Earnings Call Transcript - OHI Q1 2022

Operator, Operator

Good morning. And welcome to the Omega Healthcare Investors First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Michele Reber. Please go ahead.

Michele Reber, Moderator

Thank you and good morning. With me today are Omega’s CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; 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.

Taylor Pickett, CEO

Thanks, Michele. Good morning. And thank you for joining our first quarter 2022 earnings conference call. Today, I will discuss our first-quarter financial results, skilled nursing facility industry trends, operator restructurings, and our share repurchasing activity. Our first-quarter adjusted FFO is $0.74 per share and funds available for distribution are $0.65 per share. We have maintained our quarterly dividend of $0.67 per share. The dividend payout ratio is 91% of adjusted FFO and 103% of funds available for distribution. We believe that the elevated FAD payout ratio is temporary, based on the fact that 14.5% of our contractual rents and interest are involved in restructuring discussions and 12.3% of contractual rents are not paid in the first quarter, and therefore, are excluded from FAD. The successful sale of the Gulf Coast portfolio and imminent completion of the Guardian restructure provide us with strong momentum to eventually return to comfortable FAD payout ratios. Turning to skilled nursing facility industry trends. Fortunately, the December and January pause in facility occupancy improvement reversed in February and March, with preliminary mid-April Omega core occupancy levels at 77.9%, up 300 basis points since January 2022. Unfortunately, staffing shortages and elevated costs continue to pressure operating cash flows and the ability to admit new residents. At this point, it is impossible to predict how quickly industry occupancy will fully recover or how rapidly the current labor force pressures will subside. Turning to operator restructurings. Dan will provide detail regarding specific operator restructurings. In general, these efforts include one or more of the following actions: first, rent deferrals; second, asset sales or transitions to a new operator; and third, in certain cases, rent resets with other amended lease provisions. Examples include the elimination of purchase options, future upward potential rent resets, lease extensions or revisions of renewal rates, and collateral enhancements, adjustments, or usages. As we have discussed in the past, the strength of our portfolio assets generally allows us to work through operator restructurings, with limited long-term cash flow downside. The Gulf Coast portfolio net proceeds of over $300 million offset the lost Gulf Coast contractual revenue, while Guardian, which is still in process, will result in a very modest diminution in value from the pre-restructuring contractual rents and no diminution of value from our origination yields. Turning to share repurchasing activity. We have repurchased $133 million of our stock utilizing a portion of our asset sale proceeds. The share repurchase program is an efficient tool that has allowed us to harvest capital non-dilutively. Finally, again, I want to thank our operating partners, particularly 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.

