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New Senior Investment Group Inc (NYSE:SNR)
Q3 2019 Earnings Call
Nov 1, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the New Senior Investment Group Third Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode.

[Operator Instructions]

After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions]

Please note this event is being recorded.

At this time, I'd like to turn the conference over to Jane Ryu, Vice President. Please go ahead.

Jane Ryu -- Vice President

Good morning and welcome to New Senior's Earnings Call for the Third Quarter of 2019. With me today are Susan Givens, our CEO; Bhairav Patel, Interim CFO and CAO; and Lori Marino, General Counsel.

Before I turn the call over to Susan, I'd like to highlight that this morning's press releases, our quarterly supplement and the reconciliations of GAAP and non-GAAP financial measures can be found on our website at newseniorinv.com. Before we begin, please note that our discussion will exclusively focus on non-GAAP measures, unless otherwise indicated.

During this call, we will make forward-looking statements as defined in the Private Securities Litigation Reform of 1995. No forward-looking statements can be guaranteed and actual results may differ materially from those projected. Forward-looking statements made on this call should be evaluated together with the risks and uncertainties that affect our business, particularly those disclosed in the Risk Factors and in other disclosures in our most recent annual and quarterly reports filed with the SEC, including the 10-K filing [Technical Difficulty] that we will be filing in the upcoming days. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

And now, I'd like to turn the call over to our CEO, Susan Givens.

Susan Givens -- Chief Executive Officer

Great. Thanks, Jane.

Good morning and thank you for joining New Senior's earnings call for the third quarter of 2019. I'll spend a few minutes discussing the strategic transaction that we announced this morning as well as the results for the quarter, and then I'll turn the call over to Bhairav to review the portfolio performance and the financial results.

At the beginning of the year, we set out on a new path as an internally managed company. Since that time, we have been focused on a clear set of initiatives aimed at repositioning the Company for future success. I believe today's announced sale of our entire Assisted Living and Memory Care portfolio represents another major step forward in the continued transformation of New Senior, and demonstrates our ongoing commitment to maximizing shareholder value.

Today, we announced that we have entered into a definitive purchase and sale agreement to sell our entire portfolio of Assisted Living and Memory Care properties for $385 million. The portfolio includes 28 AL/Memory Care properties across 14 states and it's currently managed by six different operators.

From a financial perspective, the transaction is expected to materially improve cash flow without a significant impact to AFFO. As we discussed over the last several quarters, a top priority for us has been to improve the overall quality and performance of our portfolio. Our IL assets, which currently represent approximately 83% of our total NOI, had generally been much more stable than our AL assets, and that trend has continued throughout 2019.

For the third quarter of 2019, the IL portfolio was up 0.7% year-over-year, representing the sixth straight quarter of positive year-over-year growth. Meanwhile, our AL portfolio, which represents only 14% of our total NOI, was down a disappointing 10% year-over-year. In response to this trend, we worked very hard to address our underperforming assets and we implemented a series of initiatives aimed at improving performance. Despite all the work, we continue to face challenges and persistent underperformance across the AL portfolio. As a result, we began exploring a range of further alternatives, including additional operator transitioning, capital investments to turnaround and reposition assets, and more sizable asset sales.

Ultimately, we concluded that the sale of the entire portfolio will enable us to simplify our business and achieve several of our strategic goals for the Company, including enhancing the overall quality of our portfolio and strengthening our balance sheet. Importantly, the sale of the AL/Memory Care portfolio will enable us to dedicate more of our focus toward growing our core business, which is low acuity, private pay senior housing.

Some of the benefits from this transaction include first, better positioning the Company for growth. Following the sale, our Company will have a simple and straightforward portfolio of a 102 independent living assets and one CCRC. The transaction will enable us to focus on our core independent living properties, which generally benefit from higher operating margin, longer lengths of stay, lower regulatory risks, and less new supply than AL/memory care. Additionally, our IL portfolio serves the attractive private pay middle market demographics and we are extremely well-positioned to benefit from fast-growing demand in this segment. Going forward, we will continue to focus on attractive senior housing assets and partner with best-in-class operators to grow our business.

