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Omega Healthcare Investors (OHI) Q1 2021 Earnings Call Transcript | The Motley Fool

Omega Healthcare Investors (NYSE:OHI)
Q1 2021 Earnings Call
May 04, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to Health Care Investor first-quarter 2021 earnings conference call. [Operator instructions] Please note that this event is being recorded. I would now like to turn the conference over to Michele Reber.

Please go ahead.

Michele ReberSenior 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 identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as 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 PickettChief Executive Officer

Thanks, Michele. Good morning, and thank you for joining our first-quarter 2021 earnings conference call. Today, I will discuss our first-quarter financial results, the COVID-19 pandemic and various industry issues and the vaccine rollout. We are very pleased with our strong first-quarter results.

Our adjusted FFO of $0.85 per share, and our funds available for distribution of $0.81 per share allowed us to maintain our quarterly dividend of $0.67 per share. The payout ratio is 79% of adjusted FFO and 83% of funds available for distribution. Additionally, for the first quarter end in April, we collected virtually all of our contractual rents. Over the last six months, we have issued $1.4 billion in bonds, and we have recast our $1.5 billion bank credit facility with a four-year maturity in 2025.

Our liquidity and our debt maturity ladder have never been stronger as we move forward facing the uncertain timing of pandemic recovery. I again want to thank our operating partners and their staff who have cared for tens of thousands of residents within our facilities. I would also like to recognize and thank the federal government and the states for their support on the skilled nursing and assisted living communities. The allocation and distribution of additional government funding, along with the communication and evolution of clinical protocols, has been critical in protecting and saving lives as we combat this unprecedented deadly pandemic.

Looking forward, the key to our industry recovery is the return of occupancy to prepandemic levels. Although we have seen occupancy stabilize and increase slightly as vaccines have rolled out, it is not clear that the pace of occupancy recovery will be sufficient to avoid industry-level cash flow issues. With an estimated $24.5 billion remaining in the Provider Relief Fund and the likelihood of provider funding requests well in excess of this amount, we expect certain providers in the industry may have shortfalls. Furthermore, although many states have provided meaningful support, there are many states where additional support will be necessary to avoid facility financial stress and potential closures.

We continue to strongly believe in the positive long-term prospects for our operating partners while acknowledging the possibility of near-term stress that some skilled nursing and senior housing providers may face. Turning to the vaccine rollout. We continue to gather vaccination data from our operators and can report the following. As of April 30, all free clinics have been conducted at substantially all of our facilities.

Based on operators representing over 90% of our facilities reporting in, the vaccination rate for residents is approximately 81% with the vaccination rate for staff at approximately 49%. This is a vast improvement over what we reported last quarter of 69% and 36% for residents and staff, respectively. I will now turn the call over to Bob.

Bob StephensonChief Financial Officer

Thanks, Taylor, and good morning. Turning to our financials for the first quarter. Our NAREIT FFO for the quarter was $170 million or $0.71 per share on a diluted basis as compared to $181 million or $0.77 per share for the first quarter of 2020. Our adjusted FFO was $204 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 first quarter was approximately $274 million before adjusting for nonrecurring items. The revenue for the quarter included approximately $12 million of noncash revenue. We collected over 99% of our contractual rent, mortgage and interest payments for the first quarter, as well as for the month of April. Our G&A expense was $10.4 million for the first quarter of 2021, in line with our estimated quarterly G&A expense of between $9.5 million and $10.5 million.

Interest expense for the quarter was $56 million. Our balance sheet remains strong, and we’ve continued to take steps in 2021 to improve our liquidity, capital stack and maturity ladder. In March, we issued $700 million of 3.25% senior notes due April 2033. Our note issuance was leverage neutral as proceeds were used to repurchase through a tender offer, $350 million of 4.375% notes due in 2023 and to repay LIBOR-based borrowings.

As a result of the repurchase, we recorded approximately $30 million in early extinguishment of debt cost. At March 31, we had $135 million in borrowings outstanding under our $1.25 billion credit facility, which matured at the end of the month, and $50 million in borrowings under a term loan facility that had a maturity in 2022. On April 30, we closed a new $1.45 billion unsecured credit facility and a $50 million unsecured term loan facility that both mature in April of 2025. We have no bond maturities until August 2023.

