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Omega Healthcare Investors Inc (NYSE:OHI)
Q3 2019 Earnings Call
Nov 6, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Omega Healthcare Investors Third Quarter 2019 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Michele Reber. Please go ahead.

Michele Reber -- Senior Director of Asset Management

Thank you and good morning.

With me today are Omega's CEO, Taylor Pickett; CFO. Bob Stephenson; COO Dan Booth; and Chief Corporate Development Officer, Steven Insoft.

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 identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements.

During the call today, we will refer to some non-GAAP financial measures such as FFO, adjusted FFO, FAD and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under Generally Accepted Accounting Principles, as well as an explanation of the usefulness of the non-GAAP measures are available under the Financial Information section of our website at www.omegahealthcare.com. And in the case of FFO and adjusted FFO in our recently issued press release.

I will now turn the call over to Taylor.

C. Taylor Pickett -- Chief Executive Officer

Thanks, Michelle. Good morning and thank you for joining our third quarter 2019 earnings conference call. Today I will discuss our third quarter results, our recent acquisition activity, Daybreak and the current reimbursement environment.

Our third quarter adjusted FFO is $0.76 per share. We declared a $0.67 per share dividend for the quarter. Payout ratio is 88% of adjusted FFO, and 97% of funds available for distribution. A one pay increase in our dividend reflects both known earnings upside namely the recently closed $735 million Encore transaction and the 2020 opening of Maplewood New Manhattan facility. And our optimism around continued growth opportunities and improvement in cash rents or rent equivalents from the Daybreak facilities.

Future potential dividend increases will be evaluated periodically by our Board of Directors and will be partially dependent on achieving both known earnings upsides and additional growth opportunities. On October 31st, we closed our previously announced Encore Portfolio acquisition for $735 million.

In addition, during the third quarter we opportunistically sold 19 facilities for $177 million recognized related gain of $53.1 million. We continue to work with Daybreak as Dan will detail Daybreak's near-term liquidity issues, which resulted in the payment of only $750,000 of third quarter rent. We expect these liquidity issues will be resolved over-time and anticipate significant future Daybreak rent upside as we work through the near-term Daybreak restructuring issues.

Lastly, on the reimbursement front. Operator feedback related to PDPM, the new Patient Driven Payment Model has been positive. It is still too early to know the financial impact of PDPM. We will provide investors with more information as details unfold.

I will now turn the call over to Bob.

Robert O. Stephenson -- Chief Financial Officer

Thank you, Taylor, and good morning. Our reportable FFO on a diluted basis was $163 million or $0.72 per share for the quarter as compared to $161 million or $0.76 per diluted share for the third quarter of 2018. Our adjusted FFO was $173 million or $0.76 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to net income found in our earnings release in our supplemental and on our website.

Operating revenue for the quarter was approximately $233 million versus $222 million for the third quarter of 2018. The increase was primarily a result of incremental revenue from a combination of over $800 million of new investments completed and capital renovations made to our facilities since the third quarter of 2018 as well as lease amendments made during that same time period.

Revenue from former Orianna facilities that were transferred to existing Omega operators in the third and fourth quarter of 2018. And finally we adopted the new lease accounting standard effective January 1st, 2019, which resulted in a recording of tenant, real estate taxes and ground lease income in revenue.

The increase in revenue was partially offset by reduced revenue related to asset sales, transitions and loan reoccured throughout 2019. The timing of cash receipts related to operators on a cash basis. And finally, based on the interpretation of the collectibility guidance in the new lease accounting standard requiring the write-off of straight line receivables for operators on a cash basis.

We recorded approximately $3 million on collectible revenue related to two operators during the quarter. The $233 million of revenue for the quarter includes approximately $15 million of noncash revenue. Our G&A expense was $10.8 million for the third quarter of 2019 and included $600,000 in restructuring charges, primarily related to the early buyout of our Chicago office, which had a 2024 termination. You may recall that we closed our Chicago office in the first quarter of 2019.

Interest expense for the quarter, when excluding noncash deferred financing cost was $50 million with a $2 million increase over the third quarter of 2018 resulting from higher outstanding borrowings for the quarter. Our balance sheet remains strong and continues to improve. In September, we entered into an equity forward sale agreement to sell 7.5 million shares of common stock in connection with a $300 million underwritten public offering. We expect to settle the forward equity sale agreement by the end of 2019.

Net proceeds from the settlement of the forward sale agreement will be used to repay a portion of the debt borrowed to finance the Encore Portfolio acquisition.

