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CareTrust REIT Inc (CTRE 0.85%)
Q1Â 2019 Earnings Call
May. 8, 2019, 1:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen and welcome to the CareTrust REIT First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded.
I will now turn the call over to Lauren Beale, CareTrust Controller, you may begin.
Lauren Beale -- Controller
Thanks, Michelle. Welcome to CareTrust REIT first quarter 2019 earnings call. Please note that this call is being recorded. Before we begin, please be advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about
CareTrust' business and the environment in which it operates. These statements may include projections regarding future financial performance, dividend, acquisition, investment, return, financing and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein. Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust's SEC filings for a more complete discussion of factors that could impact results. As well as any financial or other statistical information required by SEC Regulation G.
During the call, the Company will reference non-GAAP metrics such as EBITDA, FFO and FAD or FAD and normalized EBITDA, FFO and FAD. When viewed together with GAAP results, the Company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP report. Except as required by law, CareTrust REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result to new information, future events, changing circumstances or for any other reason.
Listeners are also advised that CareTrust yesterday filed its Form 10-Q and accompanying the press release and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust's website at www.caretrustreit.com. A replay of this call will also be available on the website for a limited period. Management on the call this morning include Bill Wagner, Chief Financial Officer; Dave Sedgwick, Chief Operating Officer; Mark Lamb, Chief Investment Officer; and Eric Gillis, Director of Asset Management.
I will now turn the call over to Greg Stapley, CareTrust REIT's Chairman and CEO.
Greg Stapley -- Chairman and Chief Executive Officer
Thank you, Lauren. Good morning and welcome everyone. It was an eventful quarter, thanks to the great teams with me here today, 2019 is off to the fast start in the Company's history. In the quarter and since, we significantly expanded and extended out our revolving credit facility and our seven-year term loan, while at the same time, reducing our interest rates and borrowing cost. We exhausted our ATM Program, raising $47 million in the quarter against healthy demand for our stock, and then we refreshed the ATM program with a new $300 million ATM that we can easily use to match-fund smaller acquisitions going forward.
We raised almost $150 million in an overnight in April that was nearly 4 times oversubscribed and we made $290 million in new investments that we're really excited about. And best of all, most importantly, we brought on two outstanding new operators in the process. We did use the ATM in the overnight strategically to keep leverage down through this growth spurt which muted the per share numbers a bit, but we are raising guidance today and we're really well positioned to grow when, where and how we want to over the next couple of years. Especially if we see the pendulum swing back toward a buyer's market, we're not predicting that. But we are ready, if and when that day comes and we intend to stay ready, while continuing to grow in a disciplined way. We also remain earnestly engaged in finding and partnering with the very best healthcare operators in the country. And we are more committed than ever to our operator-first underwriting approach and portfolio management model.
With that, I'd like to turn some time over to the team. Dave will first talk a little about our current assets and operators. Mark will then discuss recent acquisitions in the pipeline and Bill will wrap up with the financials. Dave?
Dave Sedgwick -- Chief Operating Officer
Thanks, Greg and good morning. So the year is off to a great start with new acquisitions that have expanded and strengthened our portfolio in multiple ways. First, the new investments for our current operators, WLC Management and PMG had given those outstanding tenants additional scale, with stable cash flow and facilities. With WLC, the Illinois SNF AL campus we acquired, it's right in their footprint and the market is a great match for their unique skill sets. For PMG, the eight properties in Louisiana are a perfect fit, since they are right in their backyard and PMG's principles personally operated these buildings for the original owner several years ago. So they know the operations and the markets unusually well. Both transitions have gone well so far and both, we and our operating partners couldn't be more pleased.
Second, our $44 million California sale leaseback transaction with the current tenant, Covenant Care allowed us to consolidate four newly acquired facilities, with four existing assets into a single master lease. The existing assets had been under three stand-alone leases that we had acquired from different sellers at different times, and had remaining lease terms of less than five years. So getting all of them onto a new long-term master lease was a double win for CareTrust. Third, two of the deals allowed us to establish operating relationships with two outstanding new tenants, Southwest LTC and Next Gen.
Southwest LTC currently operates 24 skilled nursing facilities and seven assisted-living facilities across Texas and Oklahoma. The 20-year old company is led by Ronald Payne, a well regarded longtime operator who also happens to be the current Chairman of the Texas Health Care Association. Southwest LTC has carved out it niche by proficiently running more rural and small market facilities like before we matched them within Texas.
