Omega Healthcare Investors (OHI) Q2 2020 Earnings Call Transcript

Omega Healthcare Investors (OHI 1.39%)
Q2 2020 Earnings Call
Aug 06, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Omega Healthcare Investors second-quarter 2020 earnings conference call. [Operator instructions] Please note that today's event is being recorded. At this time, I would like to turn the call over to Michele Reber. Please go ahead.

Michele Reber -- Senior Director, Asset Manager of Operations

Thank you, and good morning. With me today are Omega CEO, Taylor Pickett; CFO Bob Stephenson; COO Dan Booth; Chief Corporate Development Officer Steven Insoft; and Megan Krull, senior vice president of operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions, dispositions or transitions, and our business and portfolio outlook generally. These forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially.

Please see our press releases and our filings with the Securities and Exchange Commission, including, without limitation, our most recent report on Form 10-K, which identify specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as NAREIT FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the Financial Information section of our website at www.omegahealthcare.com and in the case of NAREIT FFO and adjusted FFO in our recently issued press release. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega.

I will now turn the call over to Taylor.

Taylor Pickett -- Chief Executive Officer

Thanks, Michele. Good morning, and thank you for joining our second-quarter 2020 earnings conference call. First and most importantly, thank you to our operating partners and their staff who have cared for the thousands of residents within our facilities. Bad reality of this prolonged deadly pandemic is that the daily dedication and bravery of the direct caregivers is too often overlooked.

They are heroically saving lives every day, carrying for particularly fragile residents. Turning to our financial results, we're very pleased with our second-quarter results. Our adjusted FFO of $0.81 per share and our funds available for distribution of $0.76 per share allowed us to maintain our quarterly dividend of $0.67 per share. Payout ratio further improved to 83% of adjusted FFO and 88% of funds available for distribution.

Additionally, for July, we collected virtually all of our contractual rents. Later in the call, we will provide detail related to the impact of COVID-19 on our operators. I will provide a couple of summary bullet points. CMS, the federal government, and the states have provided meaningful ongoing essential regulatory and financial support to the skilled nursing facility industry that has allowed operators to fund payrolls and pay vendors in spite of significant declines in occupancy and increasing costs.

Our operator portfolio occupancy has declined by 8% since February. Operator expenses have increased an average of $18 per patient a day. And although occupancy levels have appeared to stabilize, it remains uncertain when occupancy will return to pre-COVID levels. I will now turn the call over to Bob.

Bob Stephenson -- Chief Financial Officer

Thanks, Taylor, and good morning. I'd like to start by also thanking our operators and our employees for their heroic efforts during this pandemic. As Taylor said, they are saving lives every day, and they are providing essential care to a portion of our elderly population. Turning to our financials.

Our NAREIT FFO on a diluted basis was $186 million or $0.80 per share for the quarter as compared to $157 million or $0.71 per diluted share for the second quarter of 2019. Our adjusted FFO was $190 million or $0.81 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 also on our website, revenue for the quarter was approximately $256 million versus $225 million for the second quarter of 2019 with the increase primarily resulting from incremental revenue from a combination of over $1.7 billion of new investments completed and capital renovations made to our facilities since the second quarter of 2019, as well as lease amendments made during that same time period. And one-time revenue comprised of operator late fees, the acceleration of straight-line revenue related to the transfer of in-place lease assets, and the collection of security deposits held by OP unitholders owed to Omega upon the sale or termination of certain facilities. The increase in revenue was partially offset by reduced revenue related to asset sales, transitions, and loan repayments that have occurred throughout 2019 and '20 and the timing of cash receipts related to operators on a cash basis.

The $256 million of revenue for the quarter includes approximately $10 million of noncash revenue, $3.2 million of one-time favorable revenue and a $1.2 million reduction in revenue related to the write-off of straight-line receivables associated with assets that were transferred during the quarter. We collected over 99% of our contractual rent, mortgage, and interest payments for the second quarter and also for July of 2020, excluding, of course, payments due from Daybreak, which is under a forbearance agreement and has not been making rent payments in 2020. Our G&A expense was $9 million for the second quarter of 2020, approximately $0.5 million less than our estimate with the savings associated with COVID-19-related mandates, such as restricted or no travel and no conferences. We continue to project quarterly G&A expense of $9.5 to $10.5 million for the remainder of 2020.