In March of 2020, 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 remaining 2023 bond maturity. The repurchase of 50% of our 2023 bonds and the completion of the credit facility and term loan transactions extended our debt maturities, improved our overall borrowing cost and reinforced our liquidity position. In the first quarter, we issued 2 million shares of common stock through a combination of our ATM and dividend reinvestment and common stock purchase plan, generating $76 million in cash proceeds, but we believe our actions to date provide us with flexibility to weather a potential prolonged impact of COVID-19 on our business.

It also provides significant liquidity to fund potential acquisitions. In 2021, we plan to continue to evaluate any additional steps that may be needed to further enhance our liquidity. At March 31, approximately 97% of our $5.5 billion in debt was fixed, and our funded debt to adjusted annualized EBITDA was approximately 5.2 times, and our fixed charge coverage ratio was 4.5 times. When adjusting to include a full quarter of contractual revenue for new investments completed during the quarter, as well as eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5.1 times.

I’ll now turn the call over to Dan.

Dan BoothChief Operating Officer

Thanks, Bob, and good morning, everyone. As of March 31, 2021, Omega had an operating asset portfolio of 954 facilities with over 96,000 operating beds. These facilities were spread across 70 third-party operators, located within 41 states and the United Kingdom. Trailing 12-month operator EBITDARM and EBITDAR coverage for our core portfolio as of December 31, 2020, stayed relatively flat for the period at 1.86 times and 1.5 times, respectively, versus 1.87 times and 1.51 times, respectively, for the trailing 12-month period ended September 30, 2020.

These numbers were negatively impacted by a number of external factors as a direct result of COVID-19, including a significant drop in patient census and a dramatic spike in operating expenses, particularly labor costs and personal protective equipment. These negative results were more than offset throughout 2020 by the positive impact of federal stimulus funds which were distributed in accordance with the CARES Act. During the fourth quarter, our operators cumulatively recorded approximately $115 million in federal stimulus funds as compared to approximately $102 million recorded during the third quarter. Trailing 12-month operator EBITDARM and EBITDAR coverage would have decreased during the fourth quarter of 2020 to 1.38 and 1.04 times, respectively, as compared to 1.53 and 1.18 times, respectively, for the third quarter when excluding the benefit of the federal stimulus funds.

EBITDAR coverage for the stand-alone quarter ended 12/31/2020 for our core portfolio was 1.33 times, including federal stimulus, and 0.78 times, excluding the $115 million of federal stimulus funds. This compares to the stand-alone third quarter of 1.44 times and 0.97 times with and without the $102 million in federal stimulus funds, respectively. Cumulative occupancy percentages for our core portfolio were at a pre-COVID rate of 84% in January 2020. While they flattened out to around 75% throughout the fall months, they subsequently fell to 73.3% in December and further in January to 72.3% before starting to show signs of recovery at 72.6% in February and 73.1% in March.

Based upon what Omega has received in terms of occupancy reporting for April to date, occupancy has continued to improve, averaging approximately 73.4%. We are cautiously optimistic that the rollout of vaccines, which began in late December of 2020 and continued in earnest throughout the first quarter of 2021, will provide a much-needed catalyst for improving occupancy statistics as infection rates continue to decline and visitation restrictions continue to ease. Turning to new investments. As previously announced, on January 20, 2021, Omega closed on the purchase of 24 senior housing facilities from Healthpeak for $510 million.

The acquisition included the assumption of an in-place master lease with Brookdale Senior Living, the leading operator of senior living communities throughout the United States. The portfolio primarily consists of assisted living, independent living and memory care facilities with a total of 2,552 units located across 11 states. The master lease with Brookdale will generate approximately $43.5 million in contractual 2021 cash rent with annual escalators of 2.4%. Additionally, during the first quarter of 2021, Omega completed an $83 million purchase lease transaction for six skilled nursing facilities in Florida.