Also in September, we issued $500 million of 3% and 5% Senior Notes due October 2029. Net proceeds from the offering were used to repay a portion of our outstanding borrowings on our revolving credit facility and term loans. At September 30th, approximately 90% of our $4.7 billion in debt was fixed and our net funded debt to adjusted annualized EBITDA was 5.14 times and our fixed charge coverage ratio was 4.1 times.

It's important to note, EBITDA in these calculations has no revenue related to construction in process associated with our five new builds scheduled to become operational within the next 12 months. When adjusting to include a full quarter of contractual revenue on our new builds and eliminate revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5 times.

For guidance and modeling purposes, we are assuming the following. On the Encore Portfolio, the acquisition was completed on October 31st and as a result, we expect to record approximately two months of revenue in the fourth quarter or $10.5 million in cash rent. We also assumed $389 million in HUD debt had a blended rate of 3.66% as part of the acquisition.

We assume the UK investment should close late in the fourth quarter. We assume new construction projects will be put into service in accordance with our schedule on Page 7 of our supplemental information posted to our website. We assume revenue from the Daybreak portfolio will continue to be recorded on a cash basis with rent from that portfolio generating $4 million to $5 million per quarter in late 2020.

We assume noncash quarterly revenue should be between $16 million and $18 million per quarter. We project G&A of $9 million to $10 million per quarter. Noncash stock-based compensation expense is estimated to be approximately $4 million per quarter. The variability in our interest expense is primarily driven by borrowings on our revolving credit and term loan facilities as well as LIBOR rates.

At September 30th, 10% of our debt or $500 million was floating rate debt. We recorded $2.8 million of revenue related to assets sold during the third quarter. Although not included in guidance, additional asset disposition opportunities may occur.

Regarding share issuances. In addition to the 7.5 million share forward sale agreement, which we expect to settle by year-end. We assume it will be issuing approximately $25 million of equity per quarter through our dividend reinvestment and common stock purchase plan consistent with our recent quarterly issuances.

Lastly, based on our stock price and subject to equity market conditions, we may decide to issue additional equity under our ATM to continue to delever and fund potential acquisitions. During the first nine months of 2019, we issued or sold approximately 5.6 million shares of Omega common stock generating over $200 million in gross proceeds through a combination of our ATM and our dividend reinvestment and common stock purchase plan.

I will now turn the call over to Dan.

Daniel J. Booth -- Chief Operating Officer

Thanks, Bob, and good morning everyone. As of September 30th, 2019, Omega had an operating asset portfolio of 910 facilities with approximately 91,000 operating beds. These facilities were spread across 73 third-party operators and located within 39 states in the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio during the second quarter of 2019, it was 1.66 times and 1.3 times respectively versus 1.67 times and 1.31 times respectively for the trailing 12-month period ended March 31st, 2019.

Turning to portfolio matters. During the third quarter of 2019, Daybreak's liquidity challenges and operational performance deteriorated further as a result of reduced overall occupancy, a fall-off in quality mix, ongoing labor pressures and significant legacy operating costs that consume much of Daybreak's current run rate. As a result, Omega recognized less than $1 million in rent for the third quarter.

While Daybreak is expected to benefit from the addition of 26 Omega facilities into the Texas QIP program, implementation of PDPM and the 2.4% Medicare rate increase, the vast majority of these benefits will not assist with Daybreak's liquidity challenges into the first quarter of 2020.

The combination of these factors has resulted in Daybreak and Omega consensually agreeing to begin to selectively downsize Daybreak's wide geographic footprint across the state of Texas, allowing Daybreak to more narrowly focus attention on only a few select markets.

Accordingly, during the third quarter of 2019, Omega began to have discussions with several other Texas-based operators about releasing a number of facilities that fall outside of Daybreak's desired core geographic footprint. Both the discussions and the downsizing process are ongoing. While the ultimate outcome of this process is difficult to ascertain at this time, we feel confident that Omega will eventually end up with rent or rent equivalents between $15 million to $20 million per annum on our current Daybreak portfolio.

Turning to new investments. On July 1st, 2019, Omega completed a $25 million purchase lease transaction for three skilled nursing facilities in North Carolina and Virginia. The facilities were added to an existing operator's master lease for the natural cash yield of 9.5% or 2% annual escalators.

Turning to subsequent events. As mentioned by Taylor, on October 31st, 2019 Omega closed on our previously announced $735 million acquisition of 60 facilities. The purchase consisted of approximately $346 million of cash and the assumption of approximately $389 million in HUD mortgage loans. The portfolio consist of 58 skilled nursing facilities and two assisted-living facilities located across eight states with a significant concentration in the Southeast.

