Omega Healthcare Investors Inc (OHI) 2021 Q2 法說會逐字稿

Good day and welcome to the Omega Healthcare Investors Second Quarter 2021 Earnings Call. (Operator Instructions) Please note that today's event is being recorded. At this time, I would like to turn the conference over to Michele Reber. Please go ahead.

Thank you and good morning. With me today are Omega's CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; Chief Corporate Development Officer, Steven Insoft; and Megan Krull, Senior Vice President of Operations. 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, dispositions or transitions 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 identify 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 NAREIT 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 NAREIT FFO and adjusted FFO, in our recently issued press release.

In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.

Thanks, Michele. Good morning and thank you for joining our second quarter 2021 earnings conference call. Today, I will discuss our second quarter financial results and industry occupancy and labor trends.

We continue to post strong quarterly results with second quarter adjusted FFO of $0.85 per share and funds available for distribution of $0.81 per share. We have maintained our quarterly dividend of $0.67 per share and the dividend payout ratio remains conservative at 79% of adjusted FFO and 83% of funds available for distribution. Our liquidity and debt maturity ladder have never been stronger as our operators face an uncertain timing of occupancy recovery and widespread labor shortages.

As we have discussed in previous calls and investor presentations, the combination of significant occupancy declines and a tight labor market with increasing wages and a shortage of staff has started to create liquidity issues for certain operators.

In June, we had an operator, representing 3% of annual revenue, informed Omega that they would be unable to pay rent due to both occupancy and labor issues. It is possible that additional operators could experience similar cash flow stress.

Turning to occupancy and labor trends. Since January, occupancy has improved every month, and it is likely that this trend will continue. However, in general, we need occupancy to return to over 80% in order to meaningfully mitigate the cash flow reductions from the pandemic. At the same time that occupancy has started to improve, the labor shortage has created 2 significant issues. First, a number of facilities have self-imposed admission bans if they cannot staff at clinically appropriate levels. Therefore, even though there is an opportunity to increase census based on demand in the market, these facilities have elected to limit new admissions due to staffing limitations.

Second, wage rates continue to climb. These labor cost increases are particularly difficult to manage in states with limited or no COVID-19 reimbursement relief. Additionally, it appears that these wage increases may create a new baseline of wage rate going forward. We strongly believe in the positive long-term prospects for our operating partners as occupancy rebounds and the aging demographics drive increasing demand for skilled nursing facilities. We remain hopeful that the federal government and the states will provide additional near-term support to the skilled nursing facility and assisted living industry as we work to overcome the ongoing challenges from the pandemic.

Finally, I again thank our operating partners and in particular, the frontline caregivers and staff who have cared for the tens of thousands of residents within our facilities.

I will now turn the call over to Bob.

Thanks, Taylor, and good morning. Turning to our financials for the second quarter. Our NAREIT FFO for the quarter was $181 million or $0.74 per share on a diluted basis as compared to $186 million or $0.80 per diluted share for the second quarter of 2020. Our adjusted FFO was $207 million or $0.85 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to net income found in our earnings release, in our supplemental and also on our website.

Revenue for the second quarter was approximately $257 million before adjusting for the nonrecurring items. As previously disclosed, in June, an operator informed us it would be unable to make its contractual rental payments for the foreseeable future. As such, we revised our revenue recognition treatment for that operator to cash basis rather than straight-line accounting method. As a result, we recorded a $17.4 million reduction to rental income related to the write-down of straight-line receivables.

We collected over 99% of our contractual rent, mortgage and interest payments for the second quarter and 98% for the month of July, with a decrease resulting from the 1 operator just referenced. Our G&A expense was $9 million for the second quarter of 2021 and slightly better than our estimated quarterly G&A expense of between $9.5 million and $10.5 million. Interest expense for the quarter was $56 million.