Second, the transaction improves the Company's capital structure and liquidity. We intend to use the net proceeds from the sale of the AL portfolio to reduce debt by approximately $350 million. Additionally, along with the sale, we expect to refinance our largest near-term debt maturity. And as a result, we will significantly improve our debt maturity profile as we won't have any material debt maturities until 2025. Lastly, a significant number of the AL properties were losing money on a fully levered basis, and by selling the AL portfolio, we expect to improve the cash flow profile of the Company.

And third, the transaction reduces overall portfolio volatility. Despite representing a relatively small percentage of our overall NOI, the AL portfolio has had a prolonged negative impact on our overall financial results, a trend that we would have expected to continue into 2020 and beyond. By selling the AL portfolio, we are left with an IL portfolio that has a strong track record of delivering stable results and has consistently outperformed our more challenged AL assets.

Overall, I truly believe that this transaction is a win-win for all parties involved, as it enabled us to focus on our core IL properties and it puts our AL properties in the hands of an owner group that's better positioned to invest the necessary time and capital into repositioning the assets for growth. We expect the transaction to close in the first quarter of 2020 and we look forward to updating you further as we move toward closing.

Now, I'll quickly touch on Q3 performance. AFFO, for the quarter, was $0.17 per share, in line with our expectations and guidance for the year. Bhairav will discuss in more detail, but on the portfolio side, we had another good quarter with solid NOI performance. Importantly, our Independent Living assets have continued to generate positive same-store results. And as we now experienced for a series of quarters, the positive performance across our IL portfolio was offset by continued weakness in our AL portfolio.

Like others in the senior housing market, we continue to face a number of challenges that are impacting occupancy and expenses across both our AL and IL portfolios, but we're encouraged by the trends that we're seeing across our IL assets and we remain optimistic that our IL portfolio will continue to outperform as we approach the end of the year.

Along those lines, I'm pleased to report that we're narrowing our 2019 guidance range and increasing the midpoint, resulting in an updated range of $0.64 per share to $0.67 per share. So far this year, our results have been in line with our expectations and we expect that trend to continue for the balance of the year. It's also worth noting that the sale of the AL portfolio, that I just discussed, won't have any impact on our 2019 guidance.

Now, turning to our strategic priorities. At the beginning of the year, we identified four key focus areas for 2019 and I'll briefly give you an update on our progress across each. First, optimizing our portfolio. As discussed, one of the top priorities of the Company has been to address the underperformance of the AL portfolio, and we believe the transaction that was announced today represents a significant step in the right direction. Overall, our goal is to get our portfolio to a place, where we can generate strong and consistent NOI growth. We believe we have a unique portfolio of assets that are well-positioned to benefit as trends improve across the industry and we now have the ability to focus our attention on driving performance across our core IL assets.

Second, managing our operator concentration. Holiday Retirement is our largest operating partner and currently manages assets that account for over 80% of our NOI. [Technical Difficulty] -- completion of the sale of the AL portfolio, Holiday will account for over 90% of our NOI. Obviously, Holiday is an important partner of ours and we believe they have done a terrific job operating our assets. As said, we recognized the benefits of having a diversified portfolio of operators and we have spent considerable time, developing and growing relationships with existing and new operators. We're excited about these relationships and we believe that partnering with some of the best operators in the industry will provide fresh perspective and creative ideas that will help put the Company on a path to benefit from future growth.

Third, strengthening our balance sheet. We're committed to strengthening our balance sheet with a goal of reducing leverage over time and increasing flexibility. So far this year, we have implemented several initiatives, aimed at improving our capital structure, including taking advantage of the interest rate environment by executing interest rate swaps and putting a corporate revolver in place. With the AL portfolio sale, we will take another step toward improving our balance sheet by reducing our leverage and extending our average debt maturity profile. As we discussed, addressing our balance sheet will be a multi-step process that will take time, but I'm pleased with the progress we're making.