The facilities are leased to two operators, one being existing Omega operator via three triple net master leases. The facilities will generate $64 million in initial cash rent with annual escalators ranging 0.25% to 2.5%. Year-to-date Omega has made new investments totaling approximately $1.5 billion including capital expenditures.

Also, as mentioned earlier, on October 29th, 2019, Omega entered into a share purchase agreement to acquire Healthpeak properties 49% interest in an existing joint venture with Cindat Capital Management for a total equity investment of approximately $90 million. The portfolio consist of 67 owned care homes across the United Kingdom leased to two operators via three separate triple net master leases and a single facility development loan with a third-party borrower. The transaction is expected to close by year end.

Turning to dispositions. During the third quarter, 2019, Omega divested 19 facilities via six separate transactions for total proceeds of approximately $177 million.

Lastly, as of today, Omega has approximately $995 million of combined cash and revolver availability to fund future investments and capital expenditures.

I will now turn the call over to Steven.

Steven J. Insoft -- Chief Corporate Development Officer

Thanks, Dan. And thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we continue work on our ALF memory care high rise at Second Avenue in 93rd Street in Manhattan. The project is expected to cost approximately $285 million including accrued rent and is scheduled to open in early 2020.

Including the land and CIP of our New York City project, at the end of the third quarter, Omega Senior Housing portfolio totaled $1.5 billion of investment on our balance sheet. Anchored by our growing relationship with Maplewood Senior Living and their best in class properties, as well as Healthcare Homes and Gold Care in the UK, our overall senior housing investment now comprises 125 assisted living, independent living and memory care assets in the US and UK.

On a stand-alone basis the core portfolio not only covers its lease obligations at 1.2 times, but also represents one of the larger senior housing portfolios among the publicly listed healthcare REITs.

Our ability to successfully continue to grow this important component of our portfolio, as highlighted by our 15 Maplewood facilities, including the newly opened 98 unit ALF in Southport Connecticut, as well as the related pipeline is predicated on coupling our tenants' operating capabilities with our commitment to having in-house design and construction expertise.

Through the same capability, we invested $38 million in the third quarter in new construction strategic reinvestment; $19.8 million of this investment is predominantly related to our active construction projects with a total budget of approximately $500 million, inclusive of Manhattan. The remaining $17.9 million of this investment was related to our ongoing portfolio capex reinvestment program.

I will now turn the call over to Taylor for some final comments.

C. Taylor Pickett -- Chief Executive Officer

Thanks, Stephen.

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

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Joshua Dennerlein of Bank of America Merrill Lynch, please go ahead.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Hey, good morning guys. Just curious on the UK JV that you bought in-why did you decide to pursue that acquisition. And do you have any color on cap rates, and then how does the JV partnership work, is there an opportunity for you eventually to kind of consolidate the whole portfolio?

C. Taylor Pickett -- Chief Executive Officer

Yes, I mean listen we've been opportunistic in the UK. We're still very bullish on it. So we're always kind of looking for new opportunities there. We have two existing operators that we do business with, this opportunity will add two more and I think diversity is a good thing.

The demographics over there are great, there are quality operators and we think we've matched up with them. Cap rates are -- we look at care homes over the UK much more like assisted living here in the United States. So cap rates are lower than your average [Indecipherable], you're looking in the sevens rather than the eights and nines and that holds for this deal as well.

And then in the future if I captured all your questions, there is an opportunity to potentially unwind the JV, I mean we have -- we're in a JV structure right now were basically it's 51:49, but everybody has sort of mutual voting rights. I think our strategy in the UK is long term. I can't speak to my partner, but we're still bullish in the UK and the opportunity presents itself, we would probably buyout the other [Indecipherable].

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Okay, great. Thank you. And then maybe just one question on Daybreak. I'm not sure if I heard it -- how much rent are you including in guidance for 4Q from Daybreak, is the 3Q a good run rate?

Unidentified Speaker

Yes, so as you know and we said Daybreak's on cash basis. And we have a range of guidance. So we had $750 million in the third quarter and our guidance is in that range.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Okay, thanks. [Indecipherable].

Operator

And our next question will come from Jonathan Hughes of Raymond James. Please go ahead.

Jonathan Hughes -- Raymond James -- Analyst

Hey, good morning. Just going back to Daybreak, have they paid October rent in line with the $35 million you're projecting, I'm a little confused.