Bob Stephenson, CFO

Thanks, Taylor, and good morning. Turning to our financials for the first quarter. Our NAREIT FFO for Q1 2022 was $171 million, or $0.69 per share on a diluted basis, as compared to $170 million, or $0.71 per share for the first quarter of 2021. Our adjusted FFO was $184 million, or $0.74 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to net income found in our first-quarter earnings release and our supplemental, and also on our website. Revenue for the first quarter was approximately $249 million before adjusting for non-recurring items, compared to $274 million for the first quarter of 2021. The year-over-year decrease is primarily the result of revenue recorded in Q1 2021 related to Gulf Coast, Agemo, and Guardian, all cash base operators, as well as revenue related to asset sales that occurred after Q1 2021. In our last earnings call, I provided revenue, adjusted FFO, and FAD commentary on Gulf Coast, Agemo, Guardian, and an operator who indicated it would not be paying its first-quarter rental obligation. I want to provide an updated revenue status and Q2 2022 outlook on these operators. Dan will provide contractual and operational updates on these tenants in his prepared talking points. First, regarding Gulf Coast, in Q4 2021, we recorded $7.4 million of adjusted FFO and FAD based on our ability to offset any unpaid rent against the balance of a sub-debt obligation owed by Omega. At December 31st, the sub-debt balance was fully exhausted, and therefore, we did not recognize revenue related to Gulf Coast in Q1 2022. On March 31st, all but two of the Gulf Coast assets were sold for over $300 million in net proceeds. Looking at Agemo, in Q4 we recorded $4.6 million of adjusted FFO and FAD as Agemo paid one month of rent and interest. For Q1 2022, Agemo did not make any contractual payments, nor did it make any payments in April. Q2 2022 contractual rent and interest of approximately $15 million will only be recognized to the extent Agemo makes any payments, as they are on a cash basis. Turning to Guardian, in Q4 2021, Guardian was placed on a cash basis and we did not record any revenue as we did not receive any cash during the quarter. In Q1 2022, Guardian failed to make any rent or interest payments, and as a result, again, no revenue was recognized. In April, we received $944,000 from Guardian and based on the signed restructuring agreement, we are expecting to record approximately $5.2 million in Q2. However, as Guardian is on a cash basis, we will only recognize AFFO and FAD to the extent payments are made. As noted in the Q4 earnings release, in January, an operator representing $8.3 million of quarterly revenue or 3.4% of Q1 contractual annualized rent and mortgage interest revenue did not pay its January contractual rent and asked for a short-term forbearance. This operator did not make any rental payments during the first quarter. However, it remained on a straight-line basis for revenue recognition based on the conclusion that their contractual rent is fully collectible over the term of the lease. During Q1, the operator did pay its full Q1 interest obligation of $360,000. For AFFO purposes, we included $8.3 million of Q1 revenue related to the operator's lease and interest obligations. However, we recognize only the $360,000 of cash received in our FAD calculation. In Q2 2022, this operator paid its April contractual obligation of $2.8 million and we expect this operator to continue paying its full contractual obligations. In Q2, this operator also borrowed an additional $1.8 million on its $20 million credit facility with Omega. Lastly, as noted in our April 1, 2022 press release, an additional operator representing $5.9 million or 2.4% of our Q1 contractual annualized rent and mortgage interest revenue did not pay its March contractual amount under its lease agreement. In April, the lease for this operator was amended to allow the operator to apply its $2 million security deposit to its March 2022 contractual rental payment and allow for a short-term rent deferral for the month of April, with regular rental payments required to resume in May. For Q1 2022, we recorded $5.9 million for both adjusted FFO and FAD purposes. If the operator does not make its May or June rental payments and remains on a straight-line basis for revenue recognition, we would include $5.9 million of revenue for Q2 for AFFO purposes. However, we will only recognize FAD based on cash received. The $249 million revenue for the quarter includes $3.2 million related to the write-off of straight-line receivables associated with six facilities transitioned to a new operator and also included $1.2 million of one-time revenue, both of which are excluded from AFFO and FAD calculations. Moving to our balance sheet, it remains strong, thanks to the steps we have taken during 2021 and the first quarter of 2022 to further improve our liquidity, capital stack maturity ladder, and overall cost of debt. In Q1, we repurchased 981,000 shares of Omega common stock for $27 million. At March 31st, we had $355 million of outstanding borrowings on our revolving credit facility, and we also had $491 million in cash, primarily due to the March 31st sale of the Gulf Coast portfolio. In April, a portion of the balance sheet cash was used to repay $255 million of credit facility borrowings and repurchased 3.9 million common shares of our stock for $106 million. At the end of April, we had approximately $170 million of cash on hand. At March 31st, over 92% of our $5.7 billion in debt was fixed. After the April credit facility repayments, 97% of our $5.4 billion of debt is fixed. At March 31st, our net funded debt to adjusted annualized EBITDA was 5.3 times, the same as Q4 2021, and our fixed charge coverage ratio was 4.1 times. It’s important to note that similar to NAREIT FFO, adjusted FFO, and FAD, EBITDA on these liquidity calculations includes our ability to apply collateral and recognize revenue related to our operator non-payments previously discussed. However, if the collateral is exhausted, a decrease in EBITDA will impact our liquidity ratios. The actions taken to date provide us with significant liquidity and flexibility to weather the continued impact on our business, primarily driven by COVID-19. I will now turn the call over to Dan.