Next Gen is part of a larger organization that operates five skilled nursing facilities in the Houston and Dallas areas. Their team is led by Sharlyn Threadgill, a well respected veteran operator with a track record of quality care and financial success. Their expertise and working with managed care organizations and the higher skilled -- skill-mix model made them an excellent choice for the New Dallas Property as well as some other potential acquisitions in our current pipeline.
As you can tell, we're excited about these new relationships and we plan to grow with both the Next Gen and Southwest LTC in the future. At the same time, we are continually reevaluating the existing portfolio and operator pool to be sure that each asset and operator continues to meet our rigorous standards and long-term growth expectations. This is all part of our ongoing operator-first model and we continue to look for more and better ways to find, evaluate, monitor and support our tenants and their operations.
To that end, in March, we hosted the three-day conference for our skilled nursing operators, at the conference we go deeper into PDPM and other current topics and help them prepare for and take advantage of the upcoming changes. The conference was well attended and very productive and we plan to make it an annual event.
Looking at the broader industry, labor headwinds are still very much a challenge, highlighting now more than ever, the need for operators to first become the employers of choice in their markets, so that they can then become the care providers of choice in those markets. The 2.5% Medicare rate increase announced for the next two fiscal years is very positive for our skilled operators, but nothing is more important than the culture of care they foster in their operations. That's one of the many things we screen and monitor for as part of our portfolio management efforts. We are also optimistic about the opportunities PDPM will present for our operators and our tenants have echoed that optimism.
And with that, I'll hand it over to Mark to talk about the pipeline. Mark?
Mark Lamb -- Chief Investment Officer
Thanks, Dave and hello everyone. In Q1, we closed approximately $64.3 million in investments composed of a $9 million tack-on with WLC Management in Southern Illinois and the $43.9 million sale leaseback of Covenant Care in California. We also provided Covenant Care with $11.4 million short-term mortgage loan. Since quarter end, we closed on a $10 million acquisition in the DFW area with a great new operator Next Gen that we anticipate growing with very soon as Dave just mentioned.
Also, as most of you are aware, on April 1st, we invested $215 million in a 12 building portfolio in Texas and Louisiana that we are very excited about. We picked up the portfolio from a private equity firm that we've partnered with before to and acquired it in a larger transaction with another landlord and we immediately replaced the existing operators who had filed for bankruptcy. We're sometimes asked how assets then another landlord is deemed undesirable can be the complete opposite in our portfolio.
Our experience proves that assets that languished in the hands of troubled operators can perform beautifully under the management of superior ones. For the most part, healthcare properties themselves are neither inherently bad, nor good, they're simply brick and mortar assets a tool with which to do a job. Yes, some are more desirable than others, but the real difference lies not in the architecture, construction or location, but in the operators expertise and their commitment to care.
This principle has been proven over and over and we take our jobs very seriously to place CareTrust assets in the hand of the very best care providers and business people we can find. For this reason, we can comfortably say that we expect the assets that we acquire from troubled operators and/or their landlords will be healthy under the management of the new operators we brought in. This is certainly the case with the Louisiana and Texas acquisition, we will continue to look for similar opportunities. Altogether, these acquisitions bring our year-to-date investment total to $290 million.
Turning to the market. After a strong start that's kept us very busy, we're rebuilding the pipeline largely with skilled nursing assets. We are seeing actionable opportunities in markets that we and our operators like. And as we sit here today, our -- pipeline is back in the our normal $100 million of $125 million range. It consists mostly of singles and doubles and a couple of small portfolios, and includes tack-ons for our existing operators as well as deal that we compare with our new operators. Please remember that, when we quote our pipe, we only quote deals we are actively pursuing, which means, the yield coverage and other underwriting standards we have in place from time to time and then, only if we have a reasonable level of confidence that we can lock them up and close them.
And now, I'll turn it over to Bill to discuss the financials.
Bill Wagner -- Chief Financial Officer
Thanks, Mark. For the quarter, we are pleased to report that normalized FFO grew by 16% over the prior year quarter to $27.9 million and normalized FAD also grew by 16% to $29 million. Due to some dilution, we consciously took in anticipation of the $215 million April 1st deal Mark talked about, our normalized FFO per share was flat at $0.32 as was normalized FAD per share at $0.33. Given our most recent dividend of 0.225 per share, this equates to a payout ratio of 70% on FFO and 68% on FAD, which again represents one of the best covered dividends in all the healthcare REIT sector.
We continue to strengthen our leverage and liquidity positions, while closing our largest investment today. To that in the quarter, we issued 2.5 million shares under our ATM at an average price of $19.48, resulting in $47.3 million of net proceeds. Those sales essentially exhausted our old ATM and we have since put up a new $300 million ATM, but have not sold any shares under it. We also closed on a new $600 million revolver and a $200 million seven-year term loan, reducing our borrowing costs again and pushing our earliest debt maturities out to 2024.
