Q4 2023 CareTrust REIT Inc Earnings Call

Participants

Lauren Beale; Senior VP & Controller; CareTrust REIT, Inc

Dave Sedgwick; President & CEO; CareTrust REIT, Inc

James Callister; CIO; CareTrust REIT, Inc

Bill Wagne; CFO; CareTrust REIT, Inc

Connor Siversky; Analyst; Wells Fargo Securities, LLC

Jonathan Hughes; Analyst; Raymond James

Austin Wurschmidt; Analyst; KeyBanc Capital Markets Inc

Juan Sanabria; Analyst; BMO Capital Markets Equity Research

Michael Carroll; Analyst; RBC Capital Markets

Alec Feygin; Analyst; W. Baird & Co

Omotayo Okusanya; Analyst; Deutsche Bank

Presentation

Operator

Thank you for standing by, and welcome to the CareTrust wheat Fourth Quarter and Full Year 2023 operating results call. I would now like to welcome Lauren SVP. controller to begin the call. Lauren, over to you.

Lauren Beale

Thank you, and welcome to CareTrust rate Fourth Quarter 2023 earnings call. Participants should be aware that this call is being recorded, and listeners are advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters and may or may not reference other matters affecting the Company's business or the businesses of its tenants, including factors that are beyond their control, such as natural disasters, pandemics, such as COVID-19 and governmental actions.
The Company's statements today and its business generally are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein. Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust's SEC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC Regulation G, except as required by law, CareTrust Re and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason during the call, the Company will reference non-GAAP metrics such as EBITDA, FFO and FAD or FAD and normalized EBITDA, FFO and FAD. When viewed together with GAAP results. The company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP reports. 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 CareTrust yesterday, CareTrust filed its Form 10-K and accompanying press release and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust's website at www. CareTrust Street.com.
A replay of this call will also be available on the website for a limited period.
On the call this morning are Dave Sedgwick, President and Chief Executive Officer, Bill Wagner, Chief Financial Officer, Jim Costa, Chief Investment Officer. I'll now turn the call over to Dave Sedgwick, interest rates, President and CEO. Dave?

Dave Sedgwick

Good morning, everyone, and thank you for joining us and before I talk about our outlook for 2024, let me first thank the entire CareTrust team for their great work in 23. It was a year of growth for the Company on several fronts internally, the team is more capable, creative and collaborative than ever before. It's a real privilege to work every day with this team. I also want to thank our operators who we consider by and large to be among the very best in the business. It's their relentless dedication to their staff, residents and patients that is making this world a better place, and we're honored to help them expand their influence.
Now this time last year, we started to sense a window of opportunity open to return to external growth in a meaningful way as the bulk of our repositioning work concluded and the credit market tightened sellers and brokers prioritize the execution certainty that we bring to the table and deal flow picked up. I'm very pleased to report $288 million of new investments last year at a blended stabilized yield of 9.8%. And as good as those numbers are maybe more exciting is the fact that we ended the year with the full $600 million available on our line of credit and just under $300 million of cash on the balance sheet. We have never had this amount of dry powder. Why?
Because we expect 2024 to be a strong year of investments and we've positioned ourselves accordingly. As we've reported, we've kicked off the year with $63 million of new investments, $52 million of that are secured loans. Let me reiterate briefly our philosophy for lending loans in this space are generally shorter term, somewhere between two to five years, which can cause some lumpiness to earnings as paybacks occur. So for us in order to land three criteria must be met. First, the investment will be run by a top-shelf operator with whom we want to start or expand our relationship.
Second, the investment meets our historic underwriting criteria and is accretive in year one and third, the transaction provides for a path to future real estate acquisitions either built into the deal directly or simply from the relationship since 2022 and not including the loans announced this week, we've made about $170 million worth of loans each one meeting these criteria and here's what's remarkable as we examine the real estate acquisitions made last year and those in our current pipeline, we count over $300 million, largely off-market deals that are a direct result of the relationships with the investors, borrowers and operators that we established from that strategic planning activity. So that is the virtuous cycle. We will continue to feed. James will give you more color on the investments in the quarter and year to date and on the current pipeline, which as we sit here today as about $250 million, not including larger deals that we regularly review.
Now turning to the portfolio, you'll see in the supplemental lease coverage slightly improved overall occupancy for the quarter for both skilled nursing and seniors housing was basically flat compared to Q3. And I wanted to follow up on a couple of operators. The transition of two Eduro facilities to another operator today is on track for a March first transition at Eduro pro forma lease coverage, excluding those two facilities, goes from just under one times to just north of it. And also we're still under contract to sell the portfolio of 11 skilled nursing assets with negative EBITDA are primarily in the Midwest. Understandably financing has been challenging, but the buyer continues to make good faith efforts that lead us to believe a deal will get done.
Finally, we're pleased to issue guidance. Again, Bill will walk you through our several assumptions that results in 2024 for normalized FFO per share in a range of about $43 to above $45. Please remember that when we issued guidance, we do not include assumptions for new investments for a couple of reasons. First, due to regulatory and licensing requirements that always accompany these transactions, timing of deals can be tricky. And second, we do not set arbitrary growth targets so that we can retain our customary disciplined model for growth.
Now before I hand it over to James to talk about investments, let me just summarize our outlook for 2024. Like this, we have a favorable cost of capital that allows for accretive investments. We have the balance sheet that provides enormous flexibility and capacity, and we have a macro environment that has opened a window of opportunities as long as the credit market remains challenging, which leads me to believe that 2024 should be a strong year for external growth for CareTrust.
With that, James will talk to our recent investment activity and pipeline. James?