Dan Booth, COO

Thanks, Bob, and good morning, everyone. As of March 31, 2022, Omega had an operating asset portfolio of 938 facilities, with approximately 94,000 operating beds. These facilities were spread across 64 third-party operators and located within 42 States and the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of December 31, 2021, decreased to 1.48 times and 1.14 times, respectively, versus 1.52 times and 1.18 times, respectively, for the trailing 12-month period ended September 30, 2021. During the fourth quarter 2021, our operators cumulatively recorded approximately $47 million in federal stimulus funds, as compared to approximately $26 million recorded during the third quarter. Trailing 12-month operator EBITDARM and EBITDAR coverage would have increased during the fourth quarter of 2021 to 1.26 times and 0.93 times, respectively, as compared to 1.21 times and 0.88 times, respectively, for the third quarter, when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the standalone quarter ended December 31, 2021, for our core portfolio was 1.19 times including federal stimulus and 0.98 times excluding the $47 million of federal stimulus funds. This compares favorably to the standalone third quarter of 1.04 times and 0.92 times with and without $26 million in federal stimulus funds, respectively. Occupancy for our overall core portfolio continued to slowly trend up throughout 2021, reaching a high of 75.8% in December, up from a low in January of 2021 of 72.3%. In January of 2022, the portfolio saw a dip in occupancy to 74.9% due to the Omicron surge, but has since trended up based upon preliminary results, increasing to 75.3% in February, 76.5% in March, and 77.9% as of mid-April. Turning to our senior housing portfolio. Today, our overall senior housing investment comprises 182 assisted living, independent living, and memory care assets in the U.S. and the U.K. This portfolio on a pure-play basis had its trailing 12-month EBITDAR lease coverage decreased to 0.94 times at the end of the fourth quarter, as compared to the end of the third quarter, which covered at 0.97 times. Based upon preliminary results, occupancy for this portfolio has trended up steadily during the first quarter of 2022, increasing from 82.3% in January to 82.7% in February and 83.1% in March. Turning to portfolio matters. Gulf Coast, on March 31, 2022, Omega completed the fee simple sale and transition of 22 Gulf Coast facilities for net proceeds in excess of $300 million and simultaneously released one facility to an existing Omega operator. The one remaining Gulf Coast facility, which is currently closed, is expected to eventually be sold along with its existing licensed beds. The sale and release of these 23 facilities, excluding the closed facility, effectively concludes our restructuring efforts with Gulf Coast. Our ultimate rent equivalents based on net proceeds of $300 million and a 9.5% cap rate effectively equal Gulf Coast’s pre-restructured 2021 contractual rents, taking into account the offset which the company is entitled to under the terms of its subordinated notes. Guardian, on April 8, 2022, Omega entered into a restructuring agreement with Guardian Healthcare. The agreement, which was made retroactively effective to January 1, 2022, provided for, amongst other provisions, that, Guardian would be allowed to defer certain rents provided those rents would be repaid over time based upon certain cash flow thresholds, Guardian would consent and actively cooperate in the transition of 20 existing facilities, either through sales to third parties or releases, and rent would resume post-deferrals beginning in April of 2022. To date, Omega has sold or released 13 facilities. The remaining seven facilities are expected to be transitioned in the second quarter of 2022, although, there is no assurance that these transactions will either close or close on a timely basis. Agemo, we continue to be in ongoing discussions with Agemo on a restructuring agreement, which is expected to involve the sale of a material portion of the Agemo existing Omega portfolio. We will continue to provide updates as discussions progress. Other operators, as of today, we have two other operators that failed to make payments in the first quarter. As it relates to the first operator, on March 14, 2022, Omega entered into a letter agreement which provided for the deferral of January, February, and March rent. The deferral is due in a lump sum on December 31, 2022. This operator paid April rent in full. As it relates to the second operator, on April 29, 2022, Omega entered into a fourth amendment to an existing master lease, whereby we agreed to use an existing security deposit to pay March rent and defer April rent. Rent is expected to resume in full in May. At this time, no further action is underway with either of these two operators. Turning to new investments. As previously announced, on January 1, 2022, Omega completed an $8 million purchase lease transaction for one skilled nursing facility in Maryland. Also, as previously announced, on January 31, 2022, Omega completed an $8 million purchase lease transaction for one care home in the U.K. For both transactions, the newly purchased facilities were added to an existing operator's master lease, with initial yields of 9.5% and 8%, respectively. On March 16, 2022, Omega completed a $5 million purchase lease transaction for one care home in the U.K. and on March 23, 2022, Omega closed on a $100 million purchase leaseback transaction for 27 care homes in the U.K. Concurrent with these acquisitions, Omega entered into master leases for the care homes with two new U.K. operators. Both new master leases bear an initial cash yield of 8% with 2.5% annual escalators. Omega’s new investments for the quarter totaled $142 million, inclusive of $20 million in capital expenditures. Turning to dispositions, during the first quarter of 2022, Omega divested 27 facilities for total proceeds of $333 million. I will now turn the call over to Megan.