And finally, in April, we sold an overnight offering 6.6 million shares at $23.35 per share, resulting in net proceeds of $148.4 million. These proceeds were used to pay down the revolver, following the 12 facility in Louisiana, Texas acquisition that closed on April 1st. All of this resulted in a rating upgrade from Moody's. Our revolver balance currently sits at $45 million.
For guidance in yesterday's press release, we increased our 2 -- 2019 annual guidance by $0.05, projecting normalized FFO per share of $1.35 to $1.37, and normalized FAD per share of $1.40 to $1.42. This guidance includes all investments made today, the recently completed credit facility amendments, the recently completed stock offering, the diluted weighted average share count of 93.5 million shares and also relies on the following assumptions.
One, no additional investments or dispositions, nor any further debt or equity issuances this year. Two, inflation-based rent escalations, which account for almost all of our escalators at an average of 1.5%. Our total rental revenues for the year, again, including only acquisitions made todate are projected at approximately $167 million, which includes approximately $1.8 million of straight-line rent. Not included in this amount, are tenant reimbursements, which we previously accounted for on its own line item in the income statement. Due to the new leasing standard, these are now grouped with rental revenues, but the amount included in a rental revenues can be seen under expenses as property taxes.
Three, our three independent living facilities are projected to do about 500,000 in NOI this year. Four, interest income of approximately $2 million. Five, interest expense of approximately $28.1 million. In our calculations, we have assumed a LIBOR rate of 2.5%, that plus the newly reduced grid-based LIBOR margin rates of 125 bps on the revolver and 150 bps on the seven-year term loan, makeup the floating rates on our revolver and term loan.
Interest expense also includes roughly $2.1 million of amortization of deferred financing fees. And six, we are projecting G&A of approximately $13.8 million to $15.3 million. Our G&A projections also include roughly $4.2 million of amortization of stock comp. As for our credit stats calculated on a run rate basis as of today, our net debt to EBITDA is approximately 3.3 times, leverage is about 19% of enterprise value and our fixed charge coverage ratio is approximately 6.2 times. We also have $13 million of cash on hand.
And with that, I will turn it back to Greg.
Greg Stapley -- Chairman and Chief Executive Officer
Thanks, Bill. We hope this discussion has been helpful. We thank you again for your continued interest and support.
And with that, we'll be happy to answer questions. Michelle?
Questions and Answers:
Operator
(Operator Instructions) Our first question comes from Jordan Sadler of KeyBanc Capital Markets. Your line is open.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Hi there and good morning.
Greg Stapley -- Chairman and Chief Executive Officer
Good morning.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
First, just wanted to get a little bit of color on the pipeline that you're seeing now, is it predominantly skilled nursing assets and what are you seeing in terms of sort of flow of assets on the market versus appetite from competitive capital just frame up the environment for us?
Mark Lamb -- Chief Investment Officer
Sure. Jordan, it's Mark. I would say certainly on the SNF side, we continue to see non-strategic buildings from operators who continue to prune their portfolios. So sometimes whether it's geographically an outlier or for whatever reason maybe financially buildings breaking even and doesn't make sense or even on the regulatory side if t's in a region that is a little bit either more challenging or the regulators in that region have kind of signaled to the operators time to go.
There is also I would say, it's -- there has been a slowing in REIT dispositions. But we continue to see opportunities on a much more selective basis there. And then, we continue to see mom-and-pops who are exiting for various reasons. So that's kind of what, call it, what we're seeing in the market in terms of the composition of our pipeline is made up of operators who are dispossessing assets that don't fit their portfolio. And then a couple of mom-and-pops who just want to exit.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Right. And then are you seeing more capital come in and chase skilled assets given sort of PDPM, post-CMS recommendation sort of increased optimism assuming lease stabilization on the skilled side?
Mark Lamb -- Chief Investment Officer
It's really call it unchanged from what we've seen in -- I would say over the past 12 months to 24 months. And that you continue to have private buyers who understand the upside in the space. And I wouldn't say there's as much private equity that's chasing, but I would say kind of private syndicated buyers continue to look for opportunities. I was actually back at LTC 100 back in Florida earlier this week, and there is an abundance of capital, but it's really largely from the same spots. The -- some REITs, some non-traded REITs as well as I'd say the private buyer as well as well-capitalized operators are all there as they have been for the last 12 months to 24 months.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. And then just moving onto sort of the new portfolio. Any sort of commentary one month in early days, but just a quick update of what you're seeing?
