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Ensign Group Inc (ENSG 0.02%)
Q1Â 2020 Earnings Call
May 12, 2020, 1:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to The Ensign Group, Inc. First Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference to your speaker today, Mr. Keetch. Please go ahead, sir.
Chad A. Keetch -- Chief Investment Officer, Executive Vice President & Secretary
Thank you, operator. Welcome everyone and thank you for joining us today. As always, before we begin, I have just a few housekeeping matters. We filed our earnings press release and 10-Q yesterday. This announcement is available on the Investors Relations section of our website at www.ensigngroup.net. A replay of this call will also be available on our website until 5:00 PM Pacific on Friday, June 5, 2020.
We want to remind anyone that may be listening to a replay of this call that all the statements are made as of today, May 12, 2020 and these statements have not been nor will be updated subsequent to today's call. Also, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results. Except as required by federal securities laws, Ensign and its affiliates do not undertake to publicly update or revise any forward-looking statements, where changes arise as a result of new information, future events, changing circumstances or for any other reason.
In addition, The Ensign Group, Inc. is a holding company with no direct operating assets, employees or revenues. Certain of our wholly owned independent subsidiaries collectively referred to as the Service Center provide accounting, payroll, human resources, information technology, legal, risk management and other services to the other operating subsidiaries through contractual relationships with such subsidiaries. In addition, our wholly owned captive insurance subsidiary, which we refer to as the Captive, provides certain claims made coverage to our operating subsidiaries for general and professional liability as well as for workers' compensation insurance liabilities.
All of our operating subsidiaries, including the Service Center and the Captive are operated by separate wholly owned independent companies that have their own management, employees and assets. References herein to Ensign or the consolidated company and its assets and activities as well as the use of terms we, us, our and similar terms used today are not meant to imply nor should it be construed as meaning that The Ensign Group, Inc. has direct operating assets, employees or revenue or that any of the subsidiaries are operated by The Ensign Group.
Also we supplement our GAAP reporting with non-GAAP metrics. When viewed together with GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon to the exclusion of GAAP reports. A GAAP to non-GAAP reconciliation is available in yesterday's press release and is available in our 10-Q.
And with that, I will turn the call over to Barry Port. Our CEO. Barry?
Barry Port -- Chief Executive Officer and Director
Good morning, everyone. Before I outline some of our operational metrics on behalf of all of our shareholders, patients and their families, I want to publicly thank our front-line teams for their heroism and dedication over the last several weeks. As an organization, the past few months have proven to be some of the most challenging times we faced, both clinically and operationally. During this unprecedented period, our ability to learn, collaborate and adapt has been put to the test. Each of our leaders have spent day and night doing all they can to protect, treat and comfort their patients and employees. We are in aw, as we witnessed them doing extraordinary things to go beyond the call to do their duty in an incredibly compassionate and thoughtful way.
We live in a time of 24-hour news cycles and social media. And at times, it can be hard to understand why more praise and admiration isn't heaped upon these leaders and caregivers that are on the front lines in post-acute and long-term care. Nevertheless, even though others might marginalize or even look past the contributions of post-acute care, all of them deserve our gratitude and recognition for showing up on the front line everyday to give their very best to their patients. We love you and are honored to be associated with each of you.
Now, we want to provide you some details on the first quarter performance before we provide an update on the impact of COVID-19. As we stated in our release yesterday, the tremendous operational momentum we generated in 2019 continued into the first quarter of 2020. For the second quarter in a row, we achieved our highest earnings per share in our history of $0.77, an increase of 92.5% over the prior-year quarter, and an increase of 28.3% sequentially over a very strong fourth quarter. Our results in the first quarter came from an impressive quarter-over-quarter improvement in occupancy and skilled mix days across the same store transitioning and newly acquired operations. Prior to COVID, we continued to see strength in occupancy, as the Company hit its all-time high in consolidated occupancy in February.