Megan Krull, SVP of Operations

Thanks, Dan, and good morning, everyone. As expected, the COVID case counts as the height of Omicron in January have fallen exponentially. While that decline, coupled with the surge itself not resulting in the high hospitalizations and death rates experienced pre-vaccine, is welcome news given where we were a year and a half ago, it should not detract from the fact that the industry continues to face challenges. Staffing shortages continue to persist, with a heavier reliance on agency workers. ACA estimates a loss of 241,000 nursing home employees, which is 15.2% of the workforce since February 2020, including an additional 2,500 jobs in March 2022. Because of those shortages, nursing and agency expenses continue to be elevated. Agency expense on a per patient day basis for our core portfolio for the fourth quarter of 2021 was more than six times what it was in 2019. This, in turn, continues to have an impact on occupancy, with self-imposed admission bans due to staffing shortages delaying an even better occupancy recovery. The good news is that, as mentioned earlier, we are starting to see traction on the occupancy recovery front, despite these staffing challenges. As of February 2022, approximately 25% of core facilities have now recovered from an occupancy perspective. Unfortunately, on the federal stimulus front, no new releases from the Provider Relief Fund have been announced and there remains about $3.5 billion of Phase IV payments yet to be released, as HHS continues to review applications submitted last year. While additional federal stimulus would be welcomed, given continued elevated expenses and occupancy that hasn’t fully recovered, now more than ever it is critical that the states step up to ensure that rates keep pace with the persistent increased expenses, including post-public health emergency when the increase in FMAP will no longer be in effect. Finally, while the number of cases and deaths in nursing homes during the pandemic has put somewhat of a regulatory target on the back of the industry of late, it is important to note that individuals in nursing homes were in the demographic and clinical state most vulnerable to the virus and therefore, it should not have been unexpected that they would experience the largest impact, the prioritization of the vaccination efforts to this population with a clear recognition of that fact. We hope that while the administration contemplates modifications to regulatory oversight, it recognizes the nuances of the industry, including extreme staffing challenges, increased expense pressures, and the tremendous effort the industry has made for over two years in adapting to care of the elderly during an unprecedented pandemic. I will now open the call up for questions.

Operator, Operator

Our first question comes from Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes, Analyst

Hey. Good morning. Thank you for all the details on the moving parts of revenues back in the first quarter and into the second quarter. I guess just to simplify it for us listening. Could you maybe give us that net change from 1Q to 2Q from revenues that are not expected to be collected and revenue that is expected to come back?

Taylor Pickett, CEO

Sure. Jonathan, if I look at it from a FAD perspective, the FAD was $161.9 million in Q1. I would expect an increase of about $11 million to $11.5 million.

Jonathan Hughes, Analyst

Okay. So, I guess, barring any more operator issues and realizing it’s still a very challenging environment for skilled nursing. So that’s still a very real possibility. And obviously, if Agemo and Guardian and others do pay some rent in the second quarter that are currently on a cash basis that I assume are not in that figure you just gave us. I mean, have we effectively found the bottom in terms of cash flow paid to you by your operators?

Taylor Pickett, CEO

Just a couple of comments, Jonathan. Bob does have Guardian included in that Q2 FAD number. However, Agemo has essentially not paid any rent. If they were to start paying, that would present an opportunity for additional revenue. While it's reasonable to consider that we may be at the bottom regarding the operators we are discussing, we must remain cautious about the next few quarters. As Megan noted in her remarks, the public health emergency continues to support the revenue side for our operators through FMAP. If the health emergency is not extended beyond July, it could add some pressure. We are confident in the portfolio's resilience and the efforts the team has made, but I want to emphasize that we are not over this yet; however, concerning these operators, we are in relatively good shape.

Jonathan Hughes, Analyst

Okay. Thank you for clarifying that. I appreciate it. Can I just sneak in one more? Just on the buyback, if we use consensus NAV, that’s basically purchased those shares at a mid 8% implied cap rate, and obviously, there’s no underwriting uncertainty there. But can we expect maybe more buybacks with the expected sales proceeds for the 26 properties under held for sale or would you prefer to deploy those in the new assets like U.K. care hubs? Thank you.

Taylor Pickett, CEO

Yeah. Yeah. For sure, Jonathan. Step one for us is to find a home for our capital with new assets and support our existing operators. But to the extent that there’s not enough volume there in the pipeline then we will certainly continue to look at stock repurchases as well.