Interest expense for the quarter, when excluding noncash deferred financing cost, was $52.8 million with a $4.4 million increase over the second quarter of 2019, resulting from higher outstanding borrowings. In September 2019, we issued $500 million of three and five-eighths of senior notes due October 2029. And in December 2019, we assumed $389 million in HUD debt related to a $735 million acquisition. Our balance sheet remains strong.

And throughout 2020, we continue to take steps to improve our liquidity. Based on the uncertainty in the credit markets that existed in March resulting from COVID-19 and in an abundance of caution, we borrowed approximately $300 million under our revolving credit facility to provide additional balance sheet liquidity. During the second quarter, based on collections, we repaid the $300 million in borrowings. At July 31, 2020, we had $180 million of outstanding borrowings under our $1.25 billion credit facility and had approximately $20 million in cash and cash equivalents.

We have no significant bond maturities until August 2023. In March, we entered into $400 million of 10-year interest rate swaps at an average swap rate of 0.8675%. These swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bond maturity. While we believe our action to date provide us with significant liquidity and flexibility to weather a potential pronounced and prolonged impact to our business, we will continue to evaluate any additional steps that may be needed to maintain adequate liquidity.

At June 30, approximately 87% of our $5.3 billion in debt was fixed and our net funded debt to adjusted annualized EBITDA was 5.32 times, and our fixed charge coverage ratio was 4.2 times. It's important to note EBITDA in these calculations does not include any revenue related to construction in process associated with five new builds scheduled to become operational within the next 12 months. When adjusting to include a full quarter of contractual revenue for acquisitions completed in the quarter and the five new builds and then eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5.16 times. On July 15, our board of directors declared a common dividend of $0.67 per share to be paid August 14 to common stockholders of record as of the close of business on July 31.

As we stated in our press release, our historical dividend announcement date is the 15th day in the first month of each quarter with a payment date approximately one month later or the 15th day of the mid-quarter month, depending, of course, on business days. Starting with our next scheduled dividend, we will continue to adhere to our historical mid-quarter payment date. However, we plan to change the dividend announcement date to correspond with prescheduled board and audit committee meeting dates for October and for the 2021 calendar year. This change will extend our dividend announcement date by approximately one week with no impact to the scheduled payment date.

I want to be very clear, the change in the announcement date is purely to coincide with prescheduled board meeting dates. I will now turn the call over to Dan.

Dan Booth -- Chief Operating Officer

Thanks, Bob, and good morning, everyone. While perhaps not counted enough, our operators have always been Omega's biggest asset. Their continued resiliency throughout "normal times" has always been inspiring as they battle through the myriad of challenges and the ever-changing requirements that define the long-term care industry. The COVID-19 pandemic, while escalating those challenges to unprecedented new heights, has also shined a spotlight on the tremendous compassion, the tireless dedication, and the heroic efforts shown by Omega's biggest asset, our operators.

Turning now to our portfolio. As of June 30, 2020, Omega had an operating asset portfolio of 959 facilities with over 96,000 operating beds. These facilities were spread across 69 third-party operators and located within 39 states in the United Kingdom. Turning to operator coverages.

Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio increased during the first quarter of 2020 to 1.68 times and 1.32 times, respectively, versus 1.64 times and 1.29 times, respectively, for the trailing 12-month period ended December 31, 2019. These numbers were only slightly impacted by COVID-19 as confirmed cases had just begun to appear in a small number of facilities by the end of March. Operator performance is expected to be significantly affected in the second quarter of 2020 and beyond as occupancy has declined and operating expenses have escalated significantly. However, we are hopeful that the overall results will remain relatively consistent as occupancy declines and expense increases were materially offset by an overall increase in quality mix, Medicaid and Medicare rate increases, and the recognition of stimulus money, which began to be distributed in April as a result of the CARES Act.

As previously described, the virus has taken an unprecedented toll on our operators and their residents in the span of a very short time. On March 15, 2020, we have zero known cases in our facilities. On our first-quarter earnings call, on the fifth of May, we reported 4,136 confirmed cases, including both residents and employees within 250 facilities. As of July 30, the number of current confirmed cases had risen to 6,133 within 415 facilities.