Our balance sheet remains strong, and we've continued to take steps in 2021 to further improve our liquidity, capital stack, maturity ladder and overall borrowing cost. On the debt side, on April 30, we closed on a new $1.45 billion unsecured credit facility and a $50 million unsecured term loan that both mature in April of 2025. At June 30, we had no outstanding borrowings on our credit facility and had $100 million in cash. In March, we issued $700 million of 3.25% senior notes due April 2033. Our note issuance was leverage-neutral as proceeds were used to repurchase through a tender offer $350 million of 4.375% notes due in 2023 and to repay LIBOR-based borrowings. We have no bond maturities until August of 2023.

On the equity side, in May, we issued a new $1 billion ATM program. In the second quarter, we issued 4.1 million shares of common stock through a combination of our ATM and our dividend reinvestment and common stock purchase plan, generating $154 million in cash proceeds. Year-to-date, we have issued 6.2 million common shares, generating $231 million in cash proceeds. We continue to use our equity currency via our ATM to gradually delever with our funded debt to adjusted annualized EBITDA at approximately 4.9x, and our fixed charge coverage ratio at 4.5x as of June 30. While we believe our actions to date provide us with flexibility to weather a potential prolonged impact of COVID-19 on our business, it also provides significant liquidity to fund potential acquisitions.

In the second half of 2021, we will continue to evaluate any additional steps that may be needed to further enhance our liquidity.

I will now turn the call over to Dan.

Thanks, Bob, and good morning, everyone. As of June 30, 2021, Omega had an operating asset portfolio of 949 facilities with over 96,000 operating beds. These facilities were spread across 65 third-party operators and located within 42 states in the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of March 31, 2021, decreased to 1.8 and 1.44x, respectively, versus 1.86 and 1.5x, respectively, for the trailing 12-month period ended December 31, 2020.

During the first quarter of 2021, our operators cumulatively recorded approximately $74 million in federal stimulus funds as compared to approximately $115 million recorded during the fourth quarter. Trailing 12-month operator EBITDARM and EBITDAR coverage would have decreased during the first quarter of 2021 to 1.24 and 0.9x, respectively, as compared to 1.38 and 1.04x, respectively, for the fourth quarter when excluding the benefit of any federal stimulus funds.

EBITDAR coverage for the stand-alone quarter ended March 31, 2021, for our core portfolio was 1.17x, including federal stimulus and 0.83x excluding the $74 million of federal stimulus funds. This compares to the stand-alone fourth quarter of 1.33x and 0.78x with and without the $115 million of federal stimulus funds, respectively.

Based upon what Omega has received in terms of occupancy reporting for July to date, occupancy has continued to improve, averaging approximately 75.7%, up from a low of 72.3% in January.

Turning to portfolio matters. As Taylor previously mentioned, in June, we had an operator, representing approximately $30 million or 3% of annual revenue, informed Omega that the June rent of approximately $2.5 million would not be paid and that future rent payments would not be remitted in the coming months. The operator has asserted that the COVID pandemic, along with its associated challenges, including census declines and labor shortages, were the primary drivers of their liquidity predicament. We are in active ongoing discussions with this operator to determine what we hope will be a consensual restructure of their portfolio. The restructure may result in either re-leasing facilities or outright sales of part or all of the portfolio. At this time, it is too early to predict the ultimate outcome of these discussions.

Turning to new investments. On June 1, 2021, Omega provided $6.4 million of mortgage financing to an existing operator. The loan is secured by 2 nursing facilities located in Ohio and bears an initial interest rate of 10.5%.

Turning to subsequent events. On July 1, 2021, Omega provided $66 million of mortgage financing to an existing operator. The loan is secured by mortgages on 6 nursing facilities located in Ohio and bear an initial interest rate of 10.5%. Separately, on July 14, 2021, Omega completed a $9.5 million purchase lease transaction for 2 care homes in the United Kingdom. The facilities were added to an existing operator's master lease with an initial cash yield of 8% with 2.5% escalators. Year-to-date, Omega has made new investments totaling $722 million, including $48 million for capital expenditures.

Turning to dispositions. During the second quarter of 2021, Omega divested 6 facilities for $12.4 million. As of June 30, Omega has divested a total of 30 facilities for approximately $200 million. I will now turn the call over to Megan.