The facilities were added to an existing operator’s master lease for an initial cash yield of 9.25% with 2.25% annual escalators. Omega’s new investments for the quarter totaled $610 million, inclusive of $17 million in capital expenditures. Turning to dispositions. During the first quarter of 2021, Omega divested 24 facilities for total proceeds of approximately $188 million.

I will now turn the call over to Megan.

Megan KrullSenior Vice President of Operations

Thanks, Dan, and good morning, everyone. As Taylor previously mentioned, there is approximately $24.5 billion left in the provider relief fund. Additionally, $8.5 billion was allocated to rural providers with the passing of the American Rescue Act on March 11, 2021. While it is likely that SNFs and ALFs will see some funds out of these remaining amounts, our operators are really looking to their states for new or increased stimulus, given the substantial amount of funding to states via the American Rescue Act.

This would be in addition to or as a continuation of FMAP increases previously allocated by states to SNFs. Our hope is that those states who have previously not made any allocations to the sector will reconsider based on the new availability of funds. With large outbreaks experienced across the country and therefore in the long-term care space in fourth quarter and into January, the preliminary results of the vaccine rollout, which Taylor mentioned earlier, have been a sign of hope. There has been a substantial reduction in resident and employee cases since the rollout with our current reporting as of last week, showing less than 550 cases, resident and employee, across less than 250 of our buildings, which low numbers have not been seen since April of last year.

Likewise, we were extremely pleased last week to see revised CDC recommendations, both on the visitation and testing front. Removing the regular requirement to test already vaccinated employees, unless symptomatic or during an outbreak, will go a long way in reducing the cost burden associated therewith. And the relaxation of visitation restrictions, including the reduced need for social distancing and mask wearing in certain circumstances where visitors and residents have been vaccinated, will not only benefit the mental health of the current resident population, but it will also remove the disincentive previously in place for family members who want to place their loved ones in a long-term care setting. While the height of the infection battle may be somewhat behind us and despite these welcome revised CDC recommendations, the industry is still faced with what will likely be a long drawn-out recovery.

Census will take time to rebuild, and reduction in expenses will be gradual over time, all while the ability to scale in place will be reduced with far less COVID cases. Specifically, as it relates to expenses, labor shortages continue to be a huge concern for our operator base. Prepandemic operators were faced with shortages due to low unemployment rates. During the pandemic, the issue has been exacerbated by employees leaving the long-term care space, both permanently and temporarily, as the environment is understandably much tougher since the onset of COVID and unemployment benefits have been increased substantially.

This expected slow, long-term recovery means that continued financial support of both federal and state governments is critical, and we hope that they will be mindful of that as they determine how to spend any remaining or newly allocated stimulus funds. I will now turn the call over to Steven.

Steven InsoftChief Corporate Development Officer

Thanks, Megan, and thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, in late March, we completed license and opened our ALF Memory Care high rise at Second Avenue, 93rd Street in Manhattan. We thank the New York State Department of Health for their time and attention and the licensing process, given the challenges they face with the ongoing pandemic. The final project cost is expected to be approximately $310 million.

Lease-up momentum has been solid with 35 move-ins through April, the first full month of operations. The COVID-19 pandemic posed certain challenges unique to senior housing operators, including increased costs, the challenges of managing COVID-positive patients and meaningful practical limitations on admissions. While they very much appreciate the help they’ve received, private pay senior housing operators have not seen the level of government support provided to other areas of senior care. We saw continued challenges to our senior housing occupancy throughout the fourth quarter, with variations tied to when and where COVID outbreaks were encountered.

However, we have seen evidence of stabilization and strengthening of census in certain markets. By example, 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 census hitting a low of 80.4% in early June. That said, their portfolio occupancy level had returned to 85.6% in the month of November. Census has plateaued at this level for the time being as COVID-driven census challenges in select buildings offset further occupancy increases in the remainder of their portfolio.

Including the land and CIP, at the end of the first quarter, Omega Senior housing portfolio totaled $2.2 billion of investment on our balance sheet. This total includes our recent Brookdale investment, which closed during the first quarter. 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 156 assisted living, independent living and memory care assets in the U.S.

and U.K. This portfolio, excluding the 24 Brookdale properties, on a stand-alone basis had its trailing 12-month EBITDAR lease coverage fell 4 basis points to 1.08 times in the fourth quarter of 2020. 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 are a critical step to restoring occupancy and performance.