Starting in the last few weeks of March, we began to see a decline in occupancy and an increase in costs caused by COVID-19 and the resulting slowdown of normal patient traffic and the need for unprecedented use of personal protective equipment. While these occupancy declines and increased expenses are included in our results, we still substantially exceeded our own expectations for the quarter. We also want to make it clear that our results in the first quarter were not boosted by any stimulus funds or other positives on the reimbursement front.
I'm sure you all agree that our quarterly results are something to celebrate. Given these unique circumstances, our focus this quarter will be to provide an update on the impact of COVID-19. We feel it's important to underline that this pandemic arrived at our doorsteps at a time when our organization has never been stronger clinically and financially. As we told you last quarter, we saw significant bottom line improvement in all 21 of our markets at the end of the fourth quarter of last year, including some of our newer markets and yet we achieved 28.3% sequential improvement over that record breaking fourth quarter.
Let us remind you that Ensign was born in times much like these and our model is not only designed to survive, but to thrive and grow in a face of uncertainty. Our current health combined with our culture, proven local leadership strategy, healthy balance sheet and the enormous potential in our newly acquired transitioning and same store operations gives us confidence that we are well positioned to manage through these unusual times and to rebound to our pre-COVID health.
Each of our local leaders have been actively adapting to the rapidly evolving COVID-19 environment, as they continue to provide the highest level of care to their patients. As you might expect, similar to what the whole country is experiencing, the impact is varied by market and building by building. Overall, our portfolio is not being overwhelmed by COVID-19. As we mentioned in our release yesterday, as of May 8, 2020, the Company's 225 affiliated operations across 13 states has 355 confirmed COVID-19 patients in-house. Also, as of May 8, seven operations had over 20 COVID-19 positive cases, 25 operations had less than 20 cases and 193 operations had no confirmed cases of COVID-19. As testing continues to become more available, we expect the number of known cases to continue to rise during the second quarter, but we believe we are prepared to operate in the COVID environment for the foreseeable future.
We started to see occupancies decline in the latter half of March, due to governmental stay-at-home orders, a pause on vital procedures and overall lower hospital occupancies, all of which directly impact patient referrals coming into the post-acute setting. More specifically, between mid-March and mid-April, combined same store and transitioning occupancy was down 5.2% and skilled mix was down by 11.8%. Between mid-April and early May, combined same store and transitioning occupancy was down by an additional 1.7% and skilled mix actually improved by 13.6%, respectively, as these numbers demonstrate the rate of decline in occupancy, slowed by approximately 40% over the last several weeks.
Also a recent boost in skilled mix was partially due to CMS's waiver of the three-day qualifying stay and special arrangements with our managed care partners. This recovery in skilled mix over the last few weeks, together with the flattening of the occupancy declines, demonstrates continued partnership with the healthcare community. And as those that have been following us through our history know, when we experience an increase in skilled mix, it is invariably followed by an increase in overall occupancy.
The organization has taken numerous actions over the course of the past several weeks to provide the safest possible environment for its employees, affiliated physicians and patients and have been preparing for the potential and in a few cases, an actual surge of COVID patients. With the assistance of the Service Center, they've also been successful in acquiring PPE, acquiring testing solutions and other supplies and equipment. They have implemented staff retention initiatives tailored to the unique environment of the various markets and the Service Center and field resources are providing training and helping to establish clinical protocols and safety measures in an ever-changing regulatory environment.
To mitigate the impact of volume reductions in our operations, we have also taken steps to enhance our operational and financial flexibility and redirect resources to critical operations. Simultaneously, we took actions to increase liquidity and deferred capital spend and other costs that could be delayed without impacting our delivery of care. The organization has implemented certain cost reduction initiatives, which included the voluntary reduction in base salaries by the Board of Directors, the executive team and other key organizational leaders.