Lastly, increasing the transparency of our financial results. We provided financial guidance for the first time in February. And as I just mentioned, following the third quarter, we are improving the midpoint of range. Throughout the year, we continue to refine our financial reporting, and as we move forward, we'll continue to work to enhance and improve the transparency of our financial results.

In summary, we're approximately ten months into the Company's life as an internally managed company and I'm extremely pleased with the progress that our team has made on each of our strategic priorities over a relatively short period of time. While our work isn't done, our momentum is strong and we continue to position the company for future growth and the creation of long-term shareholder value.

Now, I'd like to turn the call over to Bhairav to review portfolio and financial results in more detail. Bhairav?

Bhairav Patel -- Interim Chief Financial Officer and Chief Accounting Officer

Thanks, Susan, and thanks everyone for joining us on the call this morning. I'll begin with a review of our portfolio performance for the third quarter, followed by an update on the financial results and 2019 guidance.

Our portfolio composition remained unchanged compared to the previous quarter with 131 private pay senior housing properties across 37 states. Consistent with what we have seen over the past few quarters, our IL portfolio continued to post positive results growing cash NOI by 0.7% year-over-year. However, our AL portfolio continued to face challenges, resulting in total same-store cash NOI being down 0.7% year-over-year.

Let me further breakdown the managed portfolio results between our IL and AL properties to highlight the divergent trends building in the portfolios. Let's begin with our IL properties that represent 83% of our total cash NOI. As I mentioned earlier, cash NOI for our IL portfolio increased by 0.7% year-over-year. Once again, we saw solid RevPOR growth of 1.9% year-over-year, which was more than offset -- occupancy decline. RevPOR trends have been improving steadily for IL portfolio, driven by increasing convergence between rent increases on existing residents of 3%[Phonetic] and releasing spreads, which continue to trend positively.

Now, let's look at the AL properties, which represent 14% of our total cash NOI. We experienced another challenging quarter with same-store cash NOI down 10% year-over-year. Occupancy declined by 60 basis points year-over-year and rate growth was just about flat at 0.2%. We have not seen the same convergence with respect to releasing spreads as we have seen in our IL portfolio. In order to combat occupancy pressures, we have seen our operators give slightly new rent as evidenced by the declining RevPOR trends. That resulted in lower revenues, and although we did see labor cost ease a bit, expenses were still higher year-over-year, further compressing margins.

Our same-store AL portfolio excludes nine properties that were transitioned to new operators in the first quarter of 2019. We continue to see occupancy declines in these properties as a result of the transition. Additionally, turnover in critical leadership positions which is typical with respect to such transitions, further increased costs and depressed margins, contributing to another challenging quarter for the transitioned assets. On a sequential basis, our same-store cash NOI was down 2.6%. The decrease was driven by a decrease in operating margins, mainly due to the expected impact of seasonality on expenses.

Our same-store operating expenses increased by approximately $1.3 million, of which higher utilities' expenses as a result of the higher temperatures of the summer months, accounted for $1.1 million. Additionally, our same-store portfolio on a sequential basis also includes the recently transitioned AL properties, which experienced another challenging quarter as the new operators continued to stabilize operations. This further dragged down the overall results for the quarter on a sequential basis.

As Susan mentioned earlier, subsequent to quarter end, we entered into an agreement to sell all of our Assisted Living properties. We expect this to help us focus and build on the positive trends that have emerged with respect to our AL portfolio. To further illustrate this point, excluding AL properties, our same-store cash NOI for the current quarter would have been up 0.7% year-over-year and would have been up on a year-over-year basis during each quarter of 2019.

Lastly, just a few points on supply. Overall new construction remains high relative to historical levels, but the trend continues to improve. Starts in the 99 primary and secondary markets covered by NIC continue to decline and are almost 40% below the highest level reached at the end of 2015. In our markets, we continue to see a similar trend with new openings down 55% year-over-year and full-year new delivery is expected to be down significantly compared to 2018. We are also encouraged to finally see demand exceeding supply for the first time in over three years as absorption continues to grow and supply continues to trend lower.

