Omega Healthcare Investors (OHI) Q3 2021 Earnings Call Transcript

Omega Healthcare Investors (OHI -0.03%)
Q3 2021 Earnings Call
Nov 05, 2021, 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 2021 earnings conference call. [Operator instructions] Please note, this event is being recorded. I'd now like to turn the conference over to Michele Reber. Please go ahead.

Michele Reber -- Senio. Director of Asset Management

Thank you, and good morning. With me today are Omega's CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; 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 third quarter 2021 earnings conference call. Today, I will discuss our third quarter financial results, skilled nursing facility industry trends and operator liquidity issues. We posted strong quarterly results with third quarter adjusted FFO of $0.85 per share and funds available for distribution of $0.81 per share.

We have maintained our quarterly dividend of $0.67 per share. Dividend payout ratio remains conservative at 79% of adjusted FFO and 83% of funds available for distribution. However, approximately $0.07 per share of our funds available for distribution is the result of applying letters of credit and other collateral to fund third quarter rent and interest obligations. Fortunately, our liquidity and our balance sheet have never been stronger as we work with our operators to navigate through what is hopefully the tail end of the pandemic.

Turning to skilled nursing facility industry trends. Positive trends include: one, occupancy continues to improve and is now 76% for the Omega portfolio; two, approximately 20% of our facilities are at or above pre-COVID occupancy levels. Three, the federal government has released $25 billion in Provider Relief Funding with distribution anticipated over the next several months; and four, most states continue to support the industry through supplemental Medicaid reimbursement. Negative trends include: one, labor and the continuing labor shortage and related increasing wages, combined with the dramatically increased usage of staffing agency labor and increased hourly cost.

Two, we are several months into the recoupment cycle for those operators that took Medicare advanced payments when the pandemic started. The repayment of these advances has significantly impacted operator liquidity, including the liquidity of a Agemo and Gulf Coast. Three, the pace of occupancy recovery remains a big question mark, and we could see additional operators face liquidity issues in the coming months. And four, uncertainty regarding the amount and timing of ongoing federal and state support.

Turning to operator liquidity issues and restructuring. Dan will provide detail regarding specific operator current liquidity and restructuring issues. In general, these efforts include one or more of the following actions: one, rent deferrals; two, asset sales or transitions to a new operator; and three, in certain cases, rent resets with other amended lease provisions. Examples include elimination of purchase options, future upward potential rent resets, lease extensions or revisions of renewal rights and collateral enhancements, adjustments or usage.

Historically, in many of our restructurings, one or more of the actions that I've outlined are sufficient to protect the value of our assets and most, if not all, of the long-term cash flow generation from the restructured assets. We continue to remain hopeful that the outcome of our COVID restructurings will yield a similar result. Finally, I again thank our operating partners, and in particular, the frontline caregivers and staff who have cared for the tens of thousands of residents within our facilities. I will now turn the call over to Bob.

Bob Stephenson -- Chief Financial Officer

Thanks, Taylor, and good morning. Turning to our financials for the third quarter. Our NAREIT FFO for the quarter was $181 million or $0.73 per share on a diluted basis as compared to $15 million or $0.06 per diluted share for the third quarter of 2020. Our adjusted FFO was $209 million or $0.85 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 third quarter was approximately $282 million before adjusting for the nonrecurring items compared to $119 million for the third quarter of 2020. The year-over-year increase is primarily the result of straight line and lease inducement write-offs that occurred in the third quarter of 2020 of $142 million related to three operators that were placed on a cash basis in 2020 due to substantial doubt regarding their ability to continue as a going concern. As previously disclosed, Agemo failed to make its 2021 contractual payments for August and September and subsequently October. During August and September, we recorded $8.4 million of revenue by drawing on Agemo's letters of credit and application of their security deposit.

Additionally, we recorded a provision for credit losses of approximately $16.7 million related to two outstanding loans to Agemo. As discussed during our second quarter earnings call, in June, we placed Gulf Coast on a cash basis as they informed us they would be unable to pay its rental obligations. In Q3, despite Gulf Coast continued failure to pay, we were able to recognize $7.4 million of revenue through the application of their security deposits and other collateral against uncollected contractual rent. It's important to note NAREIT FFO and adjusted FFO include our ability to apply collateral and recognized revenue related to these operators' nonpayments.

