes, and then just going back to the cash flow issue, it would be pretty, I think, important to explain because if I'm looking at this -- your operating cash flow was down about 10% year-over-year and yet your EBITDA was up 10% year-over-year. So there's something big, seems like kind of happened in the first quarter -- I don't know if it's just from this tenant or something else? That would be helpful to explain.

Hey Nick, and I will -- it's Bob, I'll call you offline and will walk through that statement because there's -- you've got the summary level, I'll go through all the detail with you.

(Operator Instructions) Today's next question comes from Tayo Okusanya of Jefferies.

Just 2 from me. First of all, could you just talk a little bit about your acquisition outlook going forward? I mean you only did $7.5 million worth of deals this quarter. And just talk a little bit about the pricing environment, kind of what you're seeing? And how confident you are about deal flow this year?

So we think of the first quarter as a little bit of an anomaly in terms of just the lack of deals that we did. We still have a pretty active pipeline. I would say that in the fourth quarter, perhaps because of the election or perhaps for other reasons, there was a slowdown in the number of deals that were put out to market. And of course, these deals, there is a lot of lag time. They take 6, 9, 12 months from the time that we see them until the time that they close. So there is a little bit of delayed effect there. So, I mean, I think that we'll see a pickup in deals over the course of the year. Once again, I think the first quarter was an anomaly. But it's not as robust so far as it was, say, this time last year.

Got you. And it's part of what's driving that in 1Q, just to know the pricing environment, like is pricing still pretty aggressive, which is why you're backing off?

That's part of it. We're seeing some pretty aggressive pricing, and we're not going to chase deals. I think we can be patient. I think it's just -- also it's just -- there's just not as much in the market right now. Once again, as we've seen in historically and this time last year.

Got you. That's helpful. Second question, this potential change in methodology that CMS is proposing for fiscal year 2019 kind of turning off RUG-IV and kind of putting on this new RCS system. When you just take a look at some of their estimates out there, it's clear that they are really kind of trying to target the ultra-high and high therapy reimbursements. Could you just talk a little bit about your tenant base and your exposure to that particular subsector where CMS seems to be going after really hard with this proposed change?

Well, we think that the change to the resident classification system is, as I'd said earlier, budget neutral by design. And we don't think that there should be a great deal of impact when the system is finally rolled out, principally because a lot of our operators who do a lot of short-term post-acute care are already involved in bundling programs, managed care and so they've already figured out how to manage in an environment where payments are reduced and length of stay is incentivized to be a little bit lower. And that would be the impact of the RCS system. Keep in mind that the CMS' invitation to stakeholders to comment on this system says that there will be a lot of changes before it's finally issued, if it does come out next year.

That -- I guess, that's helpful, but I think the point I'm trying to get at is although it's meant to be budget neutral, if you just kind of take a look at what some of CMS' initial analysis is around the changes, and if you are a SNF that historically has done a lot of billing for the ultra-high therapy sector, I mean, they're kind of suggesting that your payments could come down almost 10%. So I'm just trying to get a sense of, again, while it's budget neutral, it seems like there's going to be a couple of SNFs out there that will get hit really hard and some others, I mean, actually benefit from it, and I'm just trying to get a sense of your exposure to either bucket.

I mean, I think in general, the more sophisticated providers, and we have a bunch of them, tend to have focused on therapy, because of the profitability of those activities. So I think it's fair to think about our portfolio weighted reasonably heavily in the therapy area. But you also have to think about how this industry modifies its behavior based on where the profitability is. So the reason you see therapy as a focus is it's fairly profitable. I think you need to be very careful to say, okay, patient base is going to be completely static and you're not going to target a different patient base if the rates move around. So I don't -- I can't give you the precise number, Tayo, but I can say my view is our more sophisticated guys, are going to be more focused on therapy than the less sophisticated guys and part of that sophistication is an asset in that they'll identify clinically complex, if that's -- if that becomes an area that has more profitability.

There are also 2 things to remember. The resident classification system anticipates that on the front-end of therapy stays, the payments will actually be higher on a per day basis than they are currently, and then they taper off. And the budget neutrality is achieved by shifting the dollars from therapy over to complex nursing. So as Taylor said, you'll find operators who will basically target more of the complex nursing, like septicemia or COPD and some other conditions that aren't currently emphasized. In the same fashion, that the industry adjusted to changes when the PPS came out many years ago and became profitable with that. So I think there is a lot to be seen before we understand the impact to all of nursing homes.

And our next question comes from Juan Sanabria of Bank of America.

Just hoping you could help us quantify the exposure with regards to DoJ discussions some of your tenants are having. Could you just give us an overall sense of the percentage of NOI that those tenants represent?

Well you have 3 top 10s, so it's probably 20% of NOI and then one outside the top 10, something like that.

Okay. And then...

But as far as quantifying exposure, that -- we can't do that.

What do you mean by that, sorry? In terms of dollar exposure that the DoJ may go after?

Yes.

Got you, fair enough. With regards to, I guess, its signature, just by looking at the exposure in the rents. Could you just comment on their overall capital structure? What other debt they may have outstanding and how that's placed? And are your leases, I guess, senior to that or equivalent to any sort of debt they may have outstanding? And are they current on their debt?

I'm sure they have -- specific questions about operators are hard to manage, but they -- I can tell you that they have a working capital line. I'm sure they're current on that. I don't -- they don't have really any significant third-party debt per se. They have different silos with different landlords. And then there is some mortgage debt or leasehold mortgage debt on some of their facilities. But there is no material outside debt associated with that company.