Now, I'll provide an overview of our financial results, balance sheet and outlook for the remainder of 2019. AFFO for the third quarter was $14 million or $0.17 per diluted share compared to $0.16 per diluted share in the prior quarter. The increase was primarily driven by interest savings that are[Phonetic] floating rate debt benefited from LIBOR decline that occurred during the quarter. NOI for the second[Phonetic] quarter was $40.4 million, down 2% sequentially, mainly due to a seasonal increase in operating expenses, combined with another challenging quarter for our transitioned assets. Interest expense for the quarter was $22.7 million or 3% lower, compared to the prior quarter, driven by a decrease in LIBOR compared to the previous quarter as I just mentioned.

Total G&A remained unchanged compared to the prior quarter at $5.4 million. Also included in our P&L this quarter is approximately $38 million of net proceeds received with respect to the settlement of the derivative lawsuit filed on behalf of the Company. We used the proceeds to pay down a portion of the outstanding balance on our revolving credit facility. Although included in net income, these proceeds have been excluded from our key non-GAAP measures.

Our balance sheet remained relatively unchanged compared to the prior quarter with gross assets of $2.6 billion, and cash and cash equivalents of $35 million. As it relates to debt, we had $1.8 billion in face amount outstanding as of the end of the quarter with the weighted average coupon of 4.4% and a weighted average maturity of 4.7 years.

Additionally, as a result of the transaction to sell our AL portfolio, we expect to pay down and refinance most of our debts scheduled to mature in or prior to 2022. Subsequent to the refinancing, we do not expect to have significant maturities until 2025, which is expected to substantially increase the weighted average maturity of our debt.

Lastly on guidance, we are tightening our AFFO guidance range to $0.64 per share to $0.67 per share from $0.62 per share to $0.67 per share, increasing the midpoint of the range by S0.01. Our underlying assumptions can be found in our earnings release that we issued this morning and include the following. Same-store managed cash NOI to range from negative 3% to 0%. LIBOR assumed at 2.5%, cash G&A of $18 million and 84 million diluted shares outstanding.

That concludes my remarks and I will now turn it over to the operator to open the line for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session.

[Operator Instructions]

And our first question today will come from Michael Gorman of BTIG. Please go ahead.

Michael Gorman -- BTIG -- Analyst

Thanks, good morning.

Susan Givens -- Chief Executive Officer

Good morning, Mike. How are you?

Michael Gorman -- BTIG -- Analyst

I'm good. How are you?

Susan Givens -- Chief Executive Officer

Good.

Michael Gorman -- BTIG -- Analyst

So, you talked a little bit about some of the strategic options you guys looked at before deciding on a portfolio sale. Can you spend a minute and kind of talk on once you decided that the sale was the correct way to go, kind of what the process looked like, obviously, I assume you can't disclose who the buyer is at this point, but maybe a little bit of context around them, their size --- kind of how they came to the table? If you could just give us some color on that, that would be great?

Susan Givens -- Chief Executive Officer

Sure. Look, I think, just kind of stepping back on the AL assets. First and foremost, we've always liked the AL sector. Some of these assets have been a part of our portfolio for over seven years. So, these are assets we like and we think the space while facing some challenges, it's a good place to be invested over a longer period of time. Really when we kind of sat down and thought about different things we are trying to achieve with our Company, we felt like addressing the AL portfolio was kind of a top thing we needed to do. And so, there are lots of options that I laid out. Some of them that we took a look at and considered. but we also considered all those options in concert with bigger strategic things we were trying to accomplish with the company, namely our balance sheet and really trying to begin to tackle that.