C. Taylor Pickett -- Chief Executive Officer

No, that $3 million to $5 million that we're projecting is not in the fourth quarter. That's out a way, that's after a number of different things are recognized, some of the things that I talked about, PDPM -- the Texas QIP properties, Medicare rate increases and then they've got a number of legacy costs, which are all promissory notes or vendor notes etc that roll off in the coming months and throughout 2020.

So when you swirl all of that together that's a pretty big economic pick up, it's about $9 million in revenue enhancements and about $2 plus million in legacy costs running out. And then as I alluded to, we've got some transitions in the work. So that's not quite as quantifiable that's really more narrowing Daybreak is focused on a single geographic market or really two geographic markets, which -- I think we'll be able to focus their attention a little bit more and then taken some of these outlier facilities, literally spread across the entire State of Texas, from the northern tip to the Southern end and East West as well. So we're going to be able to focus fair attention and then parse out some of these other outliers to operators that are more focused or concentrated in those other markets.

So I think the combination of what is quantifiable and what is not quantifiable is where we get to this 3 to 5 or 15 to 20, but there's time between here and there.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And that 3 or 5 is essentially for 4Q '20 quarterly run rate right?

C. Taylor Pickett -- Chief Executive Officer

That's a good way to look at it John.

Jonathan Hughes -- Raymond James -- Analyst

Okay. Looking at the shift in coverage distribution that surprised me a bit given the sequential increase in occupancy. Was that driven by a few large operators on the fringe or maybe the impact of the MedEquities portfolio rolling in there?

C. Taylor Pickett -- Chief Executive Officer

Now MedEquities list pretty flat actually, maybe slight pickup but given their scale it didn't have any impact. It was really two operators that sort of slipped over from one bucket to another. We think it's temporary, but it's hard to predict, but that you're exactly right, it was two of our top 10 operators that went from higher bucket down into the lower bucket.

Jonathan Hughes -- Raymond James -- Analyst

With the move for those two operators, I mean was it like 0.5 turns or are we talking kind of like a rounding error?

C. Taylor Pickett -- Chief Executive Officer

One was a rounding one, one was a little bit more significant, more of 0.05, 0.06 like that.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And then last one, I know it is too early to tell fully on the impact of PDPM, but has that altered your underwriting process for SNIFs, meaning as you look further out on the horizon, are you underwriting SNIF using maybe overly conservative assumptions in case there is some kind of some reimbursement rate cut in the future, like they did in 2011 if overall margins began to significantly improve and CMS -- kind of recover some costs, would love to hear your thoughts on how that's impacting, how you look at properties?

C. Taylor Pickett -- Chief Executive Officer

So I don't think -- we're not going to really see PDPM roll through our numbers in full force until I would suggest the first quarter. And while it's expected to have an impact, I don't see us materially changing our underwriting. We're not sure where CMS will head with this or where little reimbursements will go.

But if it looks after several quarters that there is that the PDPM leveled out and the operators are happy and that the results are consistent . Then, yes, I think that will be ultimately built into our underwriting. But that's not a turn of flip of a switch.

Jonathan Hughes -- Raymond James -- Analyst

Right. I mean have you seen any more sellers come to you, I know a lot of your deals are relationship driven, just curious as the cadence of the external growth pipeline, how that's trended over the past few months?

C. Taylor Pickett -- Chief Executive Officer

As always, it's choppy and we're sort of getting into that part of the season where the opportunity slow down a little bit until the first quarter.

Jonathan Hughes -- Raymond James -- Analyst

Okay, all right, I'll jump off. Thanks for the time.

Operator

And our next question will come from Trent Trujillo of Scotiabank. Please go ahead.

Trent Trujillo -- Scotiabank -- Analyst

Hey, good morning everyone. So following up on one of Jonathan's questions, about the EBITDAR coverage distribution. I just want to clarify something. So part of that drop down into the 1 to 1-2 bucket was from a large operator with a pretty sizable downtick. My understanding or what I think anyway, maybe you can shed some light on this is that was perhaps signature because it was early to transitioning to PDPM.

But also my understanding is that happen in like over the summer, so it wouldn't be reflected in the stats shown in your supplemental as of June 30th. So maybe can you give a little bit more context as to why there was such a drop in the coverage stratification?

C. Taylor Pickett -- Chief Executive Officer

Well, I don't think there was that materially a drop, yes, we actually had two operators that fell from the 1-2 to 1-8 bucket into the 1-2 bucket. But once again of the drop-offs were not that material. Some of it was in fact for the prep for PDPM and getting systems and education and place for that to come on October 1. So some of that we think we will see come back to the form of when PDPM kicks off, on October 1, we start to see those results. But I would not describe it or define it as a material drop off from any one of those two operators.