Thanks, Dan, and good morning, everyone. In positive news, last week, CMS issued its final payment rule, which includes a 1.2% rate increase beginning October 1, but more importantly, delays the proposed 5% cut related to PDPM. In the proposed rule issued earlier this year, CMS had highlighted the fact that PDPM, rather than being budget-neutral, instead led to an unintended 5% payment increase and that a rate cut would need to occur. That rate cut in the final rule has been pushed out 1 year, which is welcome news to the industry as a whole, especially as it continues to recover from the pandemic.

Moving on to COVID. Last quarter, we highlighted the fact that there was approximately $24.5 billion of unallocated funds left in the Provider Relief Fund, which number excludes monies returned by providers, which we believe could be substantial. Since then, none of those funds have been allocated, and we are still in a wait-and-see mode as to what benefits the long-term care industry will receive.

Thankfully, a handful of states have announced new continued or increased stimulus to the long-term care industry, such as Michigan and Pennsylvania. However, as states worked through how they plan to spend funds received from the American Rescue Act, it is still too soon to tell what the ultimate impact will be on our operators or the industry as a whole. What we do know is that the industry continues to need government support, especially in light of the Delta variant and the potential impact that it could have on what was already expected to be a slow long-term recovery.

While the overall impact of the vaccine rollout has been strong, with cases at the end of June at less than 250, resident and employee across 125 of our buildings, we did see an uptick as of last week's monthly reporting at slightly less than 500 cases across approximately 153 of our buildings. Operators are preparing themselves to deal with the potential rise in cases that could lead to increased visitation restrictions. And with vaccination rates for employees still running low, at less than 60% at best, with staffing shortages and self-imposed admission bans that Taylor mentioned earlier, it could be exacerbated should large employee outbreaks occur. Both of these have the potential to slow but hopefully not stall the occupancy progress that is being made.

All of that said, the vaccination rate of residents, at close to 80%, is a bright spot. While occupancy growth may continue to be no more than a slow steady climb, the infection risk with the vaccinated resident population appears to be low or at very least not fatal. And therefore, the industry should be able to avoid in large part, the devastating clinical effects and associated expenses that plagued them through 2020 and the early part of 2021.

Day in and day out, our operators care for a particularly vulnerable segment of the population. This has never been more evident than during the pandemic, and early federal assistance recognize that fact. For now, we hope that the federal government finds a renewed commitment to this space and that state that hasn't stepped up to provide support is doing well with the additional funds that they have now received.

I will now turn the call over to Steven.

Thanks, Megan, and thanks to everyone on the line for joining today. Inspir in New York, our ALF memory care high-rise at Second Avenue and 93rd Street in Manhattan, leased to and operated by Maplewood Senior Living, opened at the end of March and is in the midst of lease-up. Lease-up momentum has been solid and in line with our underwriting and expectations.

The COVID-19 pandemic poses certain challenges unique to senior housing operators, including increased costs, the challenges of managing COVID-positive patients and meaningful practical limitations on admissions. While they very much appreciate the help they've received, private pay senior housing operators have not seen the level of government support provided to other areas of senior care. Along with continued pandemic-related challenges, we saw small but measured occupancy improvements to our senior housing portfolio throughout the second quarter.

We have seen evidence of stabilization and strengthening of census in certain markets. Our Maplewood portfolio, which is concentrated in the early affected Metro New York and Boston markets, saw meaningful census erosion early in the pandemic with second quarter 2020 census hitting a low point of 80.4% in early June of 2020. That said, their portfolio occupancy level has returned to 87.6% in June of 2021.

Including the land and CIP at the end of the first quarter, Omega senior housing portfolio totaled $2.2 billion of investment on our balance sheet. All of our senior housing assets are in triple-net master leases, including our 24 recently acquired Brookdale assets, our overall senior housing investment comprises 155 assisted living, independent living and memory care assets in the U.S. and U.K. This portfolio, excluding the 24 Brookdale properties, on a stand-alone basis had its trailing 12-month EBITDAR lease coverage fall 6 basis points to 1.02x at the end of the first quarter.