And so, we looked at a full range of alternatives and we really felt like a full exit from this segment at this point in time made the most sense for us. I think that importantly, in a portfolio of 28 assets, there are some great assets and some more challenged assets, and I think where we sat or sit from a capital perspective, they would require some capex to be invested. And I think that all other groups out there in this space right now that have a real focus on AL, long history with AL, and have time and capital to reposition those assets are better suited to own them at this very point in time.

So, the group said we're selling to the very sophisticated institutional buyer with a long and successful track record. In this space, we have a lot of respect for them and we think that as I said in my comment, it's a real win-win for us. It allows us to narrow our focus, but it really gives them an opportunity to own the assets in the structure that makes sense. And we once see assets to succeed, their partners will feel very strong -- we have strong relationships with all the operating partners and we want only the best thing for these assets. I think it was be a good alternative for everyone.

Michael Gorman -- BTIG -- Analyst

Okay. Great. Thanks.

And then, just a bit on the debt pay down and the debt refinancing. Can you just talk about some of the initial terms that you're seeing or kind of what you think you're going to see when you go to refinance the 2022 debt? And may be included in that, any potential prepayment penalties?

Susan Givens -- Chief Executive Officer

Yes, sure. So, we're pretty far along the path on refinancing. So, what will happen here is that we have our largest kind of near-term, if you will, maturities in 2022, and in total, it's about $650 million of debt. So, in conjunction with this deal, we will pay off that debt. And right now, the debt processes some of the AL assets and some IL assets that will pay off the $650 million, and then, we will refinance the IL assets with about $300 million of new debt. And so, the terms we're seeing right now are too pretty favorable compared to the existing debt that we have in place. I think that's a function of where we are kind of in the interest rate environment, obviously, you've seen [Indecipherable] this weekend and beyond. So, the terms are pretty good. And it will push out, as I said, our overall maturity profile, so that our next most significant maturity will be 2025. So, we've already made a lot of progress on that refi. We wanted to do it, kind of in concert with the sale. So, we feel good about where we are in that.

Michael Gorman -- BTIG -- Analyst

Great. And just, is there going to be a penalty associated with the prepayment on that $650 million?

Susan Givens -- Chief Executive Officer

It's very --- it's very minimal because we are refinancing some of the assets with the existing counterpart. So, there are some minor penalties, but nothing significant.

Michael Gorman -- BTIG -- Analyst

Excellent. Thanks, Susan.

Susan Givens -- Chief Executive Officer

Thanks.

Operator

Our next question today will come from Drew Babin of Baird. Please go ahead.

Drew T. Babin -- Baird -- Analyst

Hey, good morning.

Susan Givens -- Chief Executive Officer

Hi, Drew.

Drew T. Babin -- Baird -- Analyst

Just one related question to Mike's questions. All of the debt prepayment activity, is it all related to 2022 maturities or are some of those maturities sort of in the interim being taken care of as well in conjunction with this?

Susan Givens -- Chief Executive Officer

They're a little bit staggered, but most of them are -- it's either 2022 or before. We have actually three financings in total. Two of them are very, very small. And so, the largest is, if you look at our balance sheet and our maturity scheduled, there is about $560 million piece of debt. And that's the debt that matures in 2022. And then, there are smaller pieces that were maturing before.

So, the headline point is, with this, we really have no significant maturities until 2025. So, I think when you look at our capital structure, the 2022 is the one we've been focused on for lots of reason. And so, this pushes that out and then there are couple of smaller maturities.

Drew T. Babin -- Baird -- Analyst

Okay. That's all from me on the balance sheet front. But kind of moving to the operating portfolio, where the transition assets maybe getting weaker than you'd initially expected during the quarter? I guess, the decision to sell all AL, IL, obviously that businesses has had some struggles this year. But I guess, as far as goals of the transitioned assets and the operators, who are working with there, was anything going meaningfully negative compared to your expectations? Or is it just more of a kind of an industry issue?