James Callister

Thanks, Dave. Good morning, everyone. Since the end of Q3, we had closed on investments totaling over $106 million, including the acquisition of two California skilled nursing facilities that we discussed on our last earnings call.
With respect to our more recent investment activity in Q4, we closed on the funding of a $6.3 million mortgage loan to one of our existing tenant relationships based HR senior communities. The loan is secured by a 26 unit assisted living facility located in Vista, California carries an interest rate of 9.9% and an initial term of 30 months alone. Facilities-based shares ongoing growth in San Diego County and helps further synergies with the nearby skilled nursing facility that we acquired in Q3 of last year and lease to Shire. In January, we closed on the joint venture acquisition of a 78 unit assisted living and memory care facility in San Bernardino, California CareTrust's $10.8 million of contributed capital constituted 97.5% of the total required investment amounts with an initial contractual yield of approximately 9.3%. In connection with the acquisition, the venture entered into a triple-net lease agreement with Oxford Health Group, a midsized, California seniors housing operator. The lease provides for a 10-year initial term with four, five year extension options and 2% fixed annual rent escalators commencing with the third lease year. Also, as announced earlier this week. In late January and early February, we closed on the funding of over $52 million in mezzanine loans secured by three portfolios of skilled nursing facilities in Virginia Missouri and California. In connection with the Virginia and Missouri loans, CareTrust provided approximately $45 million in proceeds at a variable interest rate of so for a plus 8.75% with a so for floor of 6%. We also funded a $7.4 million mezzanine loan to a regional investor in healthcare real estate to acquire a 130 bed skilled nursing facility in Pasadena, California loan accrues interest at a fixed rate of 11.5% and has a five-year term, as Dave indicated in his remarks. Our investment pipeline remains active and primarily consists of skilled nursing facilities with a few assisted living and multiuse campus opportunities mixed in today, the pipeline is approximately $250 million made up largely of singles and doubles. The pipe we are quoting today does not include some chunkier regional opportunities. So we are evaluating deal flow remains strong and at a level largely consistent with the past several quarters, we expect the skilled nursing transaction market to become increasingly active with a continued bifurcation between assets that are cash flowing and distressed products. Pricing on stabilized or close to stabilized portfolios continues to hover at historical cap rates helped by increases in state Medicaid rates and some easing of labor challenges. Many regional operators appear hungry to grow and that appetite for expansion is driving healthy. Acquisition demand in today's market include owners with nonprofit affiliations, moms and pops fatigued by difficult years in the industry and looking to exit as well as regional owners. Operators have stabilized portfolios looking to sell and recycle capital into underperforming portfolios with upside potential pricing on distressed skilled nursing product has softened slightly as we continue to see more offerings entering the market for smaller portfolios that are facing variable rate and maturity date risk on bridge to HUD and other similar loans. We expect this trend to continue and to lead to potential acquisition opportunities as performance falls, short of that needed to be in a position for a HUD loan take out our balance sheet and dry powder, together with opportunistic market dynamics have set the table for growth. While always adhering to our disciplined underwriting approach, we are actively using our flexibility and creativity in sourcing and structuring transactions to pursue and execute on accretive investment opportunities.
With that, I'll turn it over to Bill.