While we remain constructive about the prospects of senior housing, the COVID-19 outbreak has warranted a far more selective approach to development. 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 $16.8 million in the first quarter in new construction and strategic reinvestment. $9.4 million of this investment is predominantly related to our active construction projects.

The remaining $7.4 million of this investment was related to our ongoing portfolio capex reinvestment program. I will now open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is from Jonathan Hughes from Raymond James. Go ahead.

Jonathan HughesRaymond James — Analyst

Hey, good morning. Taylor, you talked about government support for skilled nursing earlier and that we could see some shortfalls and operator ability to pay obligations if they don’t get more assistance. So my question is how long can your operators continue paying their rent without more direct government support? There are still billions of CARES Act money left, as Megan said earlier, and some of that could be allocated to SNF. But say they were to get none of that and no support from the states, how long would they have?

Taylor PickettChief Executive Officer

Yes. And Jonathan, just to be clear, some of my comments reflect what we’ve already seen in the industry with the LTC having their Texas portfolio refiled. So I think some of this is industry related. As we look at our operators, obviously, they paid through April.

They’re still in pretty good shape from a liquidity perspective. But with no more funding, I think you see that stress start to hit operators in the back half of the year. But I think you’ll see industrywide that issue arise earlier, and that’s part of what I wanted to highlight. From our perspective, we’re fairly certain that the industry will receive a piece of that $24.5 billion, and that will be helpful.

And then it really comes back to timing of the occupancy recovery that has the offset to all of this.

Jonathan HughesRaymond James — Analyst

OK. That’s helpful color. I appreciate that. And then there has been a lot of talk about inflation fears lately.

I’m curious if CPI-based leases are something you find attractive, if we do, in fact, see inflation creep up these next several years.

Taylor PickettChief Executive Officer

Yes. We’ve gone pretty much to — we’re virtually 100% fixed escalators, and they average 2.3. And that was a shift. Years ago, the industry was predominantly CPI based with caps, and we moved away from that for a variety of reasons.

So I don’t see a shifting back. It would just be a different piece of negotiation, and there will be other components that would be negotiated in our leases. And when you think about long-term duration of our leases and those relationships, I don’t think you see changes there.

Jonathan HughesRaymond James — Analyst

OK. Fair enough. And then just one more for me. Any update on skilled nursing, external growth opportunities and pricing? You obviously did a deal in the quarter, but that was kind of with an existing partner.

Just curious if you can give any comments on any opportunities you’re seeing in pricing or if it’s kind of still limited, and we won’t see anything until really the back half of the year or even into 2022. Thanks.

Taylor PickettChief Executive Officer

So I mean, we did obviously have some activity in the first quarter with $600-plus million of acquisitions. Only a small portion of that was SNFs, and I don’t think it’s opportunistic at this time. We haven’t seen a lot of distressed SNF on the market. We’ve seen some distressed assisted living but not — haven’t gone for distressed prices, I can tell you that.

And then SNF pricing, it’s remained in kind of the 9s between nine and into the high 9s. I don’t expect that to go down anytime soon or up anytime soon.

Jonathan HughesRaymond James — Analyst

OK. All right. That’s it for me. Thanks for the time.

Operator

Our next question is from Nick Yulico from Scotiabank. Go ahead.

Nick YulicoScotiabank — Analyst

Thank you. So just turning back to the occupancy data that you gave for the first quarter and into April, can you just give us a feel for how much of that occupancy tick-up off the bottom was long-term care versus shorter-term stays?

Taylor PickettChief Executive Officer

That’s a hard one to pin down because it’s not terribly material, right? We’ve increased about 90 bps in the last two-and-a-half months, so it hasn’t been a large uptick. But it’s — long term, I think, makes up the lion’s share of it, even though you might have a lot more admissions in the short term. Just the short term rolling over every 15 to 25 days; long-term, standing for a year, one-and-a-half years. Does that make sense? We’re really wanting to pick up.