However, when this collateral is exhausted and if these tenants continue not to pay, we expect that this would reduce our near-term financial results, including NAREIT FFO, adjusted FFO and FAD. Our balance sheet remains strong, thanks to the steps we've taken over the past year to further improve our liquidity, capital stack and maturity ladder. On the debt side, at September 30, we had no outstanding borrowings under our $1.45 billion revolving credit facility and approximately $103 million in cash, and we have no bond maturities until August of 2023. On the equity side, in the third quarter, we issued 1.3 million shares of common stock through a combination of our ATM and dividend reinvestment and common stock purchase plan, generating $49 million in gross cash proceeds.

Year to date, we have issued 7.5 million common shares, generating $280 million in gross cash proceeds. At September 30, over 99% of our $5.3 billion in debt was fixed. Our net funded debt to adjusted annualized EBITDA was 4.9 times and our fixed charge coverage ratio was 4.6 times. It's important to note, similar to NAREIT FFO, adjusted FFO and FAD, EBITDA in these liquidity calculations includes our ability to apply collateral and recognize revenue related to the operator nonpayments previously discussed.

However, if the collateral is exhausted, a decrease in EBITDA will increase our liquidity ratios. While we believe our actions to date provide us with significant liquidity and flexibility to weather a potential prolonged impact to our business, primarily driven by COVID-19, we will continue to evaluate any additional steps that may be needed to further enhance our liquidity. I will now turn the call over to Dan.

Dan Booth -- Chief Operating Officer

Thanks, Bob, and good morning, everyone. As of September 30, 2021, Omega had an operating asset portfolio of 944 facilities with over 96,000 operating beds. These facilities were spread across 63 third-party operators and located within 42 states and the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of June 30, 2021, decreased to 1.63 times and 1.28 times, respectively, versus 1.8 times and 1.44 times, respectively, for the trailing 12-month period ended March 31, 2021.

During the second quarter of 2021, our operators cumulatively recorded approximately $49 million in federal stimulus funds as compared to approximately $74 million recorded during the first quarter. Trailing 12-month operator EBITDARM and EBITDAR coverage would have decreased during the second quarter of 2021 to 1.22 times and 0.89 times, respectively, as compared to 1.24 times and 0.9 times, respectively, for the first quarter when excluding the benefit of any federal stimulus funds. EBITDAR Coverage for the stand-alone quarter ended 6/30/2021 for our core portfolio was 1.2 times, including federal stimulus and 0.99 times excluding the $49 million of federal stimulus funds. This compares to the stand-alone first quarter of 1.17 times and 0.83 times with and without $74 million in federal stimulus funds, respectively.

Based upon what Omega has received in terms of occupancy reporting for October to date, occupancy has continued to improve, averaging approximately 75.5%, up from a low of 72.3% in January of 2021. While coverages have improved quarter over quarter, the fact that coverage without stimulus remains below 1x highlights the reason why we have had a handful of operators unable to pay rent this quarter and into October. The lack of or delay in additional federal and state stimulus in certain circumstances, coupled with a very slow occupancy recovery and a tough labor market had put a strain on the cash flow of operators with certain operators being hit to early hard. For the third quarter ending September 30, 2021, the percentage of rent and interest collected including the application of security deposits, letters of credit and other offsets was 99%.

Excluding the application of the aforementioned collateral items, the percentage drops to 93%. For the month of October 2021, those percentages are 91% and 88%, respectively, as much of the collateral available for this purpose was utilized in the third quarter. Turning to portfolio matters. In June of 2021, Gulf Coast and operator representing approximately $30 million or 3% of annual revenue, informed Omega that the June rent of approximately $2.5 million would not be paid and that future rent payments would not be remitted in the coming months.

Subsequently, on October 14, 2021, Gulf Coast filed for Chapter 11 bankruptcy in Wilmington, Delaware. As part of that filing, the debtors and Omega agreed upon and entered into a restructuring support agreement. Ultimately, and subject to approval of the court among other things, it is the intention of both parties to transition to 24 facilities associated with Gulf Coast to an unrelated third-party or parties. At this time, it is too early to predict the ultimate outcome or timing of those transitions.

Since the failure of this operator to pay rent in June, Omega has had two other material operators ceased paying rent. The first, Agemo, representing approximately $53 million or 5.3% of annual revenue, stopped paying rent and interest in August of 2021, and has also failed to pay and interest in September and October. Accordingly, Omega drew upon an existing security deposit of approximately $9.5 million to pay all rent due for August, September and a portion of October, thereby exhausting our deposits. We are in ongoing discussions with the Agemo to bring this lease back into compliance and begin the resumption of lease payments.