Bill Wagne

Thanks, James. For the quarter, normalized FFO increased 17.2% over the prior year quarter to $43.4 million and normalized FAD increased by 16.3% to $45.4 million on a per-share basis, normalized FFO decreased $0.02 to $0.36 per share and normalized FAD decreased $0.03 to $0.37 per share. As a result of our robust pipeline, we issued $643.8 million of equity under the ATM during 2023, resulting in us having $294 million of cash on the balance sheet at year end since year end, we have used a chunk of that for investments and our dividend, leaving us with approximately $220 million as we sit here today. In yesterday's press release, we issued guidance for 2024 with a range for normalized FFO per share of $1.43 to $1.45 and for normalized FAD per share of $1.47 to $1.49. This guidance includes all investments made to date, a diluted weighted average share count of $130.5 million shares and also relies on the following assumptions. One, no additional investments nor any further debt or equity issuances this year to CPI rent escalations of 2.5%. Our total cash rental revenues for the year are projected to be approximately $204 million to $206 million. There's a range on rental revenues this year as we have included a general reserve of 2% to 3%. This reserve is not related to any specific operators, rather, it is a function of conservatism as we issued guidance for the first time in a while, and we expect to refine that reserve as the year progresses. Not included in this number is the amortization of a below-market lease intangible that will total about $2.3 million, but this will be in the rental revenue as required by GAAP three interest income of approximately $36 million the $36 million is made up of $25 million from our loan portfolio and $11 million is from cash invested in money market funds for interest expense of approximately $33 million. In our calculations, we have assumed an interest rate of 6.5% for the term loan. Interest expense also includes roughly $2.4 million of amortization of deferred financing fees and five G&A expense of approximately $21 million to $23 million and includes about $5.9 million of deferred stock compensation. Our liquidity remains extremely strong. We have approximately $220 million in cash today and our entire $600 million available under our revolver leverage hit an all-time low with a net debt to normalized EBITDA ratio of 1.4 times. Our net debt to enterprise value was 9.5% as of quarter end, and we achieved a fixed charge coverage ratio of seven times. I said last quarter that I wouldn't be surprised to see leverage tick further downward as we continue to fund our pipeline with equity, which again now, I would expect that leverage would begin to tick up as we deployed deploy the cash into accretive investments.
And with that, I'll turn it back to Dave.

Dave Sedgwick

Great. Thanks, Bill. We hope our reports are helpful. And the Thank you for your continued support, and I'll be happy to answer your questions.

Question and Answer Session

Operator

The floor is now open for your questions to ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster. Our first question comes from the line of Conor diversity with Wells Fargo. Please go ahead.

Connor Siversky

Happy Friday. Thank you for the time. So quick question on these acquisition opportunities. Our team, some of the peer group is also moving in the direction of underwriting these loans. And I'm wondering if you get the sense that this increased competition for that kind of instrument could lead to downward pressure on the associated yields or more broadly speaking, how do you expect those return profiles to change over the course of the next year?

James Callister

I think our comments a good question is James, I would say that we see that a little bit right now on lower kind of dollar amount loans that we're looking at, where there is more players kind of knowledgeable about the industry and willing to extend some of those loans, whether it be product or mez, I think we see much less of that competition. And in the higher dollar loan amounts for mez and whatnot. And that kind of absence of experienced competition in that area seems to really up to this point, continuing to allow the yields to be a pretty significant and you see that in our mez loans from last week.
So I think I don't expect too much change in the higher kind of dollar loan amounts. I think the lower amounts will continue to be competitive and stay close to where they are because that really that competition's already there.

Connor Siversky

Okay. Thanks for that. And maybe just in your opinion, what do you think it takes to see the market for real assets start to open up again?

James Callister

And I really don't think it takes no more sellers entering the market of cash flowing facilities or close to. I think that's really going to be what at what it takes is more groups deciding to exit or recycle capital in assets that are close to stabilization where you can underwrite them a little closer to traditional underwriting versus kind of the value add that we look at a lot right now.
Okay. Understood. And then maybe quickly for Dave, we have this some CMS announcement that they look to finalize the minimum staffing ruling in short order. And I'm just wondering, broadly speaking or on a high level, how do you look at the labor market now compared to maybe this time a year ago, do you see any indication that the market or the availability of labor is improving or if there's still a very big discrepancy between your urban and rural markets?