These numbers had reached a high point in mid-June then began to drop off modestly in late June and early July and have just recently begun to increase, particularly in Texas and Florida. As Taylor mentioned, occupancy in our portfolio dropped approximately 8% from February through approximately mid-July, as reported by our operators. July occupancy is substantially unchanged from the month of June, perhaps signaling an occupancy floor. Conversely, quality mix has increased approximately 1% from February through mid-July, primarily as a result of our operator's ability to skill in place.

Expenses in April were up approximately $18 per-patient day from February. We are hopeful that expenses will moderate, going forward, depending on the level of future outbreaks. It is important to note that the variability in both occupancy and operating expenses is closely correlated to the number of confirmed COVID residents within a given facility. Turning to new investments.

On June 30, 2020, Omega completed a $7 million purchase lease transaction for one skilled nursing facility in Ohio. The facility was added to an existing operator's master lease for financial cash yield of 9.5% with 2% annual escalators. Also on June 30, 2020, Omega provided $43 million of mortgage financing to the same operator. The loan is secured by two nursing facilities in Ohio and bears an interest rate of 9.5%.

Year to date, Omega has made new investments, totaling approximately $140 million, including $71 million for capital expenditures. Turning to dispositions. During the second quarter of 2020, Omega divested seven facilities via four separate transactions for total proceeds of $38 million. Year to date, as of June 30, Omega has divested a total of 13 facilities for $56 million.

For the foreseeable future, Omega's investment appetite will be modest, focusing on our existing operators' capital needs and any potential new investment opportunities they may source. Lastly, I would once again like to applaud our operators' selfless efforts, particularly employees on the front line. As many of you are aware, we have numerous facilities situated along the Gulf Coast and the Atlantic seaboard as the hurricane season is now in full swing and the fact that COVID-19 virus affects many of our southern facilities. Our operators have had to institute significant new protocols for sheltering in place.

More challenging is the prospect of evacuations, particularly in facilities with COVID-19 residents. While a seemingly daunting task, we believe our operators remain unwavering in their commitment to the health and welfare of our nation's most frail and vulnerable elderly population. I'll now turn the call over to Megan.

Megan Krull -- Senior Vice President of Operations

Thanks, Dan, and good morning, everyone. The COVID-19 pandemic continues to create one of, if not the most, challenging environment the long-term care industry has ever experienced. Our operators continue to adapt to this new normal by adopting new infection control procedures, along with establishing highly restrictive environment. Certain challenges faced early on have eased with personal protective equipment easier to source and coming down in price; testing becoming more accessible, along with the recognition by both states and the federal government of its necessity as a preventative tool; and hazard pay moderating as operators are able to proactively implement hazard pay protocols as opposed to paying it on a reactive basis.

That said, new challenges exist as they relate to states easing restrictions, both for the general population, and in some cases, for limited nursing home visitations as well. Operators can't prevent their employees from going back to their normal lives outside of work. And therefore, the risk of additional outbreaks persists despite the most stringent of infection control procedures. Those easing of restrictions in some areas come at a time when certain Sun Belt states are starting to see surges in cases.

And as we have learned, there's an inherent lag time between a surge in the general public and a surge in a long-term care facility as it is primarily employees that bring the virus into the buildings. Without a vaccine and facing a virus that spreads asymptomatically, testing is the most critical tool in controlling the spread of COVID-19. Many states have provided baseline testing of entire buildings. However, that represents only a point in time.

And as we've learned, things can change quickly. CMS has recommended weekly testing of employees with statements that this will become a mandate in certain hotspot states sometime in the near future. However, that can be extremely costly as access to private testing continues to come at a cost of $75 to $150 per test based on location. To bolster the recommendation, CMS has, therefore, implemented a program of sending out on-site rapid result test machines to nursing homes with a limited supply of free tests and access to additional tests at cheaper pricing.

The first set of 635 test machines started to go out last week. And of those, Omega facilities are slated to receive 30. These test machines are for antigen testing, which can produce some low level of false negative, which means that, in certain circumstances, follow-up molecular tests may need to be performed. That said, antigen tests are one of the many tools necessary in providing a complete diagnostic testing program critical to controlling the virus.