These discussions may involve the releasing or sale of certain facilities within the portfolio. The other operator, Guardian, representing approximately $37 million or 3.7% of annual revenue failed to pay its contractual rent and interest in October of 2021. We have been and continue to be in active ongoing discussions with Guardian to transition a significant portion of this portfolio to an unrelated third party. The exact number of facilities involved and the timing of such transitions has not yet been finalized.

Turning to new investments. As previously disclosed on our second quarter earnings call, on July 1, 2021, Omega provided $66 million of mortgage financing to an existing operator. The loan is secured by mortgages on six nursing facilities located in Ohio and bears an initial interest rate of 10.5%. Separately, on July 14, 2021, Omega completed $10 million purchase lease transaction for two care homes in the U.K.

The facilities were added to an existing operator's master lease with an initial cash yield of 8% with 2.5% escalators. Year to date, Omega has made new investments totaling $821 million, including $144 million for capital expenditures. Turning to dispositions. During the third quarter of 2021, Omega divested 15 facilities for $110 million.

As of September 30, Omega has divested a total of 45 facilities for approximately $311 million. I will now turn the call over to Megan.

Megan Krull -- Senior Vice President of Operations

Thanks, Dan, and good morning, everyone. In September, HHS finally announced a $25.5 billion release of funds from the Provider Relief Fund, consisting of $17 billion for a Phase 4 general distribution tied to losses incurred for the second half of 2020 and the first quarter of 2021 and $8.5 billion associated with the funds set aside for rural providers those part of the American Rescue Act. As the application deadline was October 26, it is too soon to tell what level of funding our operators will receive, especially in light of the fact that the determination on what percentage of losses a building will be reimbursed for is not just based on the number of applicants, but also weighted differently depending on the size of the operator, whether it serves a rural versus an urban population and whether it serves Medicare, Medicaid and SHIP residents. On the state front, there's been positive news out of the state of Florida as yesterday, $100 million in FMAP funds for nursing homes was approved.

This is extremely welcome news that Florida had not previously provided any stimulus to the industry. It is still too soon to know what the ultimate payout will be for each operator. While we are cautiously optimistic about the benefit of both of these federal and state developments, we had certainly hoped for a more targeted federal distribution to the long-term care space in light of the devastating effect that COVID has had on the industry. In terms of COVID itself, case counts at Omega facilities have declined over the last two months, which appears to be the Delta variant surge tapering off.

Thankfully, due to the vaccination programs, the impact from this surge is not anywhere near what we saw throughout last year and into early this year. Vaccine rates for both residents and staff have also been increasing according to reporting into CMS and facilities have started administering booster shots. Additionally, the interim final rule on the vaccine mandate by the federal government on all healthcare workers was just released with the January 4 deadline for vaccination. Labor shortages continue to persist which is exacerbating the slow occupancy recovery.

According to our recent AHCA/NCAL survey, 58% of nursing homes have had to limit new admissions due to staff shortages. This is consistent with what we are hearing from our operators, many of whom say that the admissions are there, but for the fact that they do not have enough staff to allow them to fill the beds. So while certain fundamentals are improving with occupancy slowly rebounding and COVID-related expenses decreasing, operators are facing a double hit from the substantial labor shortages, which are stalling the occupancy recovery while simultaneously also increasing labor expenses exponentially as a result of wage scale adjustments, overtime, bonuses and substantial agency usage. Agency expense itself on a per patient day basis for our core portfolio for year-to-date 2021 is more than four times what it was in 2019.

And this too is likely to get worse with the vaccine mandate, especially in locations where community vaccination rates are low. All of this means that the continued support of both the federal and state government is critical to clearing the path to recovery for the long-term care industry as a whole. And while we applaud these most recent efforts, we also hope that they recognize the need to provide additional support in the future. 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. Inspire New York, our ALF Memory Care high rise at Second Avenue 93rd Street in Manhattan leased to and operated by Maplewood Senior Living opened at the end of March and in the midst lease-up. Lease-up momentum has been solid and in line with our underwriting and expectations. Maplewood's newest property, Maplewood at Princeton in Princeton, New Jersey opened in August with very strong pre-leasing momentum and a strong early move in pace.