Dave Sedgwick

Yes, I'd say it as we look at our data, it's clear that the worst is behind us when it comes to labor. And yet there's still quite a bit of opportunity for improvement in labor cost going forward. I'm just taking one data point, for example, looking at agency Third Quarter 22, our agent CPPD. in the portfolio was around $13. Q3 of 23. It's down to $8, but before the pandemic, it was down year $3. And so there's still quite a bit of some fat excess labor costs built in there that we hope will continue to decline as time goes on so that it's actually pretty encouraging to know that there's some opportunity there going forward for our operators to continue to improve there.
But having said that, it's still a difficult labor market. And I think it during times like this, you see the best operators really distinguish themselves by first becoming that operator, that employer of choice so that they can then become the provider of choice in the communities.

Connor Siversky

Okay. And if I may squeeze one more in there on labor, do you get the sense that over the course of 2023, we saw some significant rate hikes in both Medicaid and Medicare. Are some of these operators now able to push through those hikes directly into wages such that maybe you get better retention.

Dave Sedgwick

Yeah, but I think what happened actually, Conor was our operators in this space really got ahead of those rate increases. They've really had to we lost so many employees in the skilled nursing space due to the pandemic that by and large, the operators adjusted well before those rates caught up with them. And so last year's rate for resetting and increases in activity by the state, I think recognized that those costs have gone up significantly. And because of that, those states had a lot of rationale for it.
We're making the adjustments they did at those rates.

Connor Siversky

Okay. Thank you for the color. I'll leave it there.

Operator

Our next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes

Paying money out there. And just sticking with the loan activity that economy was asking about and that I do appreciate the prepared remarks as to why you're making those investments and do you expect debt investments to be a continuing part of your investment activity, new and future year resources. It's something that's a bit more temporary. And when the capital markets normalize and banks return to lending your investment activity would return to more just the equity ownership and acquisitions?

Dave Sedgwick

Yes, I think it's I think it's a fair assumption that if the banks come rushing back with cheap money that there will be less need for us less opportunity coming our way and that lending activity in the future. And under that hypothetical scenario would be back to what it was before. But even before the last couple of years, we have made some big loans. And again, yes, there is a clear belief, clear path to this relationship leading to real estate acquisitions in the future, and we'll continue to do that because a lot of times what does that what does real estate acquisitions in the future are off market deals that's what we've seen and that we wouldn't we wouldn't have seen without doing that and building those relationships. So I think I would not be surprised to see more of that this year and opportunistically after if and when the banks ever come back with the they're free money.

Jonathan Hughes

Okay. And can you talk about I don't know if it's for you or Bill on, but is the decision to settle the equity proceeds versus maybe leaving them outstanding on a forward basis? Can we interpret that as maybe there's a large deal that could close any day now. And I'm fully aware that that's on embedded in the pipeline, but maybe there's a deal you're working on in the month cash available to be able to move quickly? And then what are you assuming is being earned on that cash until point?

Bill Wagne

Hey, Jonathan, it's Bill. I can and I can take that one, Tom, in our model we have assumed 5% on the cash that is sitting on the balance sheet. As for why we settled before words, in December, it was just a question of if they weren't we weren't saving a lot on it. There's not a lot of dilution as a result of keeping it out on the forward versus having the cash on the balance sheet.

Jonathan Hughes

Okay. And then one more quick one on those two zero transitions that were that were referenced earlier.

Dave Sedgwick

I don't know if I heard, but do you expect any change in Brent post condition, and we don't expect right now any material impact to rent with the euro.

Jonathan Hughes

Okay. And you said coverage would be pro forma coverage to go above one times for this new operator taking up industry properties, et cetera?

Dave Sedgwick

No, sorry. My answer would be it would be slightly north of one times for Adaro once those two properties are exited from the portfolio? Not for the new upper right.

Jonathan Hughes

Okay. Got it. Thanks for the time based on.

Operator

Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt

Great. Thanks. Good morning. Out there and change. And Dave, you mentioned in your prepared remarks that deal flow is pretty consistent with recent quarters. But despite the success you've had closing deals late in the year and early this year. You've increased the size of the investment pipeline. And I'm wondering, is that a function of just the availability of capital you have today or is it the quality of deals and operators, your underwriting is improving and maybe some of that that work you put in underwriting deals is now at a point where you're seeing a path to potentially closing?

Dave Sedgwick

Yes. The deal has been pretty steady, and James can clean up after me if needed. But Tom, I think the difference is that we're just seeing some stuff that's more actionable. So deal flow conservative pretty pretty steady from the last few quarters, just more actionable assets that we can that we can move on.