Mark Lamb -- Chief Investment Officer
In terms of the Louisiana piece, the portfolio is exactly what we expected. The good news is the -- as we stated over and over, the operator Priority management -- Priority Management Group has operated this in a past license. And so they understand really kind of where the buildings you need to get back to. And so nothing from an occupancy, I think from the latest numbers from the skilled mix perspective, there are ahead of pace from an overall occupancy perspective, they are slightly behind. But it's all largely due to one building. They're very, very optimistic. We -- we're going to give them up to $7 million to fix up the buildings. And we expect to get that capital plan rolled out over the next -- over the next couple of months. But the portfolio is steady, it was steady when it was handed over. And the new operator, PMG is making physician -- kind of reconnecting with all physician relationships and doing exactly what we would expect them to do, call it, 45 days into the transition.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
What are the occupancies look like on the portfolio?
Mark Lamb -- Chief Investment Officer
I don't -- I have it on a kind of a total dollar or a total per patient day. I think it's -- I would say it's mid-to-high 80s. But I can circle back with you and get the exact numbers offline.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
But not far off that sort of stabilized monthly, just needs (inaudible).
Mark Lamb -- Chief Investment Officer
No. It's been stable and we took over in the occupancy within the 80s and it's there today. I just can't give you an exact percentage.
Greg Stapley -- Chairman and Chief Executive Officer
Hey, Jordan. Just a reminder, this is the part of the senior care centers portfolio that the senior care centers didn't want to lose, because it was stable and cash flowing. So we got in fairly good shape and it's actually ahead of where we expected it to be.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. I guess I was kind of curious if there was any fallout amid the transition or amid the bankruptcy, et cetera. That was more along the lines of my question. Is the Texas piece of the portfolio at similar condition?
Mark Lamb -- Chief Investment Officer
It is. It's -- there are -- from an occupancy perspective, it's really kind of in the same spot that it was on when we underwrote it kind of using the numbers through October of 2018 -- 2019. So, the Texas portfolio is stable, it's got a little bit of -- it's got independent living and assisted living in it. So it's got a little bit of senior housing to help out in terms of where the upside is going to be in addition to transferring the overall occupancy North, so far so good, but we're only 38 days at.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. Then last was just maybe Greg on the Ensign news, the spin-off with tenant. Can you maybe comment on any impact you see to the underlying credit or positive or negative and any impact on the relationship longer-term?
Greg Stapley -- Chairman and Chief Executive Officer
Sure. I would tell you from our perspective, Jordan. The spin-off is largely a non-event. A few of our assets would become part of the new Company. But it won't reduce our rental income and according to their proposal to us, instead of one guarantor will have two well capitalized companies, public companies, guaranteeing that kind master lease. So the only visible change from our perspective would be a reduction on our tenant concentration with our largest tenant, which you -- I think most people know has not really been a very high priority for us lately and frankly for most of you lately since they're good tenant with all the lease coverage. So there's still a lot of details and documents to work out, but we're happy to work with them as we always are to help them accomplish their goals.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
So a couple of assets will sit in tenant?
Greg Stapley -- Chairman and Chief Executive Officer
There will be several -- yeah several assets would go to tenant.
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Okay. Okay, thank you guys.
Greg Stapley -- Chairman and Chief Executive Officer
Thank you.
Operator
Our next question comes from Chad Vanacore of Stifel. Your line is open.
Chad Vanacore -- Stifel Nicolaus -- Analyst
Just sticking with that Ensign's spin-off question. Do you have any ability to impede its tenant that made sense to you?
Greg Stapley -- Chairman and Chief Executive Officer
Well, Chad. I mean it really doesn't make sense if I don't see any -- I think the spin is probably a positive thing for everybody. We certainly know the guys that are going to be running tenants very, very well and I think very, very highly of them. I suppose we could decline to play, but I just don't know why we would, Ensign has been a good tenant for us. The rent comes on time. Tenant is -- we believe that tenant is going to be every bit as good. We think there's some things about this spin that actually make a ton of sense for both Companies and for us as well. And so, all that said, I don't really see any reason to even think about not helping them do this -- it's not a bad thing.
Chad Vanacore -- Stifel Nicolaus -- Analyst
All right. So fair to say you're supportive. All right. Then just thinking about the operator conference that you had. So outside from PDPM and labor expense inflation which you've been pretty well bandied about. What are maybe some of the other concerns that operators are having. Concerns and opportunity, what was the most discussed at the operator conference?
Dave Sedgwick -- Chief Operating Officer
Hey, Chad, this is Dave. I'll tell you PDPM did take a lot of -- we did have a lot of airtime on PDPM and really digging into how to prepare for that. And of course, labor is an important topic. And not just in the late -- in the operator conference, but as part of our asset management efforts, we try to share as many best practices as we can with our operators to really position themselves as that provider -- as that employer of choice to battle for talent locally, so they can become that provider of choice.