Susan Givens -- Chief Executive Officer

Yes, sure. When you transition assets, -- I mean, transitioning assets is always a hard decision. And we transitioned assets previously, we know that when you transition -- that you should expect to see some deterioration before you see some improvement. So, we had modeled in an expectation that we would see some deterioration and we saw that. I think we have seen with some of the assets that we've transitioned, the performance has been even weaker than we had anticipated. And I think that -- actually the last month or so, we've seen some signs of improvement. So, that's good. But I really don't think that we made a decision to sell the entire AL portfolio, simply because of that.

The assets that we transitioned to new operators, -- we chose those operators because we either had existing relationships with them or we've seen that they've done great things with other assets. And so, we had a lot of confidence. And frankly, still we do have confidence in those operators, but this is a bigger strategic decision for us. And so, we wouldn't have made a decision based on one quarter's worth of performance. This was really about trying to accomplish other things for our assets. And we hope the assets continue to improve. It's just that I think all of the options we had in front of us, it made the most sense for us to take advantage of -- worth the full portfolio sale.

Drew T. Babin -- Baird -- Analyst

Okay. That's -- in the context of potentially transitioning IL assets in the future, currently managed by Holiday, I guess, I was trying to get a readout, just the track record of transitioning properties and sort of how that could go? It sounds like good. You're still pretty happy with the transitions that have occurred and sort of their longer-term potential. But I guess what I'm getting at is in the future, should you transition IL properties currently managed by Holiday? Are there reasons why it's significantly easier to transition IL properties versus AL and Memory Care? I imagine the lower acuity probably makes it a bit easier, a little bit less disruptive. Could you maybe give us a framework to work with, if that potentially happens in the future, how much noise might there be in additional transitions that happened? And would it be less noise than the AL?

Susan Givens -- Chief Executive Officer

Yes. It's a great question, Drew. Something, obviously, we spent a lot of time thinking about. So I think you answered it in part. I think that -- couple comments. One, our view is that when you're transitioning assets that are already pretty stable and are performing pretty well, that is kind of a different set of facts and leads to kind of watch deterioration than when you have an asset that's challenged for lots of reasons. And so, to summarize, transitioning assets that are already performing pretty well, usually is a better sort of outcome than trying to transition an asset that faces a lot of challenges.

Second, I do think that transitioning IL assets is often easier than transitioning AL assets. I don't think transitioning any assets is easy. But I think it's slightly simpler with the IL business because of the lack of healthcare and it's just candidly a little bit less complex. But I do think transitioning is hard and I think you have to be really thoughtful about the partners. I think that the industry as a whole is spending a lot of time thinking about structures and alignment, I know a lot of people are talking about that right now, and we're spending a lot of time thinking and talking about that. So, there are ways in which you can try to mitigate some of the deterioration with transition. If you have operating partners that you are truly aligned with and so those are the things that we're thinking about and considering. But I do think it's easier. While nothing is easier, I think it's easier to transition IL assets. But I think, most importantly, it's something we are being really thoughtful around and really trying to make sure that we're learning from the history. Good news is we have a decent history to look at and refer to, but it's something we're pretty focused on.

Drew T. Babin -- Baird -- Analyst

Great. That's all for me. Thank you.

Susan Givens -- Chief Executive Officer

Thanks, Drew.

Operator

Our next question today will come from Daniel Bernstein of Capital One. Please go ahead.

Daniel Bernstein -- Capital One -- Analyst

Yes. Good morning.

Susan Givens -- Chief Executive Officer

Hi, Dan.

Daniel Bernstein -- Capital One -- Analyst

And congratulations on the transaction. I guess I just wanted to also -- just wanted to clarify on the cap rate that you quoted in there, the 5.90s. Is that before or after maintenance capex?

Susan Givens -- Chief Executive Officer

That's before. That's just an NOI cap rate.

Daniel Bernstein -- Capital One -- Analyst

Just an NOI cap rate. Okay. We clear of that.

And then on the balance sheet, I know you're refinancing the debt. But was there any consideration to repay the preferred stock owned by Fortress, that's pretty expensive capital? Just trying to understand what was the consideration to refinance that debt versus maybe trying to pay off some of that preferred?