With COVID outbreaks having affected different markets at various times, this decrease in performance was to be expected. Rising vaccination rates among residents and staff are a critical step to restoring occupancy and performance. While we remain constructive about the prospects of senior housing, the COVID-19 outbreak has warranted a far more selective approach to development. While we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets. We invested $31.1 million in the second quarter in new construction and strategic reinvestment. $19.5 million of this investment is predominantly related to our active construction projects. The remaining $11.6 million of this investment was related to our ongoing portfolio CapEx reinvestment program.

I will now open the call for questions.

(Operator Instructions)

Today's first question comes from Jonathan Hughes with Raymond James.

Question on kind of operator and news disclosure. If you do have more operators come to you in the future saying they're having issues with paying rents, say, within your top 15 operator list, how would you disclose that going forward? Will you kind of wait until the quarterly earnings releases? Or do you press release this intra-quarter, like we saw in June ahead of NAREIT? I'm just trying to get a better sense of and understand how we can monitor operator health and new developments, hopefully on a more real-time basis.

Yes. Fair enough, Jonathan. As you know, it's pretty nuanced when you start to have discussions with operators. And so some of the timing is you just have to work through some of those issues. But I will tell you the one thing we will be certain of is that we don't have selective disclosure. So to the extent that we're talking to investors about any potential issues, you'll see disclosures before we have those conversations. And we're talking to investors all the time. So I would think it'd be relatively timely from our perspective.

Okay. That's great. And then maybe talk about Florida and Texas, those are your 2 largest states in terms of exposure. There are also 2 states that have not seen as much I'd say government support as maybe others during the pandemic and even prepandemic. Can you just talk about the reimbursement rate and government support outlook for those 2 states? And then maybe also update us on the Daybreak transitions in Texas?

So Texas early on in the pandemic actually had an add-on to its Medicaid rate of $19 per day. And it has continued to -- that add-on has continued. They recently extended it again. I believe it runs through October of this year. So that's been hugely helpful. And it tracks the kind of the federal emergency plan. So we would hope that if the federal emergency plan continues, the federal -- the Texas Medicaid add-on would continue as well. The state of Florida has offered no such assistance. They have not added anything to the Medicaid rate. They have not offered any supplemental payments. So that has produced a situation in Florida that is becoming increasingly dire, I would say, because there has been no add-on and now we're seeing cases spike with the Delta variance.

Daybreak, we need to finalize re-leasing or selling all those assets in the second quarter, I believe, as most of them were on in the first quarter. So there is no more Daybreak as far as we're concerned. Those -- all those assets have been distributed amongst other operators, either existing or new and/or sold to third parties.

Okay. And the Daybreak transitions, that was converted at similar rents to where maybe they were before?

No, but they were in line with what we had projected.

That's right. Okay. What's it going to take for Florida to kind of realize that maybe they do need to give some more support? I guess I could drive to Tallahassee, but just curious if there's been any discussions among the lobbying organizations. And just if there is any progress on that or if it's still pretty quiet.

No, it hasn't been quiet. That's for sure. There's been a huge push from the operators, lobbyists, et cetera for some rate relief in Florida. And there's no imminent expectation, but I think that continues to gain momentum, and we're hopeful that we see something out of the state of Florida.

Okay. Last one for me. There was an announcement -- you announced the addition of a new director to your Board yesterday. Can you just provide some additional details around this?

Yes. Jonathan, I'll ask Matthew to cover that, please.

Jonathan. So Ed Lowenthal is retiring as a Board member at the end of his current term. While we have added a Board member for a number of more months, this is probably a good opportunity to publicly thank him for his over 25 years of exceptional service as a Board member.

While we're sad to be losing Ed, we're also very happy that Dr. Lisa Egbuonu-Davis has agreed to join our Board. For those of you who didn't see the 8-K filing, here's a little additional background. Dr. Egbuonu-Davis has literally decades of healthcare experience as both a physician and as a healthcare executive, where she's primarily focused on patient-centric businesses. So as you can imagine, her experience and her nuanced understanding of the healthcare continuum will be extremely helpful for Omega as we continue to navigate the evolving landscape. So we're excited that she's joined the Board, and we look forward to many years of working with her.