The COVID-19 pandemic poses certain challenges unique to senior housing operators. While the rollout of vaccines has helped considerably in stemming the spread an adverse effect of virus. Operators continue to battle with increasing costs driven by scarcity of labor. Additionally, private pay senior housing operators have not seen the level of government support provided to other areas of senior care.

Along with continued pandemic-related challenges, we saw stability and signs of strength in our senior housing occupancy throughout the second quarter. The strengthening of occupancy is more evident in certain markets than others. Our Maplewood portfolio, which is concentrated in the early affected Metro New York and Boston markets saw meaningful census erosion early in the pandemic, with second quarter 2020 census hitting a low point of 80.4% in early June of 2020. With that said, their portfolio occupancy level had returned to 88.6% in August of 2021.

Including the land and CIP, at the end of the first quarter, Omega senior housing portfolio totaled $2.3 billion of investment on our balance sheet. All of our senior housing assets are in triple net master leases. Including our 24 recently acquired Brookdale assets, our overall senior housing investment comprises 157 assisted living, independent living and memory care assets in the U.S. and U.K.

This portfolio, including the 24 Brookdale properties on a stand-alone basis had its trailing 12-month EBITDAR lease coverage fell four basis points to 0.98x at the end of the second quarter. With COVID outbreaks having affected different markets at various times, this decrease in performance was to be expected. Rising vaccination rates among residents and staff as well as availability of labor are critical to restoring occupancy and performance. While we remain constructive about the prospects of private pay senior housing, the pandemic along with its inflationary backdraft has warranted a far more selective approach, increases in labor and construction costs, coupled with supply chain challenges are making attractive projects more elusive.

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 $96 million in the third quarter in new construction and strategic reinvestment. $80.1 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.

I will now open the call up for questions.

Questions & Answers:

Operator

[Operator instructions] Today's first question comes from Connor Siversky of Berenberg. Please go ahead. 

Connor Siversky -- Berenberg Bank -- Analyst

Good morning, everybody. Thank you for having me on the call. So we've got Agemo down. But for the other two disclosed tenants, Guardian, Gulf Coast, that are not current on cash obligations.

Can you walk through how much revenue was booked in Q3 for each of the operators? And then in what composition, whether that was cash, security deposits, letters of credit or so forth?

Bob Stephenson -- Chief Financial Officer

Connor, thanks for joining us. It's Bob here. Yes, I'll walk through all three of them. Just to reiterate that.

We laid them out in the press release, both Dan and I talked a little bit about them. I'll start with Gulf Coast. So Gulf Coast did not make any contractual payments in Q3. However, we recognized $7.4 million of revenue in Q3 through the application of $900,000 in security deposits.

The remaining $6.5 million we booked based on our legal right to offset any unpaid rent against certain Omega sub debt obligations. Gulf Coast, as we stated, filed for bankruptcy and will not be making any contractual payments in Q4. However, we'll use the sub debt obligation collateral and record $7.4 million of revenue in Q4. Looking at Agemo, we recorded $12.9 million of revenue in Q3.

Of the $12.9 million, Agemo paid $4.5 million in July to cover July rent and interest. The remaining $8.4 million was pulled from a Agemo's security deposit and letters of credit to cover August and September. For our Q4, we had $115,000 of security deposits remaining which we pulled in October to partially cover October rent. The remaining fourth quarter contractual revenue and interest is $12.8 million for Agemo, which will only be recognized in Q4 to the extent Agemo make any additional payments.

As Dan stated, he's in ongoing discussions with the Agemo to bring that lease back into compliance. And the final one was Guardian. Guardian made all its contractual payments in Q3 and we recorded $9.3 million of revenue. And as Dan stated in his prepared remarks, Guardian failed to pay the contractual rent and interest in October.

Yet, he's in active negotiations with Guardian. So Q4 revenue will be determined by the outcome of the negotiations. We currently have $7.4 million in letters of credit related to Guardian. I hope I covered all that.

Connor Siversky -- Berenberg Bank -- Analyst

You did. Thank you. That was very helpful. Then I know you just mentioned Guardian, but for Agemo and Gulf Coast, is there any -- can you give us any sense of what kind of capacity is left in these backstops to continue booking revenue, assuming they're not paying cash in Q4 to Q1?

Bob Stephenson -- Chief Financial Officer

For Gulf Coast, basically when we -- at the end of Q4, we will have exhausted the collateral there. From Agemo standpoint, I think there's still a personal guarantee sitting out there of roughly $8 million.