Jonathan Hughes, Analyst

Great. Thanks for the time.

Taylor Pickett, CEO

Thank you.

Operator, Operator

The next question is from Sam Choe with Credit Suisse. Please go ahead.

Sam Choe, Analyst

Hi, guys. I am on for Tayo and thank you for taking my question. Just wanted to go back to the Guardian portfolio restructuring. Regarding the eight released facilities, just curious as to what the expected rents are and the timing of when those will start?

Dan Booth, COO

So when you say eight, we had a total of 20 facilities that we had teed up to either sell or release, and to-date, we have transitioned 13 of those. So we have actually seven left. And when we’re all finished, which we hope will be in the second quarter of 2022, but I want to caveat that those restructurings are not complete yet. But based upon what we have, it looks like our total rent or rent equivalents for 20 facilities in total will equal about $8 million.

Sam Choe, Analyst

Got it. And will that start like maybe 2Q and into 3Q, is that the expectation?

Dan Booth, COO

Yeah. So, yeah, the ones that we have already transitioned will start paying rent almost immediately as well as the seven remaining.

Sam Choe, Analyst

Got it. Okay. Just shifting gears, the 26 facilities classified as held for sale, I know some of that’s Guardian. Could you kind of talk about the remainder of that held-for-sale facilities and maybe the cap rates that you are expecting on those?

Taylor Pickett, CEO

The majority of that involves the seven Guardian assets that Dan mentioned and detailed in the press release. We are planning to exit one operator from the portfolio, which has been classified as held for sale for several quarters and consists of about 13 additional assets. Additionally, we have four closed assets, and as you know, we review our portfolio every quarter to consider selling any closed assets we have. The total net book value on our books is between $92 million and $93 million. We aim to achieve proceeds of over approximately $120 million and reported $2 million in revenue related to those assets in the first quarter.

Sam Choe, Analyst

Got it. Great color. Thank you so much.

Operator, Operator

Next question is from Nick Joseph with Citi. Please go ahead.

Michael Griffin, Analyst

Hey. This is Michael Griffin on for Nick. I am curious just to touch base on the tenant side. Beyond the currently non-paying tenants, can you quantify maybe a percentage that might be on like a future watch list?

Dan Booth, COO

Yeah. I can’t quantify a percentage. There are some smaller operators that are struggling that we have had discussions with. There are no operators of any real scale that we are having issues with from a payment perspective. So it’s hard to predict out in the future. As we have said, there are still challenges out there, and a number of things on the horizon including the comeback in occupancy, the labor costs, and all the things that we discussed that remain challenges for our sector, and we have to navigate the next few quarters going forward. But to predict what percentage that is, that would be throwing darts.

Michael Griffin, Analyst

Yeah. No. Totally understand. And just shifting to the regulatory side, I am curious to get your thoughts on the recent CMS proposal for the rate cuts, and how you expect this to impact your tenant base and if you expect any changes during this 60-day comment period?

Taylor Pickett, CEO

Well, it’s a little disappointing that there wasn’t more discussion from CMS about phasing in the PDPM adjustment, which went through 16 pages of last year’s proposed rent about ways to phase it in. That would be helpful given that the environment this year is any better than it was last year. So we are hopeful that over the next 60 days there might be a shift and the adjustment isn’t just all at once. It would create a negative rate. That being said, we know it’s eventually coming. Our operators do what they have always done and work hard around that. It’s just another piece of pressure that we will be dealing with.

Michael Griffin, Analyst

Got you. That’s helpful. Thanks. Appreciate the time.

Operator, Operator

The next question is from Connor Siversky with Berenberg. Please go ahead.

Connor Siversky, Analyst

Good morning, out there. Thanks for having me on the call and I appreciate the detailed prepared remarks. I am just thinking back to the context of deploying capital, whether that’s in buybacks or deploying in real assets. What are the opportunities that look like in the U.S. and the U.K? I mean, are you seeing the action of the seller’s market cool off at all, and do you expect you will see more opportunities for OHI through the end of the year?

Taylor Pickett, CEO

It remains a seller’s market in the U.S. However, we are noticing increased opportunities in the U.K. due to our recent acquisitions. The situation in the U.K. is not only about opportunity; their occupancy levels during COVID were not as severely impacted as in the U.S., leading to a quicker recovery and greater stability. As a result, we are experiencing more stability in the U.K. than we are domestically. We plan to continue pursuing transactions in both markets, but currently, most of our deals in the U.S. involve smaller portfolios sourced from our existing operators and are more regional in scope.