Our next question comes from Connor Siversky with Berenberg.

Good morning, everybody. I appreciate your prepared remarks and, well, a rare Matthew appearance on the call today. First question on acquisitions. I mean, it seems relatively quiet on the SNF REIT fund, yet some publications, some of the industry journals are suggesting even an acceleration of activity maybe from private investors. So I'm wondering if from OHI's perspective, is this a cost of capital issue? Are there just not really attractive opportunities in the space? Or is there a new kind of competitive element floating around out there that may not have been present prior?

Yes. I mean I hate to sound like a broken record, but the acquisition environment just remains choppy. I mean we're still seeing some deals, a fair amount of deals. We're actually seeing activity pick up in the U.K. But once again, it's choppy. We continue to partner with our operators to do transactions. There hasn't been a lot of distressed situations that have presented themselves that haven't gone at distressed prices. There's been some distressed real estate out there, but actually it gets stood up. So I think we're seeing stuff out there, but it's not like there's a whole landslide of new opportunities at this time.

Okay. I appreciate the color there. A bit more of a broader question on operations in general. So there are some commentary out there that certain operators are looking to take on higher acuity patients. So I'm wondering at a high level, maybe Megan can jump in here, how that affects the cost structure on a per patient basis? And then if this dynamic is to turn into a trend across the whole industry, I mean, how could this look in terms of the rate changes in years to come?

I mean, there's been a push for higher acuity patients, obviously, right? That's been going on for decades. It's the relatively healthy folks who are being treated at home or in assisted living settings or just otherwise, generally other settings. So that's been ongoing. I haven't seen any dramatic change in that as of late. It's just been a very, very, very slow evolution. And so I -- we haven't seen anything material in that respect.

Okay. And last one for me. I apologize if I missed the detail here, but on the dividend, it seems like the payout ratio remains relatively comfortable even with the degree of lost rents. So I'm wondering how you guys feel about it at a high level, maybe what are the payout ratio bands you're looking to work in, in the near future? And whether or not you'd be willing to let that climb above 100% for the short term, if necessary?

Yes. Unfortunately, Connor, we've never had a deal with above 100% from a forward perspective. Several years ago, we got into the 90% range. And we're comfortable with that because we can look forward and know we were going to get back into a more normalized range as we transition properties like Daybreak that we spoke about earlier. So I think for us, it really comes down to what's the outlook.

And a good example would be the operator we're talking about. It's not paying us rent in June. Part of the issue for them is the payback of the Medicare advance payments, which has created some liquidity concerns, but those assets are really desirable. So as we look long term, we don't think there'll be any meaningful impacts on our cash flow stream. So that's an example of the type of thing we look at and say, on a forward basis, do we need to do anything with the dividend when we know ultimately, we're going to be in good shape. Hopefully, that's enough color.

The next question comes from Joshua Dennerlein with Bank of America.

Hope everyone is doing well. I guess just curious on the operator who came to you in June about having trouble paying the rent. Just any kind of additional color you can provide on like maybe what was going on operationally. Was it unique to that tenant or maybe something within that broader region that we should be watching?

No, I don't think there's anything specific. I think it's the general items that Taylor mentioned, it's stress on occupancy and huge stress on labor, which is compounding the occupancy issue. They can't staff a facility up adequately to provide the clinical needs of the residents. So it's really a combination of those 2 events. And then they had also seen -- through COVID, they had seen a fairly high rate of folks take a deal. So that compounded the situation. But beyond that, there was nothing else specific.

Okay. And by taking a deal, you mean the staff or the residents?

It is both.

Okay. And then speaking of staff, I guess, just kind of curious, are operators starting to kind of incentivize their employees to get vaccinated? That 60% uptake seems pretty disappointing. And then how are you guys thinking about expiration of the extended UI benefits? I think it rolls off everywhere in September. Should that be a help at all?

Yes. I mean, from a vaccination standpoint, the employees, it is still relatively low, and our operators have been trying to incentivize them from the beginning. So that monetary incentivizing and also trying to educate them with local leaders within the community. So we are starting to see some uptick, but I don't know that we're going to see anything substantial.