It is unclear how long it will take for test machines to get out to all nursing homes in the United States. We applaud these recent efforts of CMS on the testing front and its continued efforts to provide much-needed financial support to the nursing home industry during these troubling times. Since our last earnings call, additional support has been provided by the CARES Act. In late April, the $100 billion healthcare fund was supplemented by $75 billion.

And as part of the overall fund, a third payout was made starting May 22 of approximately $4.9 billion specifically to skilled nursing facilities with Medicare-certified beds. That payout provided for $50,000 per facility, plus $2,500 per certified bed, and equated to greater than $250 million for the Omega portfolio. On June 9, HHS announced that $15 billion would be earmarked for those providers participating in Medicaid and CHIP programs who were not eligible under the previous payout. This impacted relatively few Omega facilities.

Additionally, HHS announced on July 22 that another $5 billion payout is going to be earmarked specifically again from Medicare-certified nursing homes with the determination of how the funds will be allocated, not yet made, but certainly with an eye toward hard-hit buildings. Many additional state governments, including Texas, have also stepped up by providing rate enhancements during the state of emergency based on the 6.2% FMAP boost in the CARES Act. However, there are many more who have not yet acted. With approximately $50 billion remaining under the healthcare fund yet to be allocated and the potential for another stimulus bill based on current negotiations in Congress, we are hopeful that the support of the industry continues and that assisted living facilities receive some level of financial support in the future as well.

I cannot stress enough how critical it is for this government support to continue in order to maintain the viability of this industry which cares for our vulnerable elderly population. Throughout this pandemic, the long-term care industry has continued to persevere and to swiftly adapt to an ever-changing landscape. We are proud of our operators and their employees and everything that they are doing to ensure the safety of their residents. I will now turn the call over to Steven.

Steven Insoft -- Chief Corporate Development Officer

Thanks, Megan, and thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we have substantially completed work on our ALF Memory Care high rise at Second Avenue and 93rd Street in Manhattan. The COVID-19 pandemic has posed challenges to the scheduling cost of the project. While the project will cost approximately $310 million, an exact final cost will be difficult to determine until we have a better clarity on an opening date.

The opening date will be driven by the timing of licensure by the Department of Health. The COVID-19 pandemic poses certain challenges unique to senior housing operators, including increased costs, the challenges of managing COVID positive patients, and meaningful practical limitations on admissions. While census was strong in our senior housing portfolio through most of the first quarter, we saw a 1% to 3% per month occupancy reduction once buildings were subject to touring and visitation bans. However, we have seen stabilization in census in markets where bans have been lifted.

Additionally, senior housing operators, to the extent they are private pay, and our large employers have been offered little help to date from the various federal fiscal stimulus programs. Including the land and CIP of our New York City project, at the end of the second quarter, Omega senior housing portfolio totaled $1.6 billion of investment in our balance sheet. All of our senior housing assets are in triple net master leases. Excluding our investment in our New York City development, approximately one-third of our investment is in Maplewood assets, which, including New York City, are in one master lease.

One-third is in the U.K. with two master leases, one for Gold Care assets and one for healthcare home assets, respectively. And one-third is intermix with SNF assets in various master leases. Our overall senior housing investment comprises 130 assisted living, independent living and memory care assets in the United States and U.K.

While this portfolio on a stand-alone basis had EBITDAR lease coverage of 1.21 times in the first quarter of 2020, recent events will highly likely put downward pressure on that number. While we remain constructive about the prospects of senior housing, the COVID-19 pandemic warrants an ongoing evaluation of our development pipeline. This analysis may take several fiscal quarters as we have an opportunity to see how market demand and facility cost structures adjust. While we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets.

We invested $31.4 million in the second quarter in new construction and strategic reinvestment. $15.5 million of this investment is predominantly related to our active construction projects. The remaining $15.9 million of this investment was related to our ongoing portfolio capex reinvestment program.

Taylor Pickett -- Chief Executive Officer

Thanks, Stephen. I will now open the call up for questions.

Questions & Answers:

Operator

[Operator instructions] Today's first question will come from Connor Siversky with Berenberg. Please proceed.

Connor Siversky -- Berenberg Capital Markets -- Analyst

Good morning, everybody. Thank you for having me on the call. So I know these metrics are lagging but saw that rent coverage in the requisite bucket showed some signs of improvement through the end of Q1. I'm wondering if it's reasonable to assume that this is due to some of the positive impacts from PDPM.