We talked about the five-star program as well, changes to the Medicare requirements as well. And a lot of time -- a lot of the time at the conference was spent on with PointRight. So we had PointRight actually there present. We rolled out to them that tool. And what that tool does is, it gives high level, it gives the operators more information than they had before about how they are viewed in their markets in terms of readmission rates to the hospital, even by diagnosis mode, star ratings and different things that help them not just see themselves but in relation to their competition and our operators can use that information and anecdotally we've already seen them successfully do this although we'll take that information to their hospitals and health plans and that information trumps the star rating to a degree and helps them get into these preferred provider networks that are so important. So that pretty much summarizes the content that we covered in the operator conference.
Chad Vanacore -- Stifel Nicolaus -- Analyst
All right, well thinking about that star rating, there has been a change in how CMS is calculating star ratings. Have you gone through your portfolio and see how that's actually affected your operators?
Eric Gillis -- Director, Asset Management
Chad, this is Eric. We are quite right as currently right now doing a -- gathering all the data for us with the star ratings that we anecdotally we know some that have -- had a decrease that also know of several that have increased as well. So, but we're -- they're pulling all that data for us to do some analysis on all of our portfolio.
Chad Vanacore -- Stifel Nicolaus -- Analyst
All right. That's it for me. Thanks.
Operator
Our next question comes from Jonathan Hughes of Raymond James. Your line is open.
Jonathan Hughes -- Raymond James -- Analyst
Hey, good afternoon. Mark, can you give us some color on the pricing for SNF deals in the pipeline. Another skilled nursing owner earlier today mentioned that lease yield have come down a little as the tenure has dropped, are you seeing a similar trend?
Mark Lamb -- Chief Investment Officer
Yeah, I'll jump in and then Greg can cleanup for whatever I say. But I would say, it's going to range from, I would say, 9% to 9.25%. We've stated in the past that we are willing to give up a little bit yield for additional coverage and we're happy to be kind of in the low 9s to get the corresponding coverage that we're hopeful for. So the entire pipeline is, call it, 9% to 9.5%, but really more of it is in that 9.25% to 9% range.
Greg Stapley -- Chairman and Chief Executive Officer
Good answer, nothing to cleanup.
Jonathan Hughes -- Raymond James -- Analyst
And then coverage still in that 1 times, 1.4 times ballpark? 1.4 times, 1.5 times.
Mark Lamb -- Chief Investment Officer
Yeah. As we've said -- as we underwrite and we put our old operator hats on and dig into the PPDs, we'll initially start at 1.4 times. And then depending on call it, day one changes and where we think the operators will be able to end up on a pro forma basis, we really would like to see him north of 1.5 times once they've got in and have executed their business plan 12 months out. So we start at 1.4 times and sometimes it ticks down if there is an inefficient operator, maybe will dip down into the 1.35 times range, if we feel like there's a lot of meat on the bone and there's a lot of changes that our operators can execute on call it, day one, but for the most part we're right in around that 1.4 times.
Jonathan Hughes -- Raymond James -- Analyst
Okay, great. And then I guess sticking with you Mark on maybe on senior housing. There hasn't been a pure senior housing acquisition since I think 2017. Can you just talk about the investment opportunities within that sector or are there just not enough high quality operators out there and then does the announcement from Ensign, did that just create a new partner to grow with as they expand that company?
Mark Lamb -- Chief Investment Officer
Sure. So again, we're as we've -- as we said all along, we're asset class agnostic and frankly it's all about the operator. We continue to underwrite senior housing deals every day, but the reality of it is, as we just haven't been able to pair an acquisition target with an operator that we like and sometimes we'll find assets that we really like that maybe it's geographically in a spot that we don't have the right fit from an operator perspective and then conversely we continue to nurture relationships with senior housing operators.
But we just haven't found anything that is fit both by some units, obviously some of the bigger players in the senior housing space are just kind of capping NOI and not taking into consideration coverage and bringing in AL operators to just manage on an incentive basis. While the Big Three can come in much lower on a yield basis and get a little bit more coverage to where would maybe makes a lot more sense for them. So we continue to look at opportunities, we just haven't been able to hit.