Connor Siversky, Analyst

Okay. Thanks for that. And then quickly on Guardian, and apologies if I missed this before, but in these releasing activities, are you looking to place new operators in these facilities or are they already on the tenant roster for the most part?

Taylor Pickett, CEO

No. We have got a couple of new operators that have gone into these facilities. Most of them are involved in sales, to be honest with you, but we do have a couple of new operators that are going into these buildings.

Connor Siversky, Analyst

Okay. Appreciate the color. Thank you.

Operator, Operator

The next question is from Rich Anderson with SMBC. Please go ahead.

Rich Anderson, Analyst

Thanks. Good morning. Early on in the call, you said 12.3% of rents and interest were not paid in the first quarter; all of that would be reflected in your FAD number. How much of that actually shows up in FFO, meaning those that are still on a GAAP accounting basis?

Taylor Pickett, CEO

You have the one operator and 3.4% of that absolutely shows up, the operator that I mentioned, we kept on a cash basis, but did not record FAD. I don’t have the total in front of me; I can call you back on that. But I know it's around...

Rich Anderson, Analyst

I am just trying to connect the dots in the cadence between FFO and FAD and how to sort of move that forward based on all the moving parts?

Taylor Pickett, CEO

The best way, I think, I mean, offline, I can walk you through the model, but the best thing, I think, is to take that FAD number of $162 million and then add back the numbers we mentioned today; around $11 million, $11.5 million of additional FAD because we have a couple of operators that at least that one operator that’s on a cash or a straight-line basis.

Rich Anderson, Analyst

You mentioned that there seems to be some progress on occupancy, and you indicated that more than 20% of your facilities have fully recovered in occupancy. Did I hear that correctly?

Taylor Pickett, CEO

Megan, go ahead.

Megan Krull, SVP of Operations

Yeah. That’s 25% of the facilities have recovered from an occupancy perspective.

Rich Anderson, Analyst

Is that a geographical observation, an operator observation, or is there something common about that 25% that informs the rest of the portfolio?

Megan Krull, SVP of Operations

There really isn’t much. We have explored it in depth. There is some geographic concentration in Florida and Texas, but those states were already heavily concentrated. We continue to look for any insights into what’s happening, but we haven’t found anything yet.

Rich Anderson, Analyst

Okay. It’s sort of sweet. Thanks.

Operator, Operator

The next question is from John Pawlowski with Green Street Advisors. Please go ahead.

John Pawlowski, Analyst

Thanks for the time. Megan, can you just give us a sense of how pervasive the number of facilities that are restricting admissions is today versus, call it, the end of last year?

Megan Krull, SVP of Operations

Yeah. I mean it’s significant enough to be causing an issue with occupancy clearly. I think just anecdotally with operators, some operators are feeling like things are maybe not getting worse, but at least stabilizing. But it’s hard to sort of figure out on any given day how many facilities are in admission bans because it really is so fluid, with staff calling out and you are not being able to admit; it can change on a daily basis.

John Pawlowski, Analyst

Okay. So the restrictions really haven’t gotten much better in the last three months or so?

Megan Krull, SVP of Operations

I wouldn’t say so, no.

John Pawlowski, Analyst

Okay. Last question for me, following up on the Medicare cuts. Have you noticed any visible impact on the bidding landscape for the assets you currently have for sale?

Taylor Pickett, CEO

We have not.

Operator, Operator

The next question is from Nick Yulico with Scotiabank. Please go ahead.

Nick Yulico, Analyst

Thanks for the details, Bob, regarding the operators. My question is about the criteria for switching these operators to a cash basis instead of recognizing GAAP revenue. For the two other operators, the ones with 3.4% and 2.4% exposures, they didn't fully pay during the quarter. Your booked revenue assumes some GAAP revenue for the second quarter. I'm trying to understand the factors that determine whether they are classified on a cash basis or included in FFO.

Taylor Pickett, CEO

Well, you look at the long-term collectability of the total rental obligation over the life of the lease, and if you feel you are going to collect it, you keep them more on a straight-line basis. That’s basically it. And there are other facts and circumstances that come into play, but that’s the big picture.