Company's response plan has multiple facets and continues to evolve as the pandemic unfolds. As we've said today, we've seen and expect to continue to see a significant impact from the pandemic on the second quarter and carrying into the third quarter, but we are seeing signs of stabilization in occupancy in many of our markets and we are optimistic that occupancies will continue to recover in the second half of the year, as hospitals reopen and vital elective procedures that have been delayed begin to take place. We are maintaining our 2020 annual earnings guidance of $2.50 to $2.58 per diluted share and annual revenue guidance of $2.42 billion to $2.45 billion.
We are confident that we can provide this guidance for several reasons, including our better-than-expected results for the first quarter, which under normal circumstances would have led to an increase in guidance. The implementation of certain cost reduction initiatives and the positive news on both reimbursement stimulus funding are also other factors. While the pathway to achieving these results will differ significantly from what we originally planned and the quarterly cadence has changed, we are confident that we are well positioned to regain much of our pre-COVID momentum, as the flow of patients continues to normalize over time. As the year progresses, we will continue to evaluate the impact of COVID-19 across the portfolio and we will readjust if necessary.
And with that, I'll ask Chad to give us an update on our recent investment activity. Chad?
Chad A. Keetch -- Chief Investment Officer, Executive Vice President & Secretary
Thank you, Barry. The Company paid a quarterly cash dividend of $0.05 per share of Ensign common stock. Due to our strong liquidity, we were pleased to continue our long-standing practice of paying a dividend to shareholders. Ensign has been a dividend paying company since 2002 and there are no current plans to suspend future dividends. Also during the quarter, we announced four acquisitions, including one skilled nursing operation and one independent living operation that are part of a healthcare campus both in San Antonio, Texas, and two skilled nursing operations in Colorado.
We were very pleased that we were able to add these four operations to the portfolio well in advance of the COVID-related access restrictions, allowing us to successfully complete our multifaceted transitions. We are happy to report that all four of these operations are doing well. We have several deals in the pipeline that we halted temporarily, as we responded to the COVID threat. A few of these deals are slated to close sometime this summer, while others will require a fresh look when the dust from the pandemic settles. With these additions, our growing portfolio is now comprised of 225 skilled nursing operations, 23 of which include senior living operations and other ancillary businesses across 14 states. And Ensign now owns 92 real estate assets, 62 of which we operate. This portfolio of owned assets took less than five years to build as compared to the 15 years it took to acquire the 94 assets we spun out to CTRE when it was founded in 2014.
Through all the changes that are happening, we continue to evaluate many opportunities. We anticipate that there will be a significant influx of older and newer deals that come out of this pandemic as we slowly begin to return to our pre-COVID plans. While we are always very selective with each potential acquisition opportunity and pass on the majority of the opportunities that are presented to us, we will be even more selective over the next few quarters. And that is because not only is it extremely tricky to underwrite ideal at this time, but we also believe that there will be some very, very attractive turnarounds on the horizon and we want to be sure we are choosing the best available opportunities.
As an aside, we want to remind you that our disciplined approach to acquisitions is not just focused on maximizing the return on our investments, but it's also an excellent buffer when there are pressures on occupancies. Our approach to underwriting all of our opportunities is to pay fair and reasonable prices that are based on historical performance, not on a pro forma or future results that we will create through our performance. And as most of you know, the operations we acquire tend to start out with lower occupancies and the price we pay reflects that lower occupancy. So when occupancies go down like they did in March, we have plenty of cushion built into our model. Similarly, our insistence on entering into leases with healthy coverage is hugely important, as we are able to weather these storms without looming coverage problems that we expect many other operators are experiencing.
Lastly, we continue to methodically add value to our real estate portfolio. Suzanne will give more details around our liquidity, but we currently own 72 real estate assets that are completely unlevered. Many of these assets have been operated by an Ensign affiliate for long enough that they have built up significant equity value that we can unlock to fund the upcoming wave of very attractive acquisitions. We are constantly evaluating our options, which includes taking a small handful of those properties to HUD for mortgage financing.