James Callister

And I see the number of deals we're seeing in office pretty consistent. I think it's just that there's more that seem to be falling in areas that were more interested in with where we have better operator solutions and where we really like what the Medicaid rate has done, some more of those coming in become more actionable.

Austin Wurschmidt

Got it. That's helpful. And then one other one for me is just curious if you guys would consider acquiring and operating kind of long term care real estate under an operating lease structure through Friday, or structuring more of the leases where maybe you're able to participate in some of the recovery in operating cash flows, maybe kind of similar to what you did with Linx healthcare I think now last year?

Dave Sedgwick

Yes, I'd say never say never, Tom. We're a group both of we have a group of former operators here that we think help us do a pretty good job of vetting operators and opportunities. And we like the simplicity of our model. And we currently have an abundance of opportunities of our typical bread and butter, but we're always looking for creative ways to expand that pipe.

Austin Wurschmidt

That's fair. And then last one for me. I guess, what's the likelihood that you think that you can continue to collect some rent on the 11 assets held for sale prior to and prior to that closing?

Dave Sedgwick

You know, it's pretty I would say the chances are pretty fair from one of the main reasons why we're selling to this particular buyers because we think that that gives us the best chance to collect some rents until we close. So that's what went into our decision of who to sell to and under what terms and having that rent being paid, it was one of those terms.

Austin Wurschmidt

Appreciate the time. Thank you.

Operator

Our next question comes from the line of Leon Sanabria with BMO Capital Markets. Please go ahead, Hunter.

Juan Sanabria

Um, just a question on the pipeline. Is there a rough split you could talk to in terms of what's the simple versus loans?

Dave Sedgwick

Yes. And in the 251, I'd say that is predominantly made up of acquisitions, not loan activity currently. As we sit here today,

Juan Sanabria

Great. Thank you. And then just on the I'm just hoping you could talk a little bit to the watch list, how that's evolved and how you're thinking about that and how that influenced or not? Yes, the conservative conservativism built in on the non-rent payment are factored into it full year guidance.

Dave Sedgwick

Yes, you know, the watch list is always kind of a fluid thing. We've had operators on it in the past that have graduated off of it in a big way. And so right now, we have a few that are very very small relationships that have needed a little bit more runway in time and turning some buildings. So we watch those guys closely. Of course, everybody is looking at a euro with their coverage that has trended down. So yes, I think what we've learned over the going on 10 years here is that there's probably always going to be a small handful of operators in any portfolios, watch that portfolio that you would call watch list them. We the art here is just to manage that risk down as best we can. And we think we do have a pretty good job of that.
And so kind of setting guidance for the first time. Yes, we're certainly cognizant of our watch list and but more so just wanting to be a little bit conservative, giving guidance for the first time in a number of years.

Juan Sanabria

And then just the last one for me at any dispositions, other than the Midwest Trillium assets that we should think are factored into our models.

Dave Sedgwick

Yes, the stuff we missed, what's what's held for sale right now in addition to the 11, I think there are one one more and that is kind of held for sale that is kind of coming close. And besides that, I think that's pretty much it.

Juan Sanabria

Great. Thank you.

Dave Sedgwick

Thanks. One.

Operator

Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Michael Carroll

Yes, thanks. Dave. I was hoping you can talk about of what you're seeing on the investment side, I know you have a pretty good pipeline. They keep on highlighting, but you always highlight that there is portfolio deals that you normally will underwrite to mean how active is that portfolio pipeline right now? And are there interesting deals out there that you could complete it in the next few quarters?

Dave Sedgwick

Matt, and I the problem is I'm a terrible three point shooter and a more of an assist guy. So these bigger deals are lower probability shots for us and always have been, although when you look at our history. The bigger the bigger years that we've had have been we've always had to do a pretty chunky deal to get that big year done. So right now, as James said, looking at the 250 that we've quoted there really isn't a chunky deal in there, but there are a couple that that we're evaluating. We just can't really put a number on it or a probability on it because it's very sad experience. We've come close and miss on bigger deals in the past, and they're just lower probability. We'd be very happy to surprise you in the future and say we got a big one. But at this point, none of those are far enough along. We don't have enough confidence in it to include it in our pipe.

Michael Carroll

And then when you say get a big one, like what would you consider a portfolio deal? Is it like over $50 million over $100 million.