Nick Yulico, Analyst

Okay. And then, I guess, a follow-up there would be, at this point, why not provide some quarterly guidance? I mean, you have booked revenue for these operators. You have some visibility as to what you are thinking you are going to get in the second quarter. Why not provide quarterly guidance? And even if you could also maybe just give us a feel for as we think about this quarter from a normalized FFO number, whether that first-quarter run rate is a good one to start basing off for the second quarter; any perspective there would be helpful? Because I think from a modeling standpoint, it’s pretty tricky about whether these companies are on cash, whether they are on GAAP revenue, and it also looks like some of the election of that treatment for the operators in the first quarter created what looks like a beat. That’s why I think it would be helpful to understand what going into the second quarter, okay, well, what are we dealing with now?

Taylor Pickett, CEO

From our perspective, Nick, we have been quite clear about the uncertainty regarding cash collections. We are hopeful that the few operators who have started paying will continue, but it's impossible to predict. I understand that connecting the AFFO and FAD can be complicated, and we will provide you with as much data as we can. I encourage you to keep speaking with Bob about how we recorded it.

Nick Yulico, Analyst

Right. Okay. All right. Thanks. Yeah. I guess, from the cash collection, I get it, but from a GAAP revenue standpoint, I mean, just understanding you booked it in the first quarter, and we are going to definitely have this in the second quarter, which sounds like that is the case, right, that you are assuming that for the 3.4% operator, the 2.4% operator, right? The Guardian, you are assuming as well, just to be clear, full revenue, GAAP revenue in the second quarter, is that correct for those three?

Taylor Pickett, CEO

That’s correct. But remember, Guardian is cash basis. So you don’t have any straight-line component there. But, yes, that is correct going into Q2.

Nick Yulico, Analyst

Okay. Thank you. Helpful.

Taylor Pickett, CEO

Thank you.

Operator, Operator

The next question is from Steven Valiquette with Barclays. Please go ahead.

Steven Valiquette, Analyst

Great. Thanks. Good morning, everybody. So, obviously, there are a lot of moving parts right now within the portfolio of disclosed and non-disclosed operators. I guess, as we look at that table with the list of operators with EBITDA rent coverage ratio that sub one on page six of the supplement. Can you just give us any sense for how many of those 21 operators on that list are currently paying rent versus how many are not paying rent?

Taylor Pickett, CEO

We can. Bob is looking at it right now.

Steven Valiquette, Analyst

Okay. Sorry to throw you the math question in the middle of the call. In the meantime, I can ask a follow-up that I wanted to ask. Just given where the total portfolio coverage ratios should be at 12/31 that you just put in the supplement, as we think ahead one additional quarter. Is there any preliminary directional view today on whether coverage ratios will improve or deteriorate further for that core portfolio when you report the 1Q 2022 coverage ratios next quarter? That would be the follow-up. Thanks.

Taylor Pickett, CEO

No. I think to the extent that occupancy is such a major driver of cash flow and coverage, and we saw occupancies improve, I might make an additional inflammation to say I would expect coverage to improve, but take that with a grain of salt; I mean, I totally have the numbers come in.

Megan Krull, SVP of Operations

Right. You also had the Omicron variant kicking in January, right, which is going to help you in that month. So it’s a little bit too soon to tell where this will go, but to Taylor’s point, with occupancy improving, hopefully, the latter part of the quarter improved substantially.

Steven Valiquette, Analyst

Okay. That’s helpful.

Bob Stephenson, CFO

To return to your initial question, if you look at the bottom of page six, you can see that everyone is current, except for those indicated by footnote five, which accounts for 14.2%. They are still in forbearance.

Steven Valiquette, Analyst

Are the two new ones added to that list making payments? I can see the details here, so never mind. I'm good. Thank you for the clarification. I appreciate it.

Operator, Operator

The next question is from Georgi Dinkov with Mizuho. Please go ahead.

Georgi Dinkov, Analyst

Hey. Good morning. Georgi Dinkov on for Vikram Malhotra. I am just curious, how do you think about PHE going away and what impacts do you expect?

Megan Krull, SVP of Operations

So if the public health emergency goes away, you obviously lose the benefit of FMAP, so the states won’t be stepping up as much, although I have heard some states trying to take what they were giving in FMAP and trying to put it into their permanent rates pieces of it. You are also going to use the ability to skill in place that three-day stay waiver, which has really helped folks during outbreaks. Right now, the public health emergency runs through July. I mean, we hope that, that ends up getting pushed out through the year-end, but there’s no way to tell what’s going to happen.