And with that, I'll pass the call back over to Barry for some more detail around operations. Barry?
Barry Port -- Chief Executive Officer and Director
Thanks, Chad. We have learned a great deal through this process and our local leaders are now shifting their focus to a comprehensive recovery effort in each of their markets. This includes proactively preparing for and executing on plans to provide care for all patient types, whether COVID positive, negative or unknown. These efforts vary building-to-building and market-to-market and are being done in partnership with local and state public health officials to ensure compliance with infection control protocols and a comprehensive recommendations provided by the CDC and other public health authorities. Some of these efforts have involved an entire building. In other situations, it's a dedicated unit or floor of the facility.
In one example, City Creek Post Acute led by Executive Director, Jared MacDonald and Director of Nursing, Anna Mockley [Phonetic] entered into a unique agreement with the state of Utah. At the urging of local hospitals that we're seeking to prepare for a wave of COVID patients, the state sought out our support in Salt Lake County to dedicate an operation to the care of COVID-positive patients. Jared and Anna, along with market leadership and market resources, began to build a clinical and operational plan that would allow City Creek to become a solution for the surrounding hospitals. This detailed plan required extensive preparation to ensure that there was adequate PPE on hand for the staff, a detailed staffing planned and proper infection control protocols along with many other operational details. Through the entire process, the operation worked hand-in-hand with local health officials and the hospitals to ensure the proper transfer and care and safety of both patients and employees. The state entered into unique payment agreement with us, allowing City Creek to cover their expenses during this temporary arrangement and function as a vital resource for the community. To date, this operation has accepted dozens of patients and has already successfully transitioned many of them to home.
In another example, Desert Blossom Health and Rehabilitation signed an initial wave of COVID positive cases in early April. However, CEO, Scott Petty and Director of Nursing, Andrea Francis were prepared. After confirmation of these positive cases, leadership quickly put admissions on hold to help ensure safety and allow for control of the spread of the infection. The team also implemented communication plan for families, so that they would have daily updates on the status of their family member. They utilize technology to allow patients to connect virtually with loved ones. The team executed a thoughtfully prepared plan to establish their dedicated COVID unit that includes physical barriers, staff and patient separation, unit-specific transmission based precautions, enhanced clinical oversight and effective disinfection protocols, all the while, working in lockstep with their county health department to implement these procedures to actively manage the infection in their COVID unit and the rest of their facility.
After the initial execution of their plan, they were able to pivot and become an important research to the surrounding area, partnering with their strategic managed care partners and hospital community to accept the recovering COVID-positive patients.
Even though the onset of the outbreak caused a sharp decline in occupancy, because they were able to successfully carry out their comprehensive plan, occupancies quickly returned to pre-COVID levels and they were not only able to successfully treat COVID-positive patients in the recovery unit, but help many of them to heal, and in many cases, return home. And they continue to actively treat COVID-positive patients with great success.
In each of these examples, the operations have reinforced their position in the market as an operation with the team of caregivers that are second to none. The patients and families they served are forever grateful for their willingness to take care of them at a time when it would have been easy to simply pass them along to someone else to handle. These, of course, are just a few examples of the heroism that is occurring in our organization every day and there are many more just like this.
Our teams have shown tremendous flexibility in adapting to this new environment and continue to lead with solutions in each of their respective markets. It really is in times like these that Ensign's unique operating model really shines. Our leadership and our operational model are the reasons why we have adapted and will continue to adapt during this unprecedented time. Rather than attempting to rollout a one-size-fits-all approach across many markets with varying local restrictions, our CEO-caliber leaders and their clinical partners with the support of a world-class service center are very carefully working with local governments, hospitals and their managed care partners to be a solution to this pandemic. As hospitals begin to methodically resume vital procedures and to reopen, our teams will be ready to admit the many, many patients that have been waiting in the wings and are in need of post-acute care, all while working within the framework of COVID-19 protocols.