Trent Trujillo -- Scotiabank -- Analyst

Okay. Maybe rephrasing that a little bit then. So there was roughly $70 million that dropped from a higher bucket to a lower bucket and if there was no material decline, you would expect that the weighted average coverage wouldn't really move much or even actually improve from the prior quarter, but the weighted average coverage actually went down, which would imply that it was a pretty big shift. So again, if there's any sort of color you can provide on that, it would be helpful, because just in perspective, this 23.5% from the 1 to 1-2 bucket is now reminiscent of a couple of years ago before you started having operator issues. I don't want to -- there operator issues, maybe it's a one-time thing with these operators and it could bounce back, but just some more color would be helpful. Thanks.

C. Taylor Pickett -- Chief Executive Officer

Yes, I mean -- look at the weighted average, to be honest with you to dig into that before I can respond with anymore clarity that I already have. But as I indicated, once again it's sort of two operators that sort of dropped from one bucket to the other wasn't material, but I'll focus and look at the weighted average as well.

Trent Trujillo -- Scotiabank -- Analyst

Okay, I appreciate that. Maybe we'll follow-up later. But I guess switching topics to the Encore Portfolio. It looks like with consulate set to come in as that majority operator, they're going to be a top 2 or top 3 operator. Can you maybe talk about your relationship with them, how that's evolved over time and your comfort level with them being a top operator and are you seeing further growth opportunities given prior comments about favoring growth in the Southeast region?

C. Taylor Pickett -- Chief Executive Officer

So yes, consulate will ultimately end up being -- well has become our number 2 operator actually, I don't see any growth opportunities today. But we'll certainly talk with them, I think our relationship with their management team is excellent. We have frequent conversations with them, they are in markets that we covet, particularly the Southeast.

They have gone from being in over 20 states down to I think 8 at this point. So they have done a good job narrowing their geographic footprint and really honed in on where they want to operate going forward. They have done a lot of rein in their costs, there is a lot to like about Consulate that we do think that there are quality operator and to the extent that we have opportunities to do stuff with them in the future, we will certainly look at that long.

Trent Trujillo -- Scotiabank -- Analyst

Okay and last one for me. The other operator in the deal, it sounds like it's a relatively smaller one maybe a newer one and definitely new to your portfolio as you put in the prepared remarks. What are your plans in terms of growth with that relationship over time?

C. Taylor Pickett -- Chief Executive Officer

So they are a new operator, represents three facilities in this transaction. We have met with them previously and we will continue to talk with them and if there are any new opportunities, we'd like to expand with them. We think they have quality operator as well.

Trent Trujillo -- Scotiabank -- Analyst

Okay, thank you. Appreciate the time.

Operator

Our next question will come from Chad Vanacore of Stifel. Please go ahead.

Chad Vanacore -- Stifel -- Analyst

All right. Good morning all.

C. Taylor Pickett -- Chief Executive Officer

Good morning Chad.

Chad Vanacore -- Stifel -- Analyst

All right. Could you talk a little bit more about that UK investment that you bought from HCP. So what we don't know is how has the performance of the underlying properties trended over the past year, give us some lease terms and coverage ratio. And then what is ultimately your target allocation or expected growth in that UK market.

C. Taylor Pickett -- Chief Executive Officer

The coverage and the performance of those facilities has been pretty flat. Actually one portfolio picked up, the other stayed flat. So we're -- from the time that we first looked at it and looking back historically, the portfolio is improved. Its north -- it's not at our means, because it's really is assisted living. So it's slightly below that, but it's in line with what our assisted living coverage looks like today.

And then how big can we get in the UK, I think we're just going to continue to be opportunistic. We've got -- we will have four operators there, they will be I think aggressive on the acquisition side. So we will have, I think some more opportunities to do some more deals over there. but we haven't picked the target where we want to end up at the end of the day.

Trent Trujillo -- Scotiabank -- Analyst

Okay. And then just one is probably for Steve which is, a Second Avenue development in Manhattan that opens up in the first quarter or at least should. Can you give us an update on development leasing activity and then expected stabilization date at this point? Any surprises either positive or negative to this point?