Dave Sedgwick

Yes, know somewhere it's $75 million plus.

Michael Carroll

And then just last one for me. I mean, what about the competitive landscape? I mean, I know they're levered private buyers were pretty competitive going after some of those larger deals historically, I mean, has that changed given what's gone on the capital markets that are there? Are you going up against less competitors taking down and bidding on some of those prop portfolio transactions

James Callister

On Keno, there's a pretty active, you know, private equity, private buyer pool out there right now, Michael, especially on the bigger stuff that is still very active. I think that you definitely have an absence of smaller owner operators who really can't get financing right now that works for them, and they're really out. But I think some of the larger players are still in and still competing and makes the, you know, $100 million in North deals still it really competitive because they can really execute on them. But I think you definitely see that kind of smaller buyer pool more pronounced towards the P&L, $50 million down kind of range.

Michael Carroll

Okay, great.Thank you.

Operator

Our next question comes from the line of Alec Fagan with Baird.

Alec Feygin

Please go ahead and Happy Friday, and thank you for taking the questions. The first one is kind of on the size of the loan book. Does CareTrust has any limit to the size of how big that can be based on any credit agreements? Or is there any self-imposed limit that management would want to put on it?

Dave Sedgwick

No, there's no limits. Now. We'll just take it the at a time.

Alec Feygin

Well, thank you. So, again, is this CareTrust have CareTrust seems to have a large lost rent reserve of 2% to 3%. Is this a historic level or is there anything specific about 2024?

Dave Sedgwick

It depends on what year you look at. So it's really just a function of, as we've said, conservatism given guidance for the first time after a number of years. And I think as the quarters go by you'll see us refine that.

Alec Feygin

And the last one for me, what's the quality of the assets that are in the market right now and kind of spoke a little bit about the portfolios and how most of the pipeline are singles or doubles, but is there any stark difference between the quality assets and the current pipeline portfolio deals like CareTrust reviews.

James Callister

Now, I and I would say this, I would say that if you if I were to generally characterize what's coming in these days, I would say that probably 75% to 80% of it is still not cash flowing or barely cash flowing versus about 20% or so kind of stable or getting to stable. I think that's been that's probably creeping a little off in terms of stabilized product that's kind of coming onto the market right now on. But I think that I think that's really the trend right now is at what stage of returning to positive cash flow is a seller wanting to put their buildings up for sale. Some retired. I want to get out right as they turn the corner. Others are waiting a little longer to get more stable and then we'll turn the corner. So I think you see, you know, that trend continuing a little bit.

Alec Feygin

Got it.That's all. Thank you for the time, no.

Operator

Our final question comes from the line of Tayo Okusanya with Deutsche Bank. Please go ahead.

Omotayo Okusanya

Yes, good afternoon and congrats on the quarter on the large full, you saw deals that are out there. I mean, could you give us a general sense of what the stimulus could look like, what it would, what it would kind of take for them to transact again, the effect, if you can kind of talk about those without kind of giving away any secret sauce or negotiations or anything you're dealing with?

Dave Sedgwick

No, I don't think so. I think we it's really difficult to give too much color on stuff. That is so a slimmer shoot from 25 sites out of SAAS.

Omotayo Okusanya

And then the second question, if you could indulge me the provisioning in in 2024, again, I know you kind of give a general provisioning and it's not related to any particular tenants, but could you kind of just talk through, you know, on I mean, last year there was that one tenant that was kind of struggling to pay the rent. That was a big driver of the of the provisioning last year. I mean, is there any kind of similar scenario like that that could end up happening this year.

Dave Sedgwick

Will look, we're in a we're still very much in a stage of recovery and for the industry right place where operators in and out of our portfolio are still recovering back to pre-pandemic occupancy and coverage. And so it's really more a function of conservatism, knowing what kind of stage of recovery we're in.
Then having a specific concern about one or two individual operators. As we sit here today, we don't see, you know, a similar experience or performance by an operator like we had last year like you're referring to. But because we're in the stage of recovery that we are. We felt like it was prudent to build in some conservatism there for our guidance.

Omotayo Okusanya

Got you. Right. That's it for me.Thank you.

Dave Sedgwick

It was a weekend.

Operator

I would now like to turn the call over to Dave Sedgwick for closing remarks.

Dave Sedgwick

Well, listen, thank you, guys, for your interest, your questions and your continued support, and we hope you all have a wonderful weekend.

Operator

This concludes today's call. You may now disconnect.