How many people are being admitted, we don’t track the admissions.

Nick YulicoScotiabank — Analyst

OK. Got you. But I mean, I think you’ve said previously, right, that the decline in occupancy and the eventual rebound was going to be driven more by improvements on the long-term care side. Is that right as we just think about the pace of facilities reopening and people going back into it?

Taylor PickettChief Executive Officer

Yes. I think it’s a little bit of both, Nick. The rapid decline we saw in occupancy when the pandemic started was all Medicare, and so — and that then stabilized, but it really hasn’t come back fully. So I think we may see a leg up there.

But to your point, then you have a long-term care side of the house, which will take time to build, just like it would in senior housing, to Dan’s point, you have one year, plus length of stay.

Nick YulicoScotiabank — Analyst

OK. And Taylor, I guess just going back to commentary you talked about the industry maybe facing some more pressure later this year depending on how future government funding pans out. I assume this is why you continue to not provide earnings guidance for the year. And I guess as we’re thinking about potential outcomes of getting farther along in the year, how should we think about prospects of right now as you’re looking at your tenants and sort of trying to figure out whether they can pay rent for the rest of the year? How we should think about potential rent deferrals versus the need for a permanent change in lease terms when it happens?

Taylor PickettChief Executive Officer

I would say that from our perspective, there’s certainly the potential for rent deferrals. And it’s just the intersection of everything we talked about, occupancy recovery, government support, the current state of balance sheets. And so you’re going to have the whole spectrum of various levels of risk within our portfolio. And then I look outside our portfolio of the industry, and I see even greater risk.

And so I think again, we may get splashed with industry issues before we have to face them ourselves. And to answer your question, in terms of how we think about it, we think about support in the form of deferrals because we think this is all ultimately going to work itself out over time. And it’s just a question of is that 12 months or 24 months or longer. I don’t think it goes longer, but we just don’t know.

Nick YulicoScotiabank — Analyst

OK. That’s helpful. I guess just last question on this is. Is there any way for you to frame out potential magnitude right now if we are looking at rent deferrals for your tenants, right? I mean, I know your sector was a little bit unusual, in that you didn’t have to give rent deferrals yet, whereas most of the other REIT sectors have.

So I mean, maybe you could frame out the magnitude of potential rent deferrals as a percentage of your tenants.

Taylor PickettChief Executive Officer

Yes. There’s so many assumptions that have to go into that, Nick, but it really would be unfair for, I think — other than to say there’s the risk out there. And you can think about, as Dan talked about, the coverages we’re seeing without federal support at sub one. But that’s — that’s at occupancy levels where they sit.

And I think that’s the reference point you have to use. And then you make some — everybody has to make assumptions about how fast occupancy comes back and how much government support will be forthcoming. And a lot of that’s just timing driven. So — and we’ll share and go beyond that.

Nick YulicoScotiabank — Analyst

OK. Appreciate it. Thanks.

Operator

Our next question is from Omotayo Okusanya from Mizuho. Go ahead.

Omotayo OkusanyaMizuho Securities — Analyst

Yes. Can you guys hear me?

Taylor PickettChief Executive Officer

Yes.

Omotayo OkusanyaMizuho Securities — Analyst

Perfect. Could you just talk about, again, really solid quarter, acquisitions-wise, in 1Q. Could you kind of talk about what you’re seeing out there, both in regards to skilled nursing and senior housing? And how we should think about acquisitions for the rest of the year?

Taylor PickettChief Executive Officer

You know, Omotayo, I don’t think it differs from — obviously, 2020 was a weird year, but I don’t think it — I think it’s a little bit more normalized but — which is normalized to us is choppy, right? It’s hard to predict deal flow. We’re seeing a fair number of sort of what I would call the small to midsize deals. But we’re not — right now, we’re not involved or seeing any really, really big chunky deals on the SNF side. On the assisted living side, we’ve made an effort to look for potentially distressed prospects.

And quite frankly, those have not panned out. We just have — we’ve seen some distressed activity, but there is a lot of money out there chasing those deals.