Now, I'll pass the call over to Suzanne, who can provide more details about the quarter and our guidance. Suzanne?
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Thank you, Barry, and good morning everyone. Detailed financials for the quarter are contained in our 10-Q and press release filed yesterday.
Some additional highlights for the quarter include, consolidated GAAP net income was $41 million, an increase of 90% over the prior-year quarter. Adjusted net income was $43 million, an increase of 93% from the prior-year quarter. Consolidated GAAP revenues were $590 million, an increase of 25% over the prior-year quarter. Same store occupancy was 80.1%, an increase of 28 basis points over the prior year and same store skilled managed care and Medicare revenue was up 11% and 13% respectively.
Transitioning occupancy was 82.7%, an increase of 496 basis points over the prior year and transitioning skilled and managed care and Medicare revenue was up 32% and 14%, respectively. Cash generated from operations was $27 million and free cash flow was $11 million. The Company's liquidity remains strong. And as of May 1, we have cash and cash equivalents of approximately $50 million and $235 million of available capacity on our revolving credit facility.
As Chad mentioned, we also have 72 unlevered real estate assets and have identified a handful of properties with significant equity value that will allow us to add even more liquidity. In March 2020, the federal government began to undertake numerous legislative and regulatory initiatives designed to provide relief to healthcare providers during the COVID pandemic, including waving the three-day qualifying stay, the CARES Act, special relief funding and an Accelerated and Advanced Payment Program for Medicare.
Through May 1, 2020, the Company has received approximately $40 million of grant aid under the CARES Act. In addition, we received a loan of approximately $100 million from the Medicare Accelerated Payment Program, which will have to be repaid in August of 2020. In addition, the CARES Act temporarily suspends the automatic 2% reduction of the Medicare claims reimbursement, otherwise known as sequestration, for the period of May 1, 2020 through December 31, 2020. The suspension of sequestration will have a positive impact on our revenue, but the magnitude of the positive impact will depend upon the continued impact of the virus on our Medicare centers through the remainder of the year.
The federal government has also increased the Federal Medical Assistance Percentage known as FMAP by 6.2%. The FMAP increase will terminate at the end of the quarter when the national emergency status is lifted. The temporary increase in FMAP will have a varied to impact on our Medicaid rates by state, but for the states in which we operate have already approved increases and we expect several others to do so as well.
As Barry mentioned, we maintained our previously announced 2020 annual guidance of between $2.50 and $2.58 per diluted share and revenue between $2.42 billion and $2.45 billion. [Technical Issues] 2020 guidance represents an increase of 30.3% of our 2019 spin adjusted results. Our 2020 guidance is based on diluted weighted average common shares outstanding of approximately 57.6 million, a tax rate of approximately 25%, the inclusion of acquisitions expected to close in the first half of the year, the exclusion of losses associated with start-up cost and other operations that are not yet stabilized and the inclusion of anticipated Medicare and Medicaid reimbursement rates, net of of provider tax, with the primary exclusion coming from stock-based compensation.
Additionally, other factors that could impact quarterly performance include variations in reimbursement systems, delays and changes in state budget, seasonality in occupancy and skilled mix, the influence of the general economy on census and staffing, the short-term impact of our acquisition activities, variations in insurance accruals, the resurgence of COVID pandemic and other factors.
And with that, I'd like to turn the call back over to Barry. Barry?
Barry Port -- Chief Executive Officer and Director
Thanks, Suzanne. Before we move on to questions, we just want to remind you again that this isn't the first time we faced adversity like we have in front of us. Whether it was in the changes in the early days of our formation when some of the most experienced and respected names in the industry were filing for bankruptcy, the aftermath of RUGS IV reimbursement reductions, the increased costs and decrease in revenues resulting from the two public company spin off with CTRE or the devastation left in the wake of hurricanes, floods or fires, our Ensign leaders have proven over and over again that our model uniquely positions us to take clear and swift strategic action in each market they serve.