Steven J. Insoft -- Chief Corporate Development Officer

So lease up, or I should say deposit, deposits are going sort of according to plan. Operator would sort of like to see the deposit level preopening on the date of opening, sort of be in the 30% to 40% of unit count and they are consistent with what they're suburban operations have shown over the years and it's on track now to do that. I would think about full stabilization in 24 plus months. And to the extent you had asked about surprises, actually it's sort of going according to plan. No wild swings either way, marketing is accepting product really well.

Trent Trujillo -- Scotiabank -- Analyst

So, no changes on rent expectations at this point?

Steven J. Insoft -- Chief Corporate Development Officer

No, no.

Trent Trujillo -- Scotiabank -- Analyst

Okay. And then about on the debt side of things so that's probably more geared toward Bob, you did about 10 year $500 million senior note at 3.625% in September, which was pretty attractive, given where average long-term debt costs are, any chance to refinance to more of the existing notes that carry a higher interest rate at this point?

Robert O. Stephenson -- Chief Financial Officer

Chad, we look at that all the time and we will be opportunistic if the make whole makes sense to us. And given the spread on the 10-year, but we do analyze that all the time.

Trent Trujillo -- Scotiabank -- Analyst

All right. That's it for me. Thanks.

Unidentified Speaker

Thanks, Jeff.

Operator

And the next question will come from Lukas Hartwich of Green Street Advisors. Please go ahead.

Lukas Hartwich -- Green Street Advisors -- Analyst

Can you guys talk a bit about skilled mix trends over the past few quarters?

C. Taylor Pickett -- Chief Executive Officer

Yes, I mean the trend has come under pressure. I mean the mix -- the quality mix trend has come under pressure. I mean, it still has, I mean length of stay or there is still trending down. Although the downward trend has slowed up quite a bit and we're still seeing hospitals hold on to patients longer and the length of stay in SNFs to be shorter. It hasn't fallen off much, but there is a slow decline if you look at it over the past four quarters.

Lukas Hartwich -- Green Street Advisors -- Analyst

Great.

Unidentified Speaker

One other thing I'd add Lukas is, we've seen Medicaid tick up, it's in an environment where with occupancy where it is, our providers are taking all available patients not a selection type of situation, except for maybe very high occupancy parts of California but around the country, you're not having operators say no I want this patient versus that. And I think the movement in Medicaid upward is the beginning of the demographic analysis that we've done and talked about over the last year and a half that's a situation where our residents really don't have other options in terms of settings, it is completely needs driven. There is no length of stay issues around that.

So I think what you're seeing on the Medicaid side is the beginning of that demographics and we're seeing on the Medicare side, it's just not obvious because of the length of stay pressure and as Dan mentioned that pressure is abating, but it's still out there.

Lukas Hartwich -- Green Street Advisors -- Analyst

That's helpful. And then you kind of touched on this earlier, but your New York development is nearing completion. I'm just curious if you have any updated thoughts on similar projects that you could start over the next few quarters.

C. Taylor Pickett -- Chief Executive Officer

The Maplewood team is incredibly active in looking for opportunities, and we're very supportive of that, the lead times on these sort of things are long. I will say we continue to be actively looking for the next big opportunity; in the meantime, we continue to find opportunities for their suburban product which is they are -- they tend to be a fifth or a sixth of the size of Second Avenue Carnegie Hill, but there is still quite additive we're finding those as well.

Lukas Hartwich -- Green Street Advisors -- Analyst

Great. Thank you.

Unidentified Speaker

Thank you.

Operator

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

Daniel Bernstein -- Capital One -- Analyst

Good morning. I guess my question right now is maybe more about the pipeline, you just did some large portfolio transactions. What's the outlook for kind of the bread and butter one off, two off assets where you can do $200 million or $300 million a year and maybe in that context talk about opportunities to expand relationships with new operators. Some of the largest operators started off as smaller operators for you and just want to kind of understand what the opportunities are there on the smaller side?

C. Taylor Pickett -- Chief Executive Officer

So to your point, the bread and butter, which tends to generate $300 million-plus per year is out there and it's consistent and I would expect that to just continue to roll forward into 2020. On the operator side, as you know, Dan, we've skinny down our number of operators, but we actually add two or three new relationships every year. And it's interesting and we really haven't talked about this a lot, but if you look at some of those relationships we've added over the last few years. They've all tended to grow up with us, so we continue to look for in the next generation of growth opportunities and I think we'll find it in a market that continues to be opportunistic and good operators are hard to find when you find them, do you want to invest in them.

The only other comment I'd make about the pipeline is the conditions we've talked about over the last year that provide opportunities for the bigger type deals are still there. We found a couple of last year. I wouldn't -- the same market conditions exist today. We don't have anything in the pipeline today, but it still feels like a market where we might see those type of transactions as well.