Omotayo OkusanyaMizuho Securities — Analyst

Got it. And how are you underwriting these transactions right now, just given all the uncertainty in NOI growth?

Taylor PickettChief Executive Officer

That’s a good question. It’s a myriad of different things because we can’t look at just our normal trailing 12 months because you have COVID results and all the stimulus money and everything else. So you really look to what happened pre-2020, ’19 results, and then you have to look to the operators in their 2021 are, in most instances, are 2022 budgets and where they expect to be. A little bit bigger buffer than normal for your coverages.

Omotayo OkusanyaMizuho Securities — Analyst

Got it, and indulge me in one more. Jonathan’s comments earlier on about kind of reimbursement, could you just talk a little bit about, again, if you’re not getting much from the federal government, what really has to happen at the state level to make you feel that your tenants are going to be all right at the end of this all?

Taylor PickettChief Executive Officer

Well, some of it’s just a continuation of the state support that we’ve already seen and the possibility for expansion of that. And the vast majority of the states have been very willing to be supportive of the industry, Michigan, Texas and California. The only state where we have a big presence where there hasn’t been a lot of state support today is Florida. So that would be an example where we’d be hopeful that we see the state of Florida step up with some of the money that Megan mentioned earlier from the Rescue Act and support the industry so that we’re really looking for a continuation and in some places an initiation of support.

Omotayo OkusanyaMizuho Securities — Analyst

Got you. Thank you.

Taylor PickettChief Executive Officer

Thank you.

Operator

Our next question is from Rich Anderson from SMBC. Go ahead.

Rich AndersonSMBC Nicco Securities –Analyst

Hey, thanks. Good morning, folks. So question on CMS and some discussion around PDPM and pulling back some of the revenue generation from that program to skilled operators. I’m curious how kind of bummed you are to see that and if it kind of makes you nervous about just a general kind of mindset in terms of reimbursement going forward.

What is your expectation in terms of how that may play out in terms of period of time, knowing we have 2020 being a really tough year to figure that out off of I would think?

Taylor PickettChief Executive Officer

Yes. So it’s interesting, Rich. If you read the rule, CMS spent 15 pages talking about PDPM and the options, their calculation around it. And I’ll contrast that to RUG-IV, which was just a different environment.

It was much more accommodating in terms of how to think about what they’re required to do, which is to make it revenue neutral. And so I feel pretty good about the options that they laid out in those 15 pages, which included the possibility of a deferral of rate changes for a year or possibly two and/or a phase-in or a combination. And so I think that opens the door for comments on the proposed regulation, and I’m sure you’ll see the industry talk about a combination of deferral and a phase-in. And based on the language in the proposed rule, I would expect that we’ll get something like that which should get us to where we need to be.

Rich AndersonSMBC Nicco Securities –Analyst

OK. Fair enough. well Said. And then second question on the vaccine acceptance.

I recognize the improvement versus previous quarter. But do you see any geographical sort of factors at play here in terms of people being red or blue and having a certain feeling about vaccine that does seem to be a part of the reality or the political side of the vaccine rollout? Or is it somewhat uniform around the states?

Taylor PickettChief Executive Officer

It’s not 100% uniform, but it’s a pretty tight band. The coasts tend to be just a little bit more — the uptake rate is just a little bit higher, but I don’t — I wouldn’t say it’s significant enough that you’d highlight that.

Rich AndersonSMBC Nicco Securities –Analyst

OK. Last for me is you had a lot of movement around in terms of your capital raising and so on swaps. Do you have a thought in mind about where interest expense could sort of run rate to, given all that movement that happened in the first quarter?

Bob StephensonChief Financial Officer

It’s Bob here. If you look at the $700 million we issued, we paid off $350 million and a savings of about 100 basis points, but we also paid off $350 million of LIBOR-based borrowings that were 100 basis points less. So it should even out borrowing — any credit facility borrowings to do a deal or something like that, pretty close to where it is now.

Rich AndersonSMBC Nicco Securities –Analyst

OK. Good enough. That’s all I got. Thank you.

Taylor PickettChief Executive Officer

Thank you.