Our optimism expressed today is based entirely on our confidence in our local teams and our proven model. Our success has and will always be due to their daily commitment and sacrifice and their ownership of our culture and organizational mission. We're grateful to our shareholders and your confidence and support. We can't adequately express our appreciation to our colleagues in the field and the Service Center, especially our front-line staff, our nurses and CNAs and housekeepers and all of those who are showing up every day to do a remarkable work, thank you for making us better. We're grateful to each of you.
And with that, we'll turn the call -- turn over to the Q&A portion of our call. Joel, can you please instruct the audience on the Q&A procedure.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from Frank Morgan with RBC Capital Markets. Your line is now open.
Frank Morgan -- RBC Capital Markets -- Analyst
Good afternoon. I guess, will start on the guidance. Maybe any additional color around the cadence, obviously, the second, third quarter probably are a little choppy and I think you said it wouldn't be the normal pattern. So just any color there. Does that include -- I think you said you had a couple of deals that might potentially close. Is that included in that guidance? And I think you said that you would be recognizing the $40 million. Just for mechanical or is that just a straight revenue flow through? So, I guess, let's start there and I have a few more.
Barry Port -- Chief Executive Officer and Director
Yeah. Thanks, Frank. I'll let Suzanne comment on the CARES funding. As far as cadence goes, you're asking a little bit in terms of kind of what we expect with census and recovery. It's obviously a little difficult to predict. Look, I can tell you that based on what we're seeing -- and we can speak more to kind of what we're seeing here in the second quarter. We had seen some pretty steady declines even during kind of our weekly -- I'm getting real micro here, but from Monday to Friday, we are still seeing kind of daily declines up until about three weeks to four weeks ago. We now are at a point where our census is remaining relatively flat through the week and then we were seeing some declines on the weekends. And even up until this last weekend that was true. This is the first weekend where we've remained flat from an occupancy standpoint, both through the week and through the week end.
Now, look, I'm talking very specifically about very small kind of point in time here, but the pace of decline has decreased substantially over the past several weeks. And even compared to some of our peers, we've been fortunate to see that pace -- decline in a pretty substantial way. Our skilled mix has gone up dramatically over that same period of time and part of that is due to the three-days stay waiver with Medicare, part of that's due to arrangements we have with our managed care partners, but part of that is also due to some of the vital elective procedures that are beginning to happen, different pockets of different markets.
And so, it gives us some confidence that we will probably continue to see even potentially some decline through the second quarter and that may even leak into the third quarter. We don't know for sure, but even if it does, we see a lot of pent-up demand, especially for those that have been kind of waiting for those vital elective procedures that are kind of necessary. I think our normal slowdown through the summer probably won't be quite as marked as it normally is. But then again, a lot of this -- there is a lot of guessing involved in some of this, Frank, but I can just tell you what we're -- what we feel like we're close to in terms of what we're seeing and feeling.
So even if the slowdown continues through the beginning of the third quarter, we feel like the pent-up demand will start to see things return to somewhat of a normal pace. And I will also tell you, because it bears repeating that our focus is on adjusting to the COVID environment. So even though there might be some substantial changes in how patients come from the acute setting to the post-acute setting in terms of testing and how they're handled and how they're potentially staged or placed in observation units within our facilities until there's the confirmation that they're infection free, all of those adjustments are part of a comprehensive plan that our operators have been working on over the past many weeks and months to make sure that -- as nuances continue that we're prepared to adjust and adapt and be who we need to be to make sure that we do all we can to minimize the resurgence.
You asked about deals and whether or not those are included in our guidance. There are no deals that we have yet to close that are -- that would impact the guidance that we provided.
And then, Suzanne, do you want to comment on the CARES Act funding?
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Yeah, definitely. So on that -- with regards to the CARES Act funding, it's going to be an offset now, either lost revenues or additional expenses. So the timing of revenue recognition on that will just depend on the timing of those lost revenues and those expenses. They really marry each other up and then to the extent that we don't have lost revenues or expenses, obviously, then we wouldn't have the funding, and so it kind of just offsets each other when you go through the analysis.