Daniel Bernstein -- Capital One -- Analyst

So $200 million to 300 million one off and probably one $500 million to $1 billion deal is kind of the way to think about. [Indecipherable] The other question I had is, I know that's very preliminary on the PDPM, but have your operators talked about any surprises whether good or bad in their transition to PDPM?

C. Taylor Pickett -- Chief Executive Officer

I haven't heard anything bad, it's really and we would have by now. So I think the coding , the revenue cycle, I don't know that we've got feedback on that, but in terms of coding and expectations around that, that's all been positive. I think the adjustment of rehab expenses, it really just depends when you start the process, we think it's generally a three-month process, and most of our operators didn't start on those efficiencies until now, but the tone has been good.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then on the operators that slipped in to the coverage bucket. And if you can go over, maybe kind of what, maybe safeguards in there in terms of covenants or guarantees and maybe subordination of G&A or something like that. I want to understand what the restructure is there a little bit?

C. Taylor Pickett -- Chief Executive Officer

Yes, I mean listen, we've had , consistent lease structures now for a dozen plus years. We generally put everything into master leases there is almost always a secondary source of repayment from either a parent company or management company or individuals, the other subordination of management fees, sometimes there is equity pledges we get the seconds on AR, there are financial covenants. There are a number of other things that protect us and protect our interest. So I think our underwriting has been consistent over many years. It hasn't unchanged and we don't expect it to change.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then one last question, there's potential change over in Medicaid funding and Michigan. And I think it's your third largest state, any concerns there from your standpoint that there could be some negative impacts on your operators in Michigan?

C. Taylor Pickett -- Chief Executive Officer

So -- we have one obviously large operator in Michigan and what they're doing is lowering the caps and the early analysis is that this will be neutral for them.

Daniel Bernstein -- Capital One -- Analyst

Okay. That's all I have.

Operator

Our next question will come from Todd Stender of Wells Fargo. Please go ahead.

Todd Stender -- Wells Fargo -- Analyst

Hey thanks. Just some quick tenant questions I guess around some of the portfolio changes. The acquired assets in the quarter, so three SNFs for $25 million who are those going to be leased to?

C. Taylor Pickett -- Chief Executive Officer

An existing private operator.

Todd Stender -- Wells Fargo -- Analyst

Can you disclose who it is? Or is it -- I think it goes into a master lease if I caught that right?

C. Taylor Pickett -- Chief Executive Officer

It does, but as a rule. We generally don't disclose our private operator.

Todd Stender -- Wells Fargo -- Analyst

Okay, got it. And then on the sales, you sold nine assets for $93 million in those.

Unidentified Speaker

Non-core strategic operator that we sold.

C. Taylor Pickett -- Chief Executive Officer

Yes, you want to know who we sold to?

Todd Stender -- Wells Fargo -- Analyst

Who were the operators in those facilities?

C. Taylor Pickett -- Chief Executive Officer

They were sort of one-offs within different portfolios. It wasn't one big nine facility deal, it was a bunch of smaller transactions with smaller operators.

Todd Stender -- Wells Fargo -- Analyst

Got it, OK. Thank you, just finally, just looking at capex, when I kind of reconciled what to forecast, capex, year-to-date about $40 million. Just as a reminder is that money that's mostly going toward retenanting facilities just considering your a triple net owner, what is that mostly going toward?

C. Taylor Pickett -- Chief Executive Officer

Our capex Todd is incremental additions to buildings, typically that has yield. So very -- there is almost no capex that is kind of your office type retenanting capex might as well call zero there.

Todd Stender -- Wells Fargo -- Analyst

So, no maintenance capex. This is all something revenue enhancing and at a yield comparable that what you're acquiring at?

C. Taylor Pickett -- Chief Executive Officer

Correct. That's exactly right.

Todd Stender -- Wells Fargo -- Analyst

Okay, thank you.

Operator

Our next question will come from Tayo Okusanya of Mizuho. Please go ahead.

Tayo Okusanya -- Mizuho -- Analyst

Yes, good morning, gentlemen, how are you.

C. Taylor Pickett -- Chief Executive Officer

Welcome back Tayo.

Tayo Okusanya -- Mizuho -- Analyst

Thank you very much, I appreciate it. Good to be back. I just wanted to follow up on two questions that were asked a little earlier. The first one, again is just again the coverages, again the two tenants that did the coverage buckets move down a little bit. Again given all our due diligence, it sounds like, one of them -- one of those tenants a signature. And again just given Trent's comments earlier on which I agree with about signature was one of the first ones to really start to try to implement PDPM early.