Connor Siversky -- Berenberg Bank -- Analyst

And no more security deposits? OK. OK. And then for Agemo, you mentioned some conversations to get that lease back into compliance. I mean what would that take necessarily? Is that downsizing the portfolio? And maybe shoring up Agemo's operations that way of providing working capital loan? Just any color there, appreciated.

Bob Stephenson -- Chief Financial Officer

So the discussions, as we indicated, are ongoing. So it could be a whole host of different things that could involve some sales or some transitions. There is some virtually all of our operators expect to have some federal stimulus money received either by the end of the fourth quarter or early in the first quarter. And then also out there, Megan talked about some Florida stimulus money that we also expect to get in probably at the end of the fourth quarter and into the first quarter.

So there is some money on the horizon from both the federal government and from the state of Florida specifically.

Connor Siversky -- Berenberg Bank -- Analyst

Got it. OK. That's very helpful. I'll leave it there.

Thank you.

Operator

And our next question today comes from Amanda Sweitzer of Baird. Please go ahead.

Amanda Sweitzer -- Robert W. Baird and Company -- Analyst

Thanks. Good morning. In your comments about agency expense being used by our operators about four times higher today. Do you have any data on what percentage of overall compensation or operator expenses that represents? And then have you seen any moderation in that agency usage into the fourth quarter?

Megan Krull -- Senior Vice President of Operations

We haven't been seeing any agency moderation, unfortunately. I mean it's gotten worse probably over the last quarter or two. It's just a really, really tough market out there. And I'd have to find out what percentage that represents.

But it's just tough from a labor perspective right now.

Bob Stephenson -- Chief Financial Officer

It's going to vary tremendously by market as well.

Amanda Sweitzer -- Robert W. Baird and Company -- Analyst

OK. That makes sense. And then on capital allocation. Have you disposed of assets? What have you seen in terms of demand and pricing for underperforming assets in the private transaction market today?

Bob Stephenson -- Chief Financial Officer

So interestingly enough, underperforming assets are still producing sales prices that would equate to a more normalized environment. There are people that are buying based upon say, for instance, 2019 results, pre-pandemic. And then they're also buying off of historical bed values in the states that they're picking up. So we have not seen that buying activity weighing.

It's still a pretty hot market right now.

Amanda Sweitzer -- Robert W. Baird and Company -- Analyst

And do you think the underlying volume or demand for that type of asset that was deep enough if you were to go in try to sell additional assets today?

Bob Stephenson -- Chief Financial Officer

Well, we have been selling assets. And right now, it still runs pretty deep. So we're hoping that continues for the foreseeable future.

Amanda Sweitzer -- Robert W. Baird and Company -- Analyst

Appreciate the time. 

Operator

And our next question today comes from Nick Joseph at Citi. Please go ahead. 

Michael Griffin -- Citi -- Analyst

This is Michael Griffin on for Nick. I wanted to touch kind of on external growth opportunities and sort of how you view the current attractiveness of your cost of capital versus any future potential external growth opportunities?

Bob Stephenson -- Chief Financial Officer

While we've been pretty successful as a seller because the market is hot, opportunities are somewhat limited because the buyer market is hot and things are getting bid up. We are not in the market right now of buying a lot of distressed assets. So we're really looking at more sort of off-market transactions with our existing operators. We're seeing a fair amount of volume in the U.K.

But in the United States right now, it's a pretty tough market to be investing in.

Taylor Pickett -- Chief Executive Officer

And then on the cost of capital side, obviously, it's not particularly attractive for us. But as Bob noted, we have cash on the balance sheet. And to the extent we're recycling capital that makes sense for us.

Michael Griffin -- Citi -- Analyst

Gotcha. That's very helpful. And then you noted the mortgage loan investment this past quarter. Just curious your appetite for those going forward? And then would you rather see more of those or kind of other opportunities for future growth?

Bob Stephenson -- Chief Financial Officer

Our bread and butter still remains buying the simple title to the properties, mortgages are sort of either accommodations or some structural nuance that requires a mortgage loan versus a purchase of the actual asset. So we'll still do mortgages, but it's pretty limited, and it's not our mainstay.

Michael Griffin -- Citi -- Analyst

That's it for me. Thanks for the time. 

Operator

Thank you. And our next question today comes from Tayo Okusanya with Credit Suisse. Please go ahead. 

