Omega Healthcare Investors Inc (NYSE: OHI) Q1 2020 Earnings Call Transcript

Omega Healthcare Investors Inc (OHI) Q1 2020 earnings call dated May 05, 2020

Corporate Participants:

Ms. Michele Reber — Senior Director, Asset Manager of Operations

C. Taylor Pickett — Chief Executive Officer

Robert O. Stephenson — Chief Financial Officer

Steven J. Insoft — Chief Corporate Development Officer

Megan M. Krull — Senior Vice President of Operations

Daniel J. Booth — Chief Operating Officer

Analysts:

Connor Siversky — Berenberg — Analyst

Tayo Okusanya — Mizuho — Analyst

Jonathan Hughes — Raymond James — Analyst

Nick Yulico — Scotiabank — Analyst

Nick Joseph — Citi — Analyst

Daniel Bernstein — Capital One — Analyst

Lukas Hartwich — Green Street Advisors — Analyst

Joshua Dennerlein — Bank of America — Analyst

Presentation:

Operator

Good day. Welcome to Omega Healthcare First Quarter 2020 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the conference over to Ms. Michele Reber, Senior Director, Asset Manager of Operations. Ms. Reber, the floor is yours, ma’am.

Ms. Michele Reber — Senior Director, Asset Manager of Operations

Thank you, and good morning. With me today are Omega’s CEO, Taylor Pickett; CFO, Bob Stephenson; COO, Dan Booth; Chief Corporate Development Officer, Steven Insoft; and Megan Krull, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructuring, 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.

C. Taylor Pickett — Chief Executive Officer

Thanks, Michele. Good morning, and thank you for joining our first quarter 2020 earnings conference call. We are very pleased with our first quarter results that allowed us to comfortably declare a $0.67 per share dividend that will be distributed on May 15. The payout ratio improved as expected to 84% of adjusted FFO and 90% of funds available for distribution. Today, I’m going to focus my comments on the impact of COVID-19 on our operating partners and the potential impact on our company as the COVID pandemic evolves. The following are things that we know. We know the operator-reported number of Omega facilities, residents and employees that have tested positive for COVID-19. We know that labor and personal protective equipment costs have increased significantly. And for facilities with positive cases, the increases can be dramatic. CMS, the federal government and the states have provided meaningful and absolutely essential regulatory and financial support to the skilled nursing facility industry. Census in facilities has declined, at least in part due to the elimination of elective hospital procedures.

What we do not know. We do not know how long census disruption and elevated COVID-19 costs will last and if the funding support from the federal government and the states will be sufficient to cover all of these incremental costs. We do not know the ultimate number of Omega facilities that will have widespread, high-cost outbreaks of COVID-19. From longer-term observations, the demographics that drive our bullish perspective of increasing demand for needs-based skilled nursing care have not changed. There will be increased clinical protocols for infection control within facilities and the monitoring of employees, guests and others entering facilities. We do not know if future reimbursement rates will be sufficient to cover the increased cost of enhanced infection control and monitoring. We had good financial results in the first quarter. Additionally, in April, we have collected virtually all of our rents. Nevertheless, we’ve withdrawn our 2020 guidance in recognition of the significant COVID-19-driven uncertainty that we face for the remainder of 2020. Lastly and most importantly, I cannot overstate the tremendous efforts that our operating partners and their staff have undertaken to care for residents within our facilities. The dedication of the direct caregivers is heartwarming and humbling dramatically outweighs some of the negative press over the last month. We cannot thank them enough.

I will now turn the call over to Bob.

Robert O. Stephenson — Chief Financial Officer

Thank you, Taylor, and good morning. Our NAREIT FFO on a diluted basis was $181 million or $0.77 per share for the quarter as compared to $144 million or $0.67 per diluted share for the first quarter of 2019. Our adjusted FFO was $186 million or $0.79 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to net income found in our earnings release, in our supplemental and also on our website. Revenue for the quarter was approximately $253 million versus $224 million for the first quarter of 2019, with the increase primarily resulting from incremental revenue from a combination of over $1.7 billion of new investments completed and capital renovations made to our facilities since the first quarter of 2019 as well as lease amendments made during that same time period and onetime revenue collected in the first quarter of 2020 related to security deposits held by OP unitholders due to Omega upon the sale or termination of certain facilities. The increase in revenue was partially offset by reduced revenue related to asset sales, transitions and loan repayments that have occurred throughout 2019, and the timing of cash receipts related to operators on a cash basis. The $253 