Frank Morgan -- RBC Capital Markets -- Analyst
Okay. And -- but I guess just conceptually on the the sequence here, it sounds like you're third quarter is -- I think, third quarter is historically your lowest quarter of earnings. It sounds like with what's going on in the second quarter, having the full quarter of impact that you may see this particular year, you may see second quarter the lowest and then if we're fortunate enough to see the recovery continue, a little bit better in the third and then better in the fourth. Is that a good way to think about it?
Barry Port -- Chief Executive Officer and Director
Yeah, I think so, Frank. I think that's the -- that's how we're thinking about it.
Frank Morgan -- RBC Capital Markets -- Analyst
Okay. And in the terms of the sequester, I know you didn't give a specific number there, but a lot of people have kind of calculated that based on historical levels. Do you have a number you can share, what -- potential understanding that it could be different, but just from a historical perspective, what that would have represented on Medicare revenue, how much benefit you would get from that?
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Yeah. Obviously, Frank, it depends on how many Medicare patients we have in-house. I think between $4 million and $5 million is what we're estimating.
Frank Morgan -- RBC Capital Markets -- Analyst
Got you. And then, on the cash benefits from the CARES Act, you didn't mention the payroll tax deferral. Is that a big item? I mean that one, we get the pay back over a longer period of time than the advanced payment. So is that another possibility of the liquidity?
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Definitely, so on the liquidity front, right, there are several items. The advance payment that we did mention, which is approximately $100 million for us, that's scheduled to be repaid in August. On the deferral, we have two different deferrals, right. We have the payroll tax deferral, which is about $40 million for us and that will get deferred 50% through December of 2021 and the remaining 50% through December of 2022 and then we also have the federal tax deferral, which is about another $25 million that gets deferred into July. So several deferrals kind of -- about $165 million of total defer.
Frank Morgan -- RBC Capital Markets -- Analyst
Got you. And you mentioned the FMAP, hoping you do -- hopeful of getting some rate increases pass through there. Any particular states that you would call out in how meaningful would that be? I mean is it in states that matter you have -- where you got significant exposure and what kind of magnitude are we talking about?
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Yeah, definitely. Right now, obviously, this is a process that will continue over time. People are pretty early in the finalization of the FMAP. Currently we had Arizona, Utah, Washington and South Carolina who have their first, what I would call, the first round of what we think will be final for us, but this could continue to change. Those are the four states where we feel pretty confident about what we're going to be able to get.
Frank Morgan -- RBC Capital Markets -- Analyst
Okay. And then, my final one. I'll hop back up. Barry, you mentioned about the improvement in skilled mix with the return of electives. I'm just thinking, I noticed Texas obviously has moved back there. Is there any other -- is that state -- have you seen more of a meaningful impact there or are there any other states that you might want to call out? And I'll hop. Thank you.
Barry Port -- Chief Executive Officer and Director
Yeah, no. Thanks, Frank, good questions. Yeah, it's really sporadic. Texas is certainly one of those where we're starting to see the electives start again, but there are other states that have kind of informally loosened their -- the ability for folks to go in and do vital procedures, but Texas is probably the main one. I think others will follow soon.
Frank Morgan -- RBC Capital Markets -- Analyst
Okay, thank you.
Operator
Thank you. Our next question comes from Scott Fidel of Stephens. Your line is now open.
Scott Fidel -- Stephens -- Analyst
Hi, thanks and good afternoon, everyone. First question, just wanted to attack on the CARES and just interested if you're getting any additional visibility in terms of some of the additional grant funds that are still to be allotted and then specifically, just given your Medicaid exposure, whether you're hearing anything from CMS in terms of allocating funds more directly to Medicaid providers? I know that CMS has been surveying for Medicaid building information, etc., from providers. So, interested if you'd be getting any feedback there.