Susan Givens -- Chief Executive Officer

Sure. That's an options worth. When we say -- repay $350 million of debt that could include that preferred. You're exactly right, -- our highest cost debt, if you will. And so, that's something that we're considering. So, we're just at this point, looking at $350 million and then which pieces we definitively conclude to repay, what kind of the size we move forward.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then what was the capex, maintenance capex difference between the IL and AL? Just trying to understand the differences there for our modeling purposes? Once you sell the AL portfolio, how we should then be thinking about the capex for the IL, may be both on the maintenance and maybe EBITDA enhancing as well?

Susan Givens -- Chief Executive Officer

Sure. I mean, on average, our maintenance capex is about 1,500[Phonetic] across all of our assets. I think that our AL is a bit higher usually kind of closer to 1,700[Phonetic] and our IL is about 1,200[Phonetic], of course, it varies by asset, but that's to give you some general parameters. If our total average is 1,500[Phonetic] IL, 1,200 of that kind of 1,500[Phonetic].

Daniel Bernstein -- Capital One -- Analyst

Okay. That's very helpful.

And then one last question. Now that you're selling the portfolio, you're rightsizing some of the balance sheet, you clearly have operator concentration with Holiday, what's in the pipeline? And obviously, you've been working very hard on this AL transaction and refinance debt. But could you tell us some about what you're working on in the pipeline, whether it's triple-net or RIDEA operating structure, what are the kind of items that you're looking at in the pipeline we can think about maybe for the future?

Susan Givens -- Chief Executive Officer

Yes. Sure. I mean, I think obviously addressing some of the issues that we've had to address have been -- that's been our top priority, but we continuously look and consider kind of what's out there. And I think our strategy around selling the AL assets is driven in large part by our belief that there is a real opportunity with lower acuity, private pay assets at a very attractive price point. So, we're spending a lot of time as we think about different operators and relationships, and how to grow the business. Working with people that we think has some real interesting thoughts around that segment, we think that there are fewer people kind of focused on that segment. And we think that our portfolio, given the fact that we have such a strong kind of presence in that space makes sense for us to be focused there.

At the same time, I don't think that by selling the AL portfolio now that precludes us from ever looking at AL assets, like I said, we like the sector, we think it's interesting. We just think this transaction makes sense for us right now. But the majority of what we're kind of focusing on, looking at, is in line with our core business at this moment. And I think, a lot of the people and operators out there like the lower acuity in kind of IL market. And so, there are a lot of people that are coming to us, which is great for us. And I think it's a pretty interesting segment right now.

Drew T. Babin -- Baird -- Analyst

Okay. Do you have any LOIs or assets under contract or close to that or maybe that's we're just..

Susan Givens -- Chief Executive Officer

Not really. We're focusing on kind of what's at hand, but we're always looking at on top of that.

Daniel Bernstein -- Capital One -- Analyst

I understand.

Susan Givens -- Chief Executive Officer

And looking at several own formed[Phonetic] strategy for the business, and so that kind of what's resulted here.

Daniel Bernstein -- Capital One -- Analyst

Okay. I appreciate it. And that's all I have. Thank you.

Susan Givens -- Chief Executive Officer

Thanks, Dan.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. And at this time, I'd like to turn the conference back over to Susan Givens for any closing remarks.

Susan Givens -- Chief Executive Officer

Well, great. Really appreciate everyone joining us this morning and thank you guys for your time. And we'll look forward to updating you as we move forward. Thanks.

Operator

[Operator Closing Remarks]

Duration: 36 minutes

Call participants:

Jane Ryu -- Vice President

Susan Givens -- Chief Executive Officer

Bhairav Patel -- Interim Chief Financial Officer and Chief Accounting Officer

Michael Gorman -- BTIG -- Analyst

Drew T. Babin -- Baird -- Analyst

Daniel Bernstein -- Capital One -- Analyst

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