Operator

Our next question is from Nick Joseph from Citi. Go ahead.

Nick JosephCiti — Analyst

Thanks. Maybe just staying on the capital front. As you think about the acquisition pipeline going forward, how are you thinking about funding that? Obviously, you did some ATM equity in the quarter. But how do you expect capital funding and leverage levels to trend going forward?

Bob StephensonChief Financial Officer

Yes. We ended the fourth quarter at five times debt to EBITDA and this quarter at 5.1 times, a little over 5.1 times. We would expect possible to fund acquisitions a little heavier on the equity side with via our ATM, assuming that currency holds up there. Our goal would be to reduce our leverage sub five times, which is our stated goal.

So we’re slowly working on that.

Nick JosephCiti — Analyst

Thanks.

Operator

Our next question is from Daniel Bernstein from Capital One. Go ahead.

Dan BernsteinCapital One Securities — Analyst

Good morning. Just wanted, if you could, to touch back on the census side and maybe if you had some feedback from your SNF operators on discharge patterns. Obviously, there’s been a lot of talk about home health maybe taking some share. And what the discharge patterns will look like post COVID, has — have you seen any changes to those discharge patterns? Are they looking kind of normal? Just trying to get a sense of maybe — a better sense of what that census uptake might be in the next couple of quarters.

Megan KrullSenior Vice President of Operations

Well, I think as you look at the hospital discharges, you’re looking at they were much lower than they had been historically. And so there had been sort of a little bit of a shift to home health. And so we’re hoping that as those admissions become higher in hospitals, those elective surgeries come back that it starts coming back to the nursing home industry.

Dan BernsteinCapital One Securities — Analyst

OK. And then I think the other question I was going to ask, which was just to ask on the capital markets, over equitizing acquisitions going forward. So I’ll just switch gears on that and just ask about in terms of pricing and skilled nursing. What is — you don’t seem to think that pricing is going to move up at all, but there still seems to be, at least from your comments, some financial distress.

What is keeping the cap rates from moving to — initial yields moving to 10% or higher versus the 9.5% that you’re getting now? Just trying to think — I mean, obviously, seeing a wall of money there, suppressing cap rates. But what’s the competition that you’re facing on skilled nursing for acquisitions?

Taylor PickettChief Executive Officer

It’s pretty much the same. I mean, we’re just seeing a lot of private equity, a lot of dollars out there in general. Obviously, they have a focus on assisted, but there’s chase on SNF deals. We’ve seen it time and time again.

So there’s — it’s a ton of money, and it will keep — at least in the short run, it’s going to keep cap rates pretty low.

Dan BernsteinCapital One Securities — Analyst

All right. That’s all I had. Thanks.

Operator

Our next question is from Lukas Hartwich from Green Street Advisors. Go ahead.

Lukas HartwichGreen Street Advisors — Analyst

Thank you. So there was a little more churn than normal in the property count by operator. I was just curious if there’s anything worth pointing out in there.

Taylor PickettChief Executive Officer

No. I don’t think so, Lukas, just sort of the normal movement among buckets, yes.

Lukas HartwichGreen Street Advisors — Analyst

OK. And then can you talk a little bit about the moving pieces and the unconsolidated JV? It looks like you sold something. There was a gain. There was also an impairment, so a lot of at that line.

Bob StephensonChief Financial Officer

Yes, Lukas. It’s — we have a 15% stake in a JV that sold, I think, five facilities. For a large gain, our share of that was about $10 million. It was $14 million, but they also had about $4 million of impairment.

So that’s the incremental $10 million change.

Lukas HartwichGreen Street Advisors — Analyst

Got it. And then the $5 million of nonrecurring revenue, what was that? And where does that show up on the income statement?

Bob StephensonChief Financial Officer

It’s part of revenue. It actually hits lease revenue. It’s really two operators that were transitioned or spend or sold and in place lease liability. So you have to — once you move that, you have to record the revenue related to it.

It typically amortizes over the life of lease. Now it’s — you write it off. Or in this case, it’s a pickup.

Lukas HartwichGreen Street Advisors — Analyst

All right. That’s if for me. Thank you.