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Yeah, I mean, there is definitely a lot of additional detail that's going out there with regards to additional funding for the providers that need it. As you mentioned on the Medicaid only, our buildings there are doing some gathering of data also with regards to -- and buildings that have been hit significantly harder, they're also looking at potentially giving additional funding there and then there is the CARES Round 3 Act, which is a grant funding based act that we could be participating in. There just needs to be some additional clarity that needs to be provided in order to -- before we go out and complete those applications on Round 1 and 2 of the CARES Act, but there is potential additional funding there as well, as we mentioned of the states that we have for FMAP, we really only have visibility to about four of the states right now and we know several of the other states that are also still working on their plan and their additional fundings through those plans.
Scott Fidel -- Stephens -- Analyst
Got it. And, obviously, I know there's a lot of moving pieces to the second quarter and appreciate some of the visibility you gave us on some of the census and volume trends. Just interested if you could give us just any look into how we should think about some of the incremental costs that you're incurring, whether it's from PPE or just all the new protocols that have been put in place around the facilities. Also, I know that you incurred all of the costs directly into your reported results -- into your adjusted results in the first quarter. So also interested if you did, we're able to spike out an estimate of what type of incremental COVID-related costs you incurred in the first quarter as well.
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Yeah, definitely, I think as everyone would suspect, the biggest increase in costs were around wages and supplies. With regards to supplies, typically they make up about -- this is specifically nursing patient supplies that I'm talking about, they make up about 1.3% of our revenue, but about a 1 percentage increase of revenue if I can spread that over the quarter, so kind of increasing from 1.3% to 2.3%. And then on the wages, we had increase of about 1.5% of increase in revenue. So about 2.5% of revenue increase, and that's just going to vary up and down based upon where every location is. But on average, that's what we experienced during Q1 and kind of into April.
Scott Fidel -- Stephens -- Analyst
Got it. That's helpful. Thanks, Suzanne. And then, just last question for you guys. Just any thoughts on why the transitioning portfolio -- it looked like you had higher occupancy than normal in the first quarter and was even higher than the same-store portfolio as well. So just interested in any color on that and then that's it for me.
Chad A. Keetch -- Chief Investment Officer, Executive Vice President & Secretary
Yeah, thanks Scott. I can take that. So, as you know, we refresh those buckets every year and it really just speaks to the quality of the transition that took place. As we've talked about pretty openly the process of transitioning these operations is multifaceted, there is a lot to it. And there were some times maybe in the last couple of years where we weren't as efficient and as effective in those transitions as we would like to have been. And I think through that process we've actually just gotten a lot better at doing those transitions. And so I think that's probably what you're seeing in that transitioning bucket is the effectiveness, both of sort of picking the right deals and and even some buildings that had higher occupancies than maybe we normally acquire, but also just really performing well on the transition. And I think that speaks to -- as we talked in the script, all 21 of our markets being as strong as they've ever been, I mean, the success of those transitions is directly correlated to that and it all comes down to those local leaders knowing really all the buttons to push and the levers to pull to make sure that you get the clinical stuff fixed first and then the occupancies follow. So that's really what we're seeing in that bucket.
Scott Fidel -- Stephens -- Analyst
Okay, got it. Thanks.
Operator
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Barry Port for closing remarks.
Barry Port -- Chief Executive Officer and Director
Thanks again. Joel and thanks all of you who joined us in the call today. We're grateful for your support and have a great day.
Operator
[Operator Closing Remarks]
Duration: 45 minutes
Call participants:
Chad A. Keetch -- Chief Investment Officer, Executive Vice President & Secretary
Barry Port -- Chief Executive Officer and Director
Suzanne D. Snapper -- Chief Financial Officer, Executive Vice President
Frank Morgan -- RBC Capital Markets -- Analyst
Scott Fidel -- Stephens -- Analyst