Greg Stapley -- Chairman and Chief Executive Officer
Hey, Jon, this is Greg. I'll pick up the last part of your question about whether the Ensign spin-off tenant gives us a new partner. The answer is, of course, it does but I think ideally the logical approach is that, we would give them some time for the dust to settle on their sort of spin them to sort of all digested before we contemplate that. However, us, we're opportunistic acquirers and if the right opportunity came along sooner than that, we'd certainly explore with them. So everything's on the table. We haven't redlined, seniors housing, we just haven't seen a ton of it lately that we thought was a good match for our operator pool. And as far as Mark said, the pricing just in a lot of cases doesn't make the best sense to us.
Jonathan Hughes -- Raymond James -- Analyst
Okay, fair enough. And then just one more. Maybe for Bill, I don't want to leave you out. But the target leverage, I think still in that 4 times to 5 times range. But we haven't been there since early last year. I mean, has that target leverage range shifted down a little, given where your cost of equity is so favorable. I mean, why not keep tapping that ATM to keep it as low as possible, which seems you're doing. I'd just love to hear any color and thoughts you got there?
Bill Wagner -- Chief Financial Officer
Hi, Jonathan. Yeah, while our stated range is 4 times to 5 times, we really like sitting in the 3s. We've proven that we can still grow accretively, while maintaining a very conservative balance sheet. But having that range where it is allows us to stretch in the event we find a larger opportunistic transaction that fits well into our existing portfolio.
Jonathan Hughes -- Raymond James -- Analyst
Yeah. Okay. All right. Well that's it for me. Thanks for taking my questions.
Greg Stapley -- Chairman and Chief Executive Officer
Thank you.
Operator
Our next question comes from Michael Carroll of RBC Capital Markets. Your line is open.
Michael Carroll -- RBC Capital Markets -- Analyst
Yeah, thanks. I just wanted to touch on the conference that Dave mentioned in his prepared remarks. And I guess, how do you -- how are the operators prepared right now? Are you confident that the majority of your operators are well positioned to handle the PDPM change that's coming on in October 1 or do you expect some type of volatility in results?
Dave Sedgwick -- Chief Operating Officer
Well, man, thanks, Michael. The high level easy answer is that, we think that our operators are just about as well prepared as they can be at this point. And we know that they're spending a lot of time preparing for it, not just with our conference, but they're going to assist State Association Conferences, is a big group of consultants that are doing a lot of business on PDPM right now as well. And we're confident that our operators are going to hit the ground running. At the same time, it is a major shift. And we'll take some time to, I'd say, fully capture the opportunity. So I think that there will be a little bit of a ramp in terms of capitalizing on the efficiencies that are available, and making sure that the training really sunk in in terms of the documentation and the change of focus and attention to different parts of the MBS that is required, but overall we feel pretty good about it.
Michael Carroll -- RBC Capital Markets -- Analyst
I guess how do you think the rest of market is prepared for -- to get PDPM coming in and I guess, do you guys see any opportunities of I guess some operators not being able to make the transition or not wanting to do the transition and electing to sell their portfolio and some more opportunities for you to get some more acquisition volume?
Mark Lamb -- Chief Investment Officer
Yeah, Michael, this is Mark. We haven't seen necessarily the volume that maybe I personally expected. But it's coming rather quickly and I think operators are ramping up for it. But the answer is no, we're not exactly seeing a bunch of mom-and-pops or call it, more unsophisticated operators that are just kind of thrown in the towel and heading for the hills.
Michael Carroll -- RBC Capital Markets -- Analyst
Okay, great. And then I guess last question I just want to talk about the senior housing result. I know the comparison pools might be different, but it looked like coverage dropped a little bit this quarter. Was that just a difference in the comparison pools or is there something going on within the senior housing coverage ratios?
Dave Sedgwick -- Chief Operating Officer
Yeah. So occupancy did tick down slightly and coverage ticked down as well a little bit. What explains that is principally the management turnover at the regional and local levels for a couple of our operators. The post-acute and seniors housing business is super leadership management sensitive as Mark alluded to in his remarks, so when changes are needed and ultimately made in leadership is usually a temporary dip to results. And the fact that the seniors housing piece of our portfolio is small also tends to magnify how those challenges appear to be outside observers, but we'd expect to see much of the recovery here in the second half of this year.
Michael Carroll -- RBC Capital Markets -- Analyst
Okay. So those transitions have already occurred and you think that they got a good handle on those transitions right now?
Dave Sedgwick -- Chief Operating Officer
Yeah.
Michael Carroll -- RBC Capital Markets -- Analyst
Okay, thanks.
Operator
Our next question comes from Daniel Bernstein of Capital One. Your line is open.
Daniel Bernstein -- Capital One Securities -- Analyst
Hi. I'll go just the opposite, the skilled nursing coverage is kind of ticked up a little bit this quarter and the next once -- was that all Ensign or is that kind of more broad based with some of those assets that you've been transitioning?