Georgi Dinkov, Analyst

Okay. Great. Thank you. And just a follow-up on that, where are new deals being struck in terms of EBITDA coverage?

Dan Booth, COO

It hasn’t changed. I mean, obviously, the lion’s share of our deals have been in the U.K. and there’s still 1.3 to 1.4 coverage out of the gate.

Georgi Dinkov, Analyst

Okay. Great. Thank you. That is all for me.

Operator, Operator

The next question is from Joshua Dennerlein with Bank of America. Please go ahead.

Joshua Dennerlein, Analyst

Yeah. Good morning, everyone. I am assuming most of your share repurchases were done before the CMS came out with their reimbursement proposal for the next fiscal year. Does that proposal change your appetite at all for further buybacks near-term?

Taylor Pickett, CEO

No. The proposal really wouldn’t be eligible for buyback decisions; it’s really about where we harvested capital and where we can think about where we deploy capital on a leverage-neutral basis. Obviously, we deployed a bunch in the U.K. and we bought back stock and we retained cash, leverage-neutral. It’s an effective way to manage our balance sheet.

Joshua Dennerlein, Analyst

Okay. And then I saw that it looks like you issued some shares via the reinvestment program. It just kind of seems weird to be buying back shares and then also issuing that way. Just curious about the rationale there.

Taylor Pickett, CEO

Yeah. We have a DRIP plan in place, and that was early in the first quarter. With the DRIP plan, we didn’t feel it was right to turn it off this time.

Joshua Dennerlein, Analyst

Okay. Okay. That’s it for me. Thanks, guys.

Taylor Pickett, CEO

Thank you.

Operator, Operator

Next question is from Michael Lewis with Truist. Please go ahead.

Michael Lewis, Analyst

Great. Thank you. My questions are kind of bolt-ons to questions that were asked earlier about the coverage ratios at the bottom of page six. Just to be 100% clear, that footnote five, does that mean that those tenants are currently not paying under an agreement to temporarily not pay, or does that mean they were restructured in a way that perhaps makes those coverages lower and makes those coverages better or different than they show here?

Dan Booth, COO

I think you have got a combination of both in there. You’ve got some tenants that are under forbearance agreements and some that are restructured.

Michael Lewis, Analyst

Okay. Thanks. And then along these same lines, somebody asked earlier about your optimism, I suppose, on some of these low coverage ratios, when we look at that with almost a third of the portfolio below one-time. Again, directionally, do you see a path for a lot of these guys to kind of get back to where the rents are? Do you think this is a portfolio that really just about everybody here needs to be restructured, or maybe some percentage in between, I imagine?

Taylor Pickett, CEO

It’s predominantly driven by occupancy recovery. If you assume occupancies will recover to pre-pandemic levels at 84%, then the vast majority of those operators will climb back out of that under one coverage scenario, and we should be in decent shape. That’s why there’s so much focus on the velocity of the occupancy recovery, and ultimately, who knows what that will be. We feel highly confident that the demographics will eventually drive us there. But is it eight months or 24 months, we don’t know the answer to that yet.

Michael Lewis, Analyst

I see. If I could ask a third question, since I might be last in line anyway. When I consider the entire picture, including the coverage and occupancy situation, do you believe this reflects the overall industry trend, or do you think your portfolio is either performing better than others or leading you to re-evaluate it in a specific way? Someone previously mentioned geography and other aspects, so any thoughts on that would be appreciated.

Dan Booth, COO

Yeah. I mean it’s hard to compare to the world as a whole. But I would say our portfolio is doing as well, if not better than other portfolios that we see and other operators outside of our world.

Michael Lewis, Analyst

Okay. And you don’t see any area where you would focus to improve, any theme that kind of runs through this that ran into more trouble than others, nothing like that?

Dan Booth, COO

Well, there were some geographic challenges certainly in Texas and Florida. But I think Florida hopefully has fixed a good bit of that, and we hope to see some better results in the state of Florida going forward.

Michael Lewis, Analyst

Okay. Great. Thank you, guys.

Taylor Pickett, CEO

Thank you.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks.

Taylor Pickett, CEO

Thanks everyone for joining us this morning. As we went through a lot of details, please feel free to call the team for modeling and other purposes. Have a great day.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.