And then if so, could you identify some of the areas where the operators were benefiting under the new payment model?

Taylor Pickett -- Chief Executive Officer

I talked about it. Previously, we had an expectation of improved coverage of 6 to 7 basis points from PDPM, and it appears that that's where it's coming in. We only have two quarters. And obviously, the second quarter is skewed by all the COVID-19 activity in the portfolio.

But the early indication is a small increase on the revenue side and the -- some of the expense cuts that we expected, although they've been a little bit delayed in terms of implementation in Q4 and Q1. And frankly, now you can't do grouping of concurrent therapies, so there's no way to measure that at least.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK. And then a quick follow-up to that. So generally speaking, how does PDPM look in the current environment? I mean, you mentioned group therapy. Is this something that may be permanently rewritten in the framework? Or just any thoughts there are appreciated.

Dan Booth -- Chief Operating Officer

Well, so they're still able to take advantage of revenue enhancements, particularly at higher-acuity patients. So a lot of these COVID residents, for instance, once they go into isolation units, their rates are impacted. They go up. But as far as expense savings with group and concurrent therapy, which was part of PDPM, a major driver of that, it doesn't exist.

I mean, everybody is isolated in their own rooms, and whatever therapy is taking place is taking place individually in those patient rooms. So that -- for all intents and purposes, that's gone away.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK. And then on the recently announced, I think it was $5 billion allocation from the CARES Act. Is there any sense yet of how these funds will be distributed among skilled nursing facilities or long-term care facilities in general?

Taylor Pickett -- Chief Executive Officer

Yes. I think, As Megan pointed out that, we did not have a good idea of how that's going to be allocated. We think that a lot of it will be focused toward high-COVID facilities, but that's about a estimate at this point.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK. And then last one for me. Bob had touched on this before, a bit of a two-part question. I mean, how do you feel about the dividend through the end of the year? Has your calculus changed at all maybe from what you were looking at in May or June with pretty strong rent collections thus far? And then in a similar vein, I mean, how are you looking at acquisition opportunities at the moment? Are you seeing anything loosen up? Is pricing still the same on both the private and the public side of things? Just any color there is appreciated.

Taylor Pickett -- Chief Executive Officer

Yes. So on the dividend side, obviously, it's evaluated every quarter with the board. But I think the toggles that we look at in terms of the dividend, our collections the prospects we see from our operators, those will be the same things that we look at. So I would expect that if we continue to see collections at the rate that we've seen them and there's no other indication of a change in the environment that we would continue to pay the dividend at the current rate.

In terms of the acquisition environment, there really just isn't that much out there. We've seen some one-off opportunities. We'll continue to support our operators, as Dan mentioned, but I don't -- and in terms of pricing, there's just not a lot of -- there's just not enough out there to even talk about it.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK. That's all for me. Thanks for the time.

Taylor Pickett -- Chief Executive Officer

Thank you.

Operator

The next question comes from Jonathan Hughes with Raymond James. Please proceed.

Jonathan Hughes -- Raymond James -- Analyst

Hey, good morning. Thanks for the prepared remarks and the efforts from your partners and caregivers over the past six months. I was hoping you could tell us what percentage of rents are on a cash basis. And are any operators on the threshold of maybe going from accrual to cash basis today?

Bob Stephenson -- Chief Financial Officer

Hey, Jonathan, it's Bob. Roughly 2.5% of our mortgage and lease revenue for the second quarter was on a cash basis. And right now, there's no one on that threshold today, and that could change tomorrow as we progress through the quarter. But right now, no one.

Jonathan Hughes -- Raymond James -- Analyst

OK. And the 2.5%, is that -- that's not just one operator. I mean, that's a group of operators. Is that, right?

Bob Stephenson -- Chief Financial Officer

Excluding Daybreak, there are seven additional operators.

Jonathan Hughes -- Raymond James -- Analyst

OK. That's helpful. And then one more for me, just related to external growth, and I know you just talked about that. Taylor and Dan, you mentioned earlier.