I guess everyone is talking very positively about what PDPM is going to do, but is there like a short-term negative impact that we should all be bracing for where coverage ratios may actually go down first, before ultimately climbing. I'm just kind of curious if there is some type of shock, we should all be waiting for that we may not be thinking about today.

C. Taylor Pickett -- Chief Executive Officer

Honestly we don't, we don't know 100% what the answer to that question is going to be, Tayo. I will say that I don't think we'll see a shock, I think you may have certain folks that are trying to get in front of PDPM that would have -- that will incur expenses prior to October and that will push their coverages a little bit and some who have waited.

My sense of it is that you won't see coverages move meaningfully one way or the other, and we'll get a really good viewing as Dan mentioned in Q1 2020. I will comment that Signature is particularly interesting because they have a big rehab program that became much less aggressive in terms of minutes delivered.

And so they are one of the rare cases where we may see both a reasonably good revenue pickup up from PDPM from just the straight coding and also because we have still a big piece of their overall expenses, a decent expense pickup. So [Indecipherable] unusual circumstance given that they had the prior disclosed issues with the government and really dial back in terms of rehab delivery, which as you know, affect the revenue side of the equation to the positive for them.

So Signature in particular, is one of our tenant relationships, obviously we spent a lot of time with that we feel very comfortable rolling into this next year of reimbursement.

Tayo Okusanya -- Mizuho -- Analyst

Okay, that's helpful. Thank you. And then the second question is specifically on Texas. Correct me if I'm wrong, but I thought like all the regulatory changes that we're trying to make around QIPP and some of the other reimbursement changes that all that kind of stuff got delayed somehow and/or held up within regards to voting on these things.

And if that is indeed the case, how does one really start to get more comfortable with the idea of Daybreak recovering if some of these items that were meant to help them improve profitability seems to just going to be hanging in legislation?

C. Taylor Pickett -- Chief Executive Officer

So, Texas QIPP program has been in place now for a number of years than what just took effect on September 1 was quick -- It was not held up at all. That revenue was not coming in yet because it's delayed reimbursement, but it will come in into the first quarter of 2020. So I think what you're referring to more is Texas attempted to push through, what I can now say was thought of as a provider tax and it did not make it out of committee. So it was not voted on.

We did have high hopes , but certainly wasn't in our planning and it's certainly not in our underwriting and might come back in a couple of years. But right now it's not active.

Tayo Okusanya -- Mizuho -- Analyst

Okay, that's helpful. And then Michigan again just indulge me one more time. Can you just help me understand how with your large tenant that exposed to that market, how they expect these changes to their Medicaid payment to end up being somewhat neutral to them. I don't think I quite understand how it's going to have been a negative impact to their -- to the bottom line or a neutral impact to the bottom line.

C. Taylor Pickett -- Chief Executive Officer

So number one, I think it's just proposed legislation unless something has happened in the last 24 hours. It's not past.

Tayo Okusanya -- Mizuho -- Analyst

Yes, correct.

C. Taylor Pickett -- Chief Executive Officer

And then secondly, what you have is -- what's being presented at [Indecipherable] is a reduction in the caps, just certain cost centers. So our operator there is going to have some facilities that are above the caps, which will get it and certain that are below the caps which they'll be able to have a pickup on.

So ultimately when they took all their Michigan facilities and looked at the impact it was neutral, based upon what we know today and what's been proposed in the legislature or what's the -- I should say what the Governor is actually proposing.

Tayo Okusanya -- Mizuho -- Analyst

Okay, great. I appreciate it. Thank you.

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Taylor Pickett for any closing remarks. Please go ahead.

C. Taylor Pickett -- Chief Executive Officer

Thanks everyone for joining our call today. As always, we'll be available for any follow-up you may have. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Michele Reber -- Senior Director of Asset Management

C. Taylor Pickett -- Chief Executive Officer

Robert O. Stephenson -- Chief Financial Officer

Daniel J. Booth -- Chief Operating Officer

Steven J. Insoft -- Chief Corporate Development Officer

Unidentified Speaker

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Jonathan Hughes -- Raymond James -- Analyst

Trent Trujillo -- Scotiabank -- Analyst

Chad Vanacore -- Stifel -- Analyst

Lukas Hartwich -- Green Street Advisors -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Todd Stender -- Wells Fargo -- Analyst

Tayo Okusanya -- Mizuho -- Analyst

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