That said, with the Delta variant, we are hearing that staff are interested in taking the vaccine. So that might help it pick up a bit as well. In terms of the unemployment benefits, yes, I think that will be a big help if the unemployment benefits go away and get people back to work, that will help with the staffing shortages, definitely.

The next question comes from Nick Joseph with Citi.

I was hoping to get more color on the potential watch list for any other tenants that are getting close to having issues paying rent?

So I mean, I don't think our watch list has changed much. We've got those operators who are under 1x coverage. But usually, there's a secondary source of repayment associated with those operators. So it's been mitigated. The federal stimulus money certainly is running out. So I think it's a little bit operator, but it's a little bit of geography, too, in states that are -- they have another huge rebound of the Delta variants. Those are the ones that are going to get hit hardest and the ones that are probably most susceptible to liquidity issues. So we're keeping an eye on that.

It's -- the incidence rates of the viruses followed the incidence rates in the counties or the communities in which they're in. So it hasn't necessarily transpired over into the nursing home side yet, but we're watching those communities, particularly in Florida and the South where we're seeing pretty quick upward trends in the virus. And looking to see whether that, in fact, equates to the nursing homes having a pickup in the virus. So those kind of things are what we keep a close eye on.

I appreciate it. And then as you think about the pressures on labor, obviously, COVID has kind of wreaked havoc on margins. But when you think about pre-COVID, how much ability was there for labor costs to rise before that would really cause an issue from a margin perspective?

There's a fair amount of room, Nick. I think the best way to think about it is 2% or 3% wage inflation would move coverage a few basis points. Now we are seeing areas where the wage inflation is far greater than that, 7% to 8%. And so that's obviously some additional basis points. But in terms of general coverage out of 1:3, we're not going to see a scenario where labor takes them to 1 or 1:1. That would be really meaningful changes in labor. That being said, the big drivers we've talked about in the past is getting occupancy back because each incremental resident provides pretty substantial cash flow. And that's really where the focus needs to be. So our operators will find labor and they'll pay what the market needs to clear labor and that will impact coverages, but it won't change the viability of the vast majority of operators to pay our rent.

The next question comes from Daniel Bernstein with Capital One.

Trying to go back to Florida. I mean, is there -- are there any occupancy trends that you've seen so far with the surge in the COVID virus down there? I mean you're about 6 weeks into the Delta virus, I guess, surge in Florida. It sounded like cases have gone up a little bit within facilities, but has there been any kind of occupancy trend impacts thus far?

I don't think we've seen anything from a state perspective, but certainly buildings that have smaller outbreaks are going to have occupancy trending down. But we haven't seen anything yet overall in the state.

Okay. And then the labor shortages and wage pressure, is that across the spectrum within the labor pool for a facility? Is it all nursing, caretakers, just all levels of labor within the facility? Or is it concentrated more in the caretaker side or concentrating more on the labor shortage on the nursing side? Just trying to understand where the, I guess, the nuance of where the labor issues are?

It's interesting. We've had operators point out in particular nursing assistance and dietary staff. So they tend to point out that level of worker where it's $14 or $15 an hour wage rates versus nursing necessarily. And I think that's one of the big pressure points right now. Workers who have mobility into other jobs, non-healthcare type jobs.

Okay. And then going back to the tenant that's not paying rent, is that tenant within the pool that's under 1.0 EBITDAR? Is that in addition to the disclosure you have in your supplemental?

It would be in addition to what's in the supplemental.

Okay. I just want to make sure I got that. And one last question from me here just on the acquisition side. Is there a -- I just wanted to understand the comments that there's I guess not a landslide of opportunities. Is it more of a pricing issue where you have -- there's distressed operators, but the pricing of the real estate is not really distressed at this point? I just want to understand where the disconnect there between distress we've seen in the industry versus maybe consolidation opportunities that you would think would arise from this kind of distressed situation?

Yes. I think the buyer universe is still very aggressive in terms of picking up real estate. So they've been willing to pay up for it despite the fact that the operations might be distressed.