But as we look ahead, does increased litigation risk incentivize any operators who own their buildings to separate their real estate from operations via sale leaseback as a way to reduce the size of their balance sheet, making them a little less susceptible to potential lawsuits, and in turn, lead to more consolidation and acquisition opportunities? I realize that's a very high level but would love to hear any thoughts you have on that front.

Taylor Pickett -- Chief Executive Officer

It's a possibility. It's not -- it wouldn't be the first time in this industry that we've seen that dynamic. Florida was a great example of that two decades ago. So I think this all will come down to -- is there immunity? How effective is it? What do these lawsuits look like? But, again, we've seen it in the past so that's certainly a dynamic that we could see moving forward.

Jonathan Hughes -- Raymond James -- Analyst

OK. That's it for me. I'll jump off. Thanks for the time.

Taylor Pickett -- Chief Executive Officer

Thank you.

Operator

The next question comes from Nick Yulico with Scotiabank. Please proceed.

Nick Yulico -- Scotiabank -- Analyst

Hi. Good morning. Just a question on occupancy and skilled nursing. I think you said it was flat.

July versus June was flat. So as operators really aren't seeing the benefit yet of discharges from hospitals, even if hospitals have returned to more elective procedures, utilization rates are going up for the public hospital operators. So I mean, what are you guys hearing from your tenants about why occupancy is not increasing? And if they had any visibility into at what point they should start to get some more residents coming in from a post-acute standpoint because of the hospital system in the U.S. coming back closer to pre-COVID levels?

Taylor Pickett -- Chief Executive Officer

A number of states have opened up hospitals to elective surgeries, but we really haven't seen a lot of people going forward with the lack of surgery, to be honest with you. And there -- so there just hasn't been -- they haven't certainly gone back to what it was pre-COVID, and so they're just not seeing the type of discharges that there were before. I think that's still going to take some time to see more people that are prepared to go into hospitals, whether it's based upon a real -- what become -- what goes from elective to a real need or whether they just get comfortable with getting themselves into an acute care hospital and potentially a skilled nursing facility after that. So I think that's just going to be a little bit more time.

But yes, so far, we haven't seen a lot of discharges from elective surgeries.

Nick Yulico -- Scotiabank -- Analyst

OK. And so I guess the follow-up to that would be what the latest discussions are with your operators. Are any of them asking for some sort of rent deferral or change in lease terms because of this issue? And I guess, how are you guys thinking about the level of government aid that's been given to the sector? How long does that give operators a lifeline, if occupancy is not coming back?

Taylor Pickett -- Chief Executive Officer

Yes. It is the question, right, Nick. It's the right question. From our perspective, the government funding has been sufficient to carry us through August in all likelihood, and I think there's a pretty high likelihood that that funding takes us toward the end of the year.

And I think that's the view of the operators because we haven't had operators coming back to us to have rent discussions. But everyone is looking at when do we see occupancy bounce back. And does it bounce back in time for us to have a funding gap? But the current view is that there is no gap at this point in time and probably not for the foreseeable future, meaning toward the end of this year. So no discussions to date.

One of the comments I think about occupancy is we talk about our overall portfolio. But as Dan and Megan both mentioned, the geographies, there's big differences within these geographies. We have certain geographies where occupancies have been much less impacted and operators that have been less impacted. And I think that bodes reasonably well for what happens when we have a vaccine.

When we come out of this period of time, I think, we see things bounce back relatively quickly.

Nick Yulico -- Scotiabank -- Analyst

OK. And just a follow-up to that. I know the question was asked about the cash accounting. But besides those tenants that are on cash accounting, are there -- have there been any deferrals that have been given to tenants so far?

Taylor Pickett -- Chief Executive Officer

None.

Nick Yulico -- Scotiabank -- Analyst

OK. Thank you, Taylor.

Taylor Pickett -- Chief Executive Officer

Thank you.

Operator

The next question comes from Daniel Bernstein with Capital One. Please proceed.

Daniel Bernstein -- Capital One Securities -- Analyst

Good morning. Well, I don't know if you addressed this earlier. I hopped on late. And certainly, I don't want to be negative on a very good quarter in collections but a little bit concerned about state budgets and the future of Medicaid.

I don't know if you guys have any thoughts on that. Any particular states that are concerning? Obviously, Medicaid rolls are going up. Health care costs for the states are going up, while revenues are going down. So I don't know if you have any references back to '09 or previous recessions.