Taylor PickettChief Executive Officer

Thank you.

Operator

The next question is from Joshua Dennerlein from Bank of America. Go ahead.

Joshua DennerleinBank of America Merrill Lynch — Analyst

Yes. Hey, guys. Hope everyone’s doing well. I guess when I think about it like big picture, it feels like the big kind of key, whether or not you’ll have to like give rent relief in the future really is going to be determined by kind of fundamentals coming back.

How are you guys thinking about maybe the recovery in occupancy going forward and then cost as well for SNF operators?

Taylor PickettChief Executive Officer

Yes. In terms of occupancy recovery, the one thing I’d say is the last few months, I wouldn’t think about that as the trend, I think it’s just the beginning of the reaction to the vaccine, and we’re hopeful that we’ll see occupancies go up a little more rapidly as the summer approaches, but that’s the question. No one knows. We’ve never been through it.

There are some folks, who think it’s a 12-month recovery and some who would argue it’s 24, and you can make a case for either set of logic. And then in terms of costs, Dan, do you want to talk about what the big issue to —

Dan BoothChief Operating Officer

Yes. I mean, the big one, obviously, is labor. I mean, it’s not obviously just impacting senior housing. It’s impacting everyone.

Minimum wage going up, unemployment benefits coming out. It’s all making employment that much more difficult inside of SNF. So there’s been a lot more turnover that they’ve seen lately. They’re having to hire on — bring on a lot more agency, which is more expensive.

So they’re just — they’re having a difficult time. It was a difficult environment before the pandemic and it’s actually become more difficult at this point. So that’s the big challenge on the expense side.

Joshua DennerleinBank of America Merrill Lynch — Analyst

Interesting. I think you mentioned too, like it sounds like maybe people leaving the industry? Was it just — were — was that driven by the unemployment benefits being high? Or maybe just — it was just a tough year and they decided enough is enough?

Dan BoothChief Operating Officer

It’s a combination. I mean, I think people maybe just exited the nursing industry or you do have at this point in time, excellent unemployment benefits. So some people are just doing the math and taking advantage of that.

Joshua DennerleinBank of America Merrill Lynch — Analyst

OK, OK. And then you guys opened Inspire, I guess, late March, I think, if I remember correctly from the press release. Curious to see how the filling up that building has been going, where you stand on occupancy and kind of where you expected to stabilize that or when, rather, sorry.

Taylor PickettChief Executive Officer

Steven, can you take that?

Steven InsoftChief Corporate Development Officer

Yes, I’d be happy to. I mean, the early returns are encouraging. As we said in our prepared remarks, we’ve got well into the mid-30s in terms of residents in the building. We had always sort of underwritten the project to be a three-year stabilization.

And we have really no reason to come off of that at this point. There’s just too many variables out there. Market has been receiving the property well, but you can appreciate the fact that we’re within an interesting time. So we’re still comfortable with that projection.

Joshua DennerleinBank of America Merrill Lynch — Analyst

Awesome. Appreciate it. Thanks, guys.

Taylor PickettChief Executive Officer

Thank you.

Operator

[Operator instructions] At this time, we have no more questions. So this concludes our question-and-answer session. I would like to turn the conference back over to Taylor Pickett for closing remarks.

Taylor PickettChief Executive Officer

Thanks, everyone, for joining us this morning. And as always, please feel free to reach out to the team if you have any follow-up questions.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

Michele ReberSenior Director of Asset Management

Taylor PickettChief Executive Officer

Bob StephensonChief Financial Officer

Dan BoothChief Operating Officer

Megan KrullSenior Vice President of Operations

Steven InsoftChief Corporate Development Officer

Jonathan HughesRaymond James — Analyst

Nick YulicoScotiabank — Analyst

Omotayo OkusanyaMizuho Securities — Analyst

Rich AndersonSMBC Nicco Securities –Analyst

Nick JosephCiti — Analyst

Dan BernsteinCapital One Securities — Analyst

Lukas HartwichGreen Street Advisors — Analyst

Joshua DennerleinBank of America Merrill Lynch — Analyst

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


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