Our next question comes from Rich Anderson with SMBC Nikko.

So on the -- back to the tenant that gave you the notice they did. Is there a -- can you quantify a kind of a watch list of percentage of revenue that you're looking at? You said 3% here, but is there a number out there that you're kind of keeping an eye on that you can share?

Not specifically, no. I mean listen, it's -- since the virus came out, we've been in constant contact with virtually all of our operators. I think that's -- the best way to keep an eye on is just with communication with our operators and we've done that and continue to do that. So I think we're -- we look at everybody, and we have to sort of gauge the level of risk of each and every operator, whether they are challenged.

I guess what's the over/under on this time next quarter you'll have another? Do you see a high probability? Or nothing is jumping out at you right now?

I think part of the answer to that question is we've been waiting on the last tranche of Federal money. And some of it's going to be timing related to that. Remember, there's $24.5 billion Megan mentioned in her prepared comments. And we've heard, I don't know if this is -- this came from ASHA, that there's another $20 billion -- I'm sorry, $24.5 billion and another $20 billion has been pushed back into that fund, principally from the hospital. So there might be $44.5 billion to be distributed, and it's going to be in need of space.

So if that happens in a reasonably timely way, I think the handicap any other quarter is just -- it's impossible. And another good example would be Florida. There's been a big push on the lodging side to get some money released in the state of Florida. And if that happens, it dials down the risk that we see a lot.

The last comment I'd make, and again, I'm just trying to give as much color as I can, is we haven't had the type of conversations with any operator that we have with the one that we talked with you as of now. So that's the early indicator from a watch list perspective. For us, we just -- that hasn't happened. If there's no money worth coming from the government or it's not timely, sooner or later, the occupancy rebound is going -- isn't going to be quick enough to prevent some other liquidity issues, and we'll just have to tackle them when they arise.

Yes. Okay. So what -- maybe a broader question. Anything about what you've been through that's informing you about the future of OHI? I know you've spent some time expanding into senior housing with Healthpeak's deal. But do you see yourself as a more diversified story in the years to come and not hanging your hat as much as you are in skilled nursing? Or do you sort of continue the course and muscle through whatever is to come?

Well, we -- the franchise of operators that are our partners are fantastic, and we'll continue to deploy capital there. But the trend that you've seen in terms of senior housing and other assets, now about 1/5 of the portfolio, I think that continues. And part of that is just supporting the operators on those property types, whether it's Maplewood or our U.K. operators or otherwise, I think you'll see that percentage climb over time just as it has over the last 5 years.

Yes. Okay. And then lastly for me, I think Steve said Maplewood, specifically occupancy, troughed at 80% a year ago May and is now at 87%, did I get that right?

Yes, that's correct.

That's really good, right? I mean, is there anything about that 87% number you're seeing today that is apples-to-oranges to what other people are reporting? Or is there something special going on that you're kind of already back into the high 80s occupancy wise?

Steve, do you want to take that?

Sure. The one thing that we know to be the case, although it may not account for all of the difference between Maplewood and other operators, as Maplewood made a committed effort never to let off the marketing investment during the COVID pandemic. It still isn't. And I think in certain local markets, they were awarded for that.

(Operator Instructions)

The next question comes from Lukas Hartwich with Green Street.

So I suppose inflation fears are receding, but on lease escalators, I think most of those are fixed. But are any -- are there any inflation protection built in? Or are they purely fixed for the length of lease?

Lukas, about 97%, 98% of our leases are fixed escalators.

Okay. And then can you provide some color on the $3.5 million credit loss provision during the quarter?

Yes. So as you know, there's a lot of components that go into the CECL or credit loss component. So we have to go look at each one of our loans and you're required regardless of it to have some reserves on those loans. So it's kind of normal -- what I look at is kind of normal occurrence. We're going to have something every quarter from a loss standpoint.

At this time, we are showing no further questioners in the queue, and this concludes our question-and-answer session. I would now like to turn the conference back over to Taylor Pickett for any closing remarks.

Thank you all for joining us this morning. As always, we'll be available for any follow-ups you may have. Have a good day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.