But how concerned should we be about the potential for Medicaid cuts to skilled nursing?

Taylor Pickett -- Chief Executive Officer

I would not be concerned about cuts, and I think you're right to look at -- back in history where we've seen states that have budgetary pressure and because of the way Medicaid is funded, where states pay a certain portion. But then there's a federal match that oftentimes is two times the state level of funding. When it gets down to it, the math of a cut actually doesn't work. So what we've seen historically is where budget issues, states will hold rates flat, which obviously isn't a great scenario, but it gives you time to adjust.

So I think history is exactly what you look at in terms of state budget pressures and how it impacts Medicaid. And what we've seen in those environments is flat Medicaid rates.

Daniel Bernstein -- Capital One Securities -- Analyst

OK. And then, obviously, in the short term, I know there were a few questions earlier about the return of elective surgeries and occupancy on the Medicare side. But at the same time, the industry seems to have been going toward lower lengths to stay, higher acuity anyhow, particularly with PDPM. So is some of the shortfall in occupancy, could that be viewed as just temporary? And as operators continue to change their mix toward complex patients, maybe that's going to come back whether elective surgeries come back or not.

I know if that's the right way to think about it, maybe over time. But I'm just trying to think about what if elective surgeries don't come back, can a skilled nursing occupancy improve from here?

Taylor Pickett -- Chief Executive Officer

Yes. I think if you look at our occupancy for Q1, so essentially pre-COVID, it was 83.6%. So we've seen the trend moving up, and that's in the face of all the dynamics you just talked about. So I don't know that what we're going through now really impacts anything, other than I think Q1 occupancy is the right baseline to look at for when we come out of pandemic.

That's hopefully where we start on normalized occupancy, but we continue to -- the demographics are just so powerful that our view is that we'll continue to see occupancies march upward, even with all the dynamics you've talked about, which has actually existed for a decade plus.

Daniel Bernstein -- Capital One Securities -- Analyst

Right. OK. All right. That's all I got.

Operator

Today's next question comes from Nick Joseph with Citi. Please proceed.

Nick Joseph -- Citi -- Analyst

Thanks. just going back to the transaction market, are you expecting more product to come to market? And then, if so, would you expect any kind of distressed pricing?

Taylor Pickett -- Chief Executive Officer

So yes. I mean, I think that -- well, I think it's so hard to transact in this environment. I mean, it's hard. It's difficult to do due diligence.

It's difficult to do property tours, so it's really slowed the market down in terms of doing deals. We fully expect it to come back once the pandemic eases, and people can go and go back into buildings and kick the tires. But for the foreseeable future, I perceive it to be pretty slow.

Nick Joseph -- Citi -- Analyst

And then for any deals that actually do transact, how would you think about pricing relative to pre-pandemic levels?

Dan Booth -- Chief Operating Officer

So it's really hard to price a deal right now. I mean, that's the other component, right? When you have expenses up and occupancy down, obviously, it throws the margins into a whole different category. So you just have to be very, very, very selective. I would say when we'll look at the price of transactions.

And as we indicated, we're really just doing deals at this point with existing operators where we would be tucking a facility or a couple of facilities into an existing master lease where there's already existing credit support. So really, that's the only way we can look at deals at this point in time.

Nick Joseph -- Citi -- Analyst

Thank you.

Operator

The next question comes from Rich Anderson with SMBC. Please proceed.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Hey, thanks, and good morning. So my question -- first question is has this environment opened your eyes to anything about your portfolio that maybe needs a permanent change to some sort, whether it's a geographical change or an operator change? I'm just curious if sort of the behaviors or the cadence of the portfolio relative to one another within the portfolio has caused you to rethink anything about your pie chart.

Taylor Pickett -- Chief Executive Officer

No. What it does is it reinforces the importance of picking the right operators, and we've seen our operators do incredible work in a very difficult environment, so we feel very good about it. But I will say, just to be clear, we have 20 fewer operators today than we had three years ago, so we spent a lot of time working through that part of our portfolio over the last three years. And I think we're at a point where we feel very good about our operators, but it is important.