Tayo Okusanya -- Credit Suisse -- Analyst

Yes. Good morning, everyone. I wanted to understand a little bit better what's happening at the federal government level in regards to providing additional kind of help for the sector? I think -- correct me if I'm wrong, but you mentioned that they had released the final $25 billion in the emergency funds. If any of that come into skilled nursing? And exactly what's happening on the lobbying front to kind of help skilled nursing operators live to fight another day?

Megan Krull -- Senior Vice President of Operations

So they haven't released everything in the fund at this point. What they agreed to release was $17 billion that was left in the fund as well as $8.5 billion that was related to rural providers that was part of the American Rescue Act. And it's really tough to tell. That's for all providers.

That's not necessarily directly to this industry. So it's tough to tell how much it's to go to the industry specifically. Part of it is going to be based on the number of applicants, right? So they have to put in thousands and thousands of pages of data related to their losses for the second half of last year and the first quarter of this year. So it's the number of applicants that are putting money -- or applying for it as well as whether they're rural versus urban providers and a variety of other factors.

So it's difficult to tell how much will actually come to the industry.

Tayo Okusanya -- Credit Suisse -- Analyst

That's it. And then anything else from a lobbying perspective, is it possible that the Medicare advance payments get stopped or anything else can potentially happen just to kind of give operators a little bit more breathing room?

Megan Krull -- Senior Vice President of Operations

I mean I think AHCA is constantly lobbying the government to give more from the Provider Relief Fund and hopefully, in a more targeted fashion. But in terms of the Medicare Advance payments, I don't think that's going away anytime soon. So I think folks will just continue paying that out.

Bob Stephenson -- Chief Financial Officer

I think most operators will have actually paid back most of those advanced payments either by the end of the first quarter or early into the second quarter of 2022.

Tayo Okusanya -- Credit Suisse -- Analyst

Thanks for the time.

Operator

Thank you. And our next question today comes from John Pawlowski with Green Street Advisors. Please go ahead.

John Pawlowski -- Green Street Advisors -- Analyst

A question about the distribution of EBITDAR coverage across the group. So the 16% of rent that's currently below one times. I'm trying to better understand kind of the current level, not on a trailing 12-month basis. So a couple of quarters from now, where does this number trend best guesses on where the number trend, best guess [Inaudible] the labor cost issues fully flow through the financials and kind of the trailing 12 period rolls forward?

Bob Stephenson -- Chief Financial Officer

I wish I had the answer to that. I would say that there was a big chunk of federal stimulus money that came out sort of the beginning of last year, which runs through these EBITDAR coverage buckets, if you will. And as there has been no or little stimulus money, those quarters are dropping off. So the coverages are naturally going away because of the lack of federal stimulus money.

Have we bottomed out? I would say that, at least on a quarter-to-quarter basis, if you heard the stats there, we saw improvement on a stand-alone quarterly basis within our portfolio. We hope that continues. And if it does, then this trend should cease and start to reverse itself.

John Pawlowski -- Green Street Advisors -- Analyst

OK. Great. And then is there anything -- you mentioned in the opening remarks, just potentially the vaccine mandate causing more -- another kind of shot of pain in terms of the labor pressures in certain states. Are there any -- are there any regions in the country you're worried about tipping into kind of the troubled bucket in the next few quarters that we haven't seen yet?

Bob Stephenson -- Chief Financial Officer

I'm not going to call out states by name, but there are areas of the country which have lower vaccination rates, right, than others. So yes, there are -- those particular states are going to feel the vaccination mandate harder than those with higher vaccination rates. That's just a fact. So we could see some of that come through when the mandate kicks in January.

John Pawlowski -- Green Street Advisors -- Analyst

Thanks for the time. 

Operator

[Operator instructions] Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Taylor Pickett for any closing remarks.

Taylor Pickett -- Chief Executive Officer

Thanks. Thanks for joining us this morning. As always, feel free to reach out to the team in particular, Matthew or Bob, for any follow-ups you may have. Have a great day.

Thanks.

Operator

[Operator signoff]

Duration: 37 minutes

Call participants:

Michele Reber -- Senio. Director of Asset Management

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 Bank -- Analyst

Amanda Sweitzer -- Robert W. Baird and Company -- Analyst

Michael Griffin -- Citi -- Analyst

Tayo Okusanya -- Credit Suisse -- Analyst

John Pawlowski -- Green Street Advisors -- Analyst

More OHI analysis

All earnings call transcripts