Dave Sedgwick -- Chief Operating Officer
We have seen, Daniel some great upticks in our operators outside of Ensign as well. So we've seen in the last quarter to actually the last half of the year, a largest majority of our senior -- sorry, our skilled nursing operators are doing some great things and have seen some upticks especially in the fourth quarter.
Daniel Bernstein -- Capital One Securities -- Analyst
Is that all they are managing their mix better or labor cost and what's kind of -- what are those operators doing operationally that are helping them manage the current challenging situation out there for such?
Dave Sedgwick -- Chief Operating Officer
Yeah, I think it's a little bit of everything. I think that we have -- we've had some operators that had newer buildings there with transitions that we built that we've done earlier that are really getting in with the hospital networks and with the health plans and are securing relationships in and their leadership in those markets have started to mature. And so you're seeing the fruits of those early labors when they took on the acquisitions that we are now starting to really see them and have success in those markets.
So largely, we're seeing that leadership with those buildings are really having an effect on their coverage and they're able to get the best of the best employees in those areas. And then with that great care that's leading to census development. So we're seeing some great stuff from a lot of our operators in that aspect.
Daniel Bernstein -- Capital One Securities -- Analyst
Okay. And then you've made some more acquisitions in Texas. Are you -- targeting Texas specifically and maybe kind of that relate to any thoughts potential positive outcomes for Texas reimbursement?
Mark Lamb -- Chief Investment Officer
Hey Dan, it's Mark. We -- we're just kind of going where the opportunities are. And we've, as a result of the big transaction got to know a couple different operators out in the Texas markets. And so we like -- Next Gen is a prime example there, they're a great operator. They are focused on the right things, very, very -- the owner, Sharlyn Threadgill, she's is very, very involved, daily visitor for properties on a regular basis. And so there's an opportunity to match her with an asset there in Dallas that we picked up and it was a great fit and we're really excited about. She and her team as an operator and as an operating partner to grow it.
So I would say it's a little bit more opportunistic. I think -- in terms of the bed tax question, I don't think we have any updated information as of this week that wasn't available last week. I think they're still trying to get it through committee. I'm not sure if that will happen or not. Haven't heard anything over the last couple of days that suggest it will or it won't. So from that perspective, we just -- from -- Texas just continues to show that there are operators that are struggling or have to chop off an asset or two, because strategically doesn't make sense. And we happen to have a great operator that who is willing to step in there.
Daniel Bernstein -- Capital One Securities -- Analyst
Okay. Okay. That's all I have. Thank you.
Dave Sedgwick -- Chief Operating Officer
Thank you.
Operator
(Operator Instructions) Our next question comes from John Kim of BMO Capital Markets. Your line is open.
John Kim -- BMO Capital Markets -- Analyst
Good morning. On the senior housing coverage, the 1.04 times. Can you just remind us what percentage of the senior housing portfolio this represents, the ex-Ensign in transition (inaudible)?
Bill Wagner -- Chief Financial Officer
As a -- like as a -- John, as a percent of revenue?
John Kim -- BMO Capital Markets -- Analyst
Yeah. Either that our facilities that I guess percentage revenue of the 13% that senior housing, what percentage does this 1.04 times represent?
Bill Wagner -- Chief Financial Officer
Well below 10%.
John Kim -- BMO Capital Markets -- Analyst
Okay. So it sounds like -- it sounds like from Dave commentary that you don't expect this is something that you'll need to address this year in terms of either transition or -- some of the assets of restructured leases?
Dave Sedgwick -- Chief Operating Officer
So this is Dave again. Sometimes when you acquire portfolios you take on one or two that's get a little bit less excited about them than others. And you along with the operator watching closely. So whether it's a particular facility or an operator who wants to make a strategic change, we'll take it case-by-case. And we're always like I said in my prepared remarks, we're always looking and reexamining our facilities and operators. But at this point, there is nothing to really talk about.
John Kim -- BMO Capital Markets -- Analyst
Turning to Ensign on their call yesterday, they again discussed unlocking the value of the real estate. I was just wondering what's the likelihood that you'll be involved in that?
Greg Stapley -- Chairman and Chief Executive Officer
John, this is Greg. I think the likelihood that will be involved in that is relatively low at this point. I'm not sure exactly what they're planning to do in terms of unlocking that value. But we haven't had any conversation with them about anything like that.
John Kim -- BMO Capital Markets -- Analyst
And then finally, is there anything that you can share as far as what you think the strategy is for Blue Mountain and the remaining (inaudible) portfolio that they retain?
Mark Lamb -- Chief Investment Officer
Yeah, John, this is Mark. I think they held some assets and then I think they transitioned a number of the assets to -- off the top of my head, I don't know exactly how many they kept and how many they transitioned of the 28 or so that they picked up and we picked up 12. And then I think they probably kept the half then and I think they probably sold off the other half. So, again they have an operating company down in Texas Regency and so they kept some assets at that Regency could expand their footprint. I believe into the Austin and San Antonio markets.
John Kim -- BMO Capital Markets -- Analyst
Got it. Thanks, Mark.
Mark Lamb -- Chief Investment Officer
Yeah.
Operator
Our next question comes from Duncan Brown of Wells Fargo. Your line is open.
Duncan Brown -- Wells Fargo Securities -- Analyst
Hey, thanks for taking the question. Most of mine have been answered and I may have missed this, but did you say, Greg what number of facilities are going over to SpinCo with Ensign deal?
Greg Stapley -- Chairman and Chief Executive Officer
We didn't. But I can tell you, they've asked us to move 11.
Duncan Brown -- Wells Fargo Securities -- Analyst
Is there anything unusual that we should know about those or that's just and should we -- anything we should be thinking about there?
Greg Stapley -- Chairman and Chief Executive Officer
No, I don't think so. It's -- for us the key is that -- that's while tenants is a new company we understand there the plan is they'll be well capitalized there's certainly well led and we will have the Ensign guarantees. So that the credit profile standing behind that rent and that lease will not change at all.
Duncan Brown -- Wells Fargo Securities -- Analyst
Okay. That makes sense. And then on PDPM, appreciate all the color. Just sounds like most operators are I think miss-prepared as they can be, there's going to be a ramp, I guess it sounded like a generalization are there some operators that within your portfolio where you have some concerns of how they're going to respond or is it pretty much across the board. So pretty good that there is not going to be big hiccups as this goes live?
Greg Stapley -- Chairman and Chief Executive Officer
We -- I stay in touch with all of our operators when it comes to PDPM and even sat on it at presentation of the training that our operators was giving to their front line staff. And we really feel comfortable about the way that they're attacking this and the way that they're preparing for it. And feel like that they all have it at front of the mind and are really now starting to train our front-line staff and get them ready and prepared for that October 1st. So we're fairly comfortable with their preparation. And it was nice again at the conference to be able to be with them there and be with that -- sitting on those presentations with PDPM. And we're optimistic and feel comfortable about what they're doing to prepare.
Duncan Brown -- Wells Fargo Securities -- Analyst
Okay, thanks. And then last one from me. The question on leverage was asked previously and obviously below the sort of target of 4% to 5%. I guess, does this -- keeping in the low 3s now, that suggests that even though it's not in the pipeline now, that there are some bigger options that are strategic potentials that are percolating out there or am I reading too much into it?
Greg Stapley -- Chairman and Chief Executive Officer
Duncan, it's Greg. Probably reading a little too much into as Mark said in his prepared remarks, the pipeline right now is kind of down at our normal 100, 125 level and consists mostly of one-offs plus a couple of small portfolios. So the possibility that there would be some larger chunkier deals out there remains. And being ready for them has become a high priority for us as we've seen how well this last one has gone.
So everything gets was already a high priority for us. But we really like -- as Bill said, we really like where we're living right now. But we do want you to understand that we are willing to go up to that 5%, 4% the right deal if it makes sense. And with the understanding that it would always be our agenda to get it right back down within a fairly reasonable period of time, if we did that.
Duncan Brown -- Wells Fargo Securities -- Analyst
Okay, great. Thank you.
Greg Stapley -- Chairman and Chief Executive Officer
Thank you.
Operator
There are no further questions. I'd like to turn the call back over to Greg Stapley for any closing remarks.
Greg Stapley -- Chairman and Chief Executive Officer
Well, everybody thanks again for being on the call today. And know that you can always call us at anytime if you have any additional questions. Thanks, Michelle.
Operator
You're welcome. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.
Duration: 51 minutes
Call participants:
Lauren Beale -- Controller
Greg Stapley -- Chairman and Chief Executive Officer
Dave Sedgwick -- Chief Operating Officer
Mark Lamb -- Chief Investment Officer
Bill Wagner -- Chief Financial Officer
Eric Gillis -- Director, Asset Management
Jordan Sadler -- KeyBanc Capital Markets -- Analyst
Chad Vanacore -- Stifel Nicolaus -- Analyst
Jonathan Hughes -- Raymond James -- Analyst
Michael Carroll -- RBC Capital Markets -- Analyst
Daniel Bernstein -- Capital One Securities -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Duncan Brown -- Wells Fargo Securities -- Analyst