It just highlights how important that is in running this business.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Right. In terms of coverage, understanding you're, I'm sorry, a quarter in arrears. And obviously, coverage will come down when you have the second-quarter perspective. Will that -- assuming that there'll be stimulus in those numbers, is it fair that you might sort of bifurcate coverage with and without stimulus, so we can get a sense of how much that rescue money, the $250 million for your portfolio, how that has affected and offset the coverage declines?

Taylor Pickett -- Chief Executive Officer

Yes. We've talked a lot about how to think about coverage. And when you think about the CARES Act money, it's essentially trying to create a status quo, right, that you have to prove out that you've used that money to offset increased costs and your loss of revenue on the occupancy side. So there's a matching of those dollars, and there's a reconciliation that the government is going to require.

So it basically creates a status quo for coverage. That being said, I think when we get to Q2 coverages in our discussion about that, we'll provide the amount of stimulus money that's in our calculation of coverage so that it's easy to do the math in terms of pulling that money out to see what coverages without the stimulus money, we made to a reconciliation now. We just have to talk that through in terms of how we present next quarter.

Rich Anderson -- SMBC Nikko Securities -- Analyst

That's a great idea. And then lastly, sort of related to my first. But more broadly, do you think is there anything in terms of long-term consequences of this pandemic, either positive or negatively, on your portfolio that perhaps will not be just for this point in time? And a corollary to that, as it relates to senior housing, obviously, you're taking a deeper-dive look into evaluating the pipeline, the development pipeline. But does senior housing as a sort of an adjunct component to the portfolio start to become less of a need for you? And could you see yourself dialing down in the senior housing asset class specifically?

Taylor Pickett -- Chief Executive Officer

Yes. So I think, long term, what we're going through will ultimately be beneficial to the business in terms of the clinical protocols around infection control that will ultimately benefit all of our residents. In terms of senior housing, our focus has always been high-end, high-acuity senior housing, and I don't think that changes. It's still dramatically needs driven, and I don't think that gets disintermediated with home care.

But in terms of how we think about senior housing, our emphasis is still going to be on the very high end of that acuity curve.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Great. So sort of kind of rate juxtaposed next to skilled nursing from a standpoint of the well-being of your residents, is that kind of the way to think about it, it's like the next step down?

Taylor Pickett -- Chief Executive Officer

Yes.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Did I confuse you with that question?

Taylor Pickett -- Chief Executive Officer

No. I'm sorry. I said yes.

Rich Anderson -- SMBC Nikko Securities -- Analyst

Oh, OK. That's all. Thanks.

Operator

[Operator instructions] The next question comes from Lukas Hartwich with Green Street Advisors. Please proceed.

Lukas Hartwich -- Green street Advisors -- Analyst

Hey, guys. Just one left for me. It sounds like you're pretty optimistic about the near-term support for the skilled nursing industry from the government. I'm just thinking, if COVID lasts longer than people think, several quarters, maybe even years out, do you think that the government will just keep reupping that support? Or is there a risk there?

Taylor Pickett -- Chief Executive Officer

I think the government support that we've seen to date is a reflection of the need-based nature of this business, so I would expect that government is not going to view it as -- after supporting this industry at this point, to allow the industry to fail because there isn't sufficient support. It just wouldn't make sense.

Lukas Hartwich -- Green street Advisors -- Analyst

Thank you.

Operator

At this time, I am showing no further questioners in the queue, so this ends the question-and-answer session. At this time, I would like to turn the conference back over to Taylor Pickett for any closing remarks.

Taylor Pickett -- Chief Executive Officer

Thanks for joining our call today. Please feel free to reach out to Bob or Matthew with any questions you may have.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Michele Reber -- Senior Director, Asset Manager of Operations

Taylor Pickett -- Chief Executive Officer

Bob Stephenson -- Chief Financial Officer

Dan Booth -- Chief Operating Officer

Megan Krull -- Senior Vice President of Operations

Steven Insoft -- Chief Corporate Development Officer

Connor Siversky -- Berenberg Capital Markets -- Analyst

Jonathan Hughes -- Raymond James -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Daniel Bernstein -- Capital One Securities -- Analyst

Nick Joseph -- Citi -- Analyst

Rich Anderson -- SMBC Nikko Securities -- Analyst

Lukas Hartwich -- Green street Advisors -- Analyst

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