And just -- and the other part of your question, yes, our lease payment is senior to everything.

Okay. And then, just a quick question on your coverage expectations for the balance of this year and -- or the next 12 months or what have you -- with these asset sales should -- what do you guys think EBITDAR rent coverage moves to? And is there a way to strip out what the coverage is, excluding seniors housing? Or a way to help us back into that at all?

Well, when you think about the senior housing at 1.2 and -- 11% of your rent -- I haven't done the algebra, but you can -- we can do the math, it's going to move the 1.33 for the SNF side up to, I don't know, I'm just guessing, 1.34 or 1.35, a little bit. And then in terms of our outlook, look, we were -- we're happy with Q4. The preliminary results for Q1 look steady. So the important thing from our perspective is we appear to be seeing an environment that's reasonably stable, right now.

And with the asset sales, would you expect an uptick in coverage or kind of holding the line?

Yes, they're so -- relatively speaking to the $10 billion balance sheet, they're just not material. So they're just not going to move the dial much at all. I mean, individually they do. We talked about the one tenant. But when you think about the whole, the global portfolio, to move coverage from asset sales, you'd have a very meaningful chunk of asset sales.

And just one last quick one from me. Could you comment or provide the disposition cap rates for what you did in the first quarter and expectations for what's left to do?

The best way -- the way we look at it is, we feel like we're able to redeploy the cash at 9% to 10% yields and it offsets any rent that's lost and interestingly typically assets that are being sold have cash flows that are below the rent obligation. So you have cap rates that on their face look very aggressive. But that's typically because these assets are being sold into local operators' hands who look at them and say, "I can do certain things in my specific market to improve cash flow."

Is the rent though being moved to the rest of the assets under any sort of masterpiece?

Well, there is -- the typical deal is -- I guess, the answer is yes, but again, it's not moving the coverage dial.

And our next question is a follow-up from Nick Yulico of UBS.

I just wanted to go back to this issue of what's current on rent in the supplemental. So -- just to be clear here -- so for the -- for these tenants that are listed here, the one that was 6.5% of rent, is that -- did you actually get a payment from that tenant in the first quarter?

Yes, absolutely. Otherwise, we'd be more than 45 days past due.

I'm sorry, what?

Otherwise, we'd obviously be way more than 45 days past due, we're in May.

Okay. So there was no -- so for the tenants that are listed here, there was no -- was there any sort of lost rent in the first quarter?

No.

And our next question comes from Michael Knott of Green Street Advisors.

Can you just take a second to talk about the possibility of healthcare reform that apparently is being voted on today? And just any thoughts you have on how that could affect the SNF environment going forward?

Yes, Michael, I'm going to ask Jeff Marshall to address that.

Yes, we -- as the American Healthcare Act is drafted currently, and we do think that even though it passes the House, that it will undergo a number of changes in the Senate if it does pass there. But as currently drafted, the impact on nursing homes relates to the Medicaid per capita caps replacing the current federal matching percentage system of funding state Medicaid programs. If that comes into play, first of all, the act anticipates that there would be at least a 3-year transition before the limitation on funding to Medicaid programs is enacted. But also likely, those caps are going to be higher for the aged and disabled populations that you find in nursing homes than for adults and children who are also on Medicaid. So that's one separator. There would also be an opportunity for states to make positive changes to eligibility that could restore, for example, long-term care insurance as a funding source for nursing homes. So a lot has yet to be told on this, but it could be an opportunity for improved funding actually, as Medicaid funding might be restricted in future decades.

So the cap on Medicaid would be offset through something else, it sounds like?

The caps would be established based on current spending that the federal government is providing to states for the Medicaid programs. So it would start at a base level that you currently is, this year's level, and it would increase by the medical CPI year after year. But that limitation on the increase in funding wouldn't occur until 2020, giving states plenty of time to adjust their eligibility and other guidelines, and it's hard to say how that parses down into the impact on Medicaid provider rates because it's just a small part -- not a small part, but it is just a part of the overall Medicaid programs for adults and children as well.

If it parse through all that, it sounds like you guys aren't terribly concerned that this is a big overhang negative for your industry?

At this point, no.

Okay. Can I also ask about the coverage between SNF and senior housing. I think just a couple calls ago, I had asked that same question, and I think the answer was there is no difference. I think the exact words were "It's immaterial difference between senior housing and SNFs in terms of breaking out the coverage." And it sounds like you're saying now that senior housing coverage is below the portfolio average, which should make SNFs higher, but does that mean your senior housing coverage has declined in the last quarter or 2?

One of the challenges, Michael, is that the senior housing portfolio even at 115 units as we're adding units, particularly perhaps the Maplewood units as they stabilize come online, are going to sort of converge those coverages. And the SNF and overall portfolio is almost 1,000 properties, the senior housing portfolio is a much smaller number, which makes that number a little bit more volatile.

Okay, maybe we can circle up later. I'm not sure -- I hear what you're saying, but it just seems like the answer has changed quite a bit in a couple quarters.

The portfolio is aging along with it.

(Operator Instructions) Showing no further questions, I'd like to turn the conference back over to the management team for any final remarks.

Thank you, and thank you for joining our call today.

Thank you, sir. Today's conference has now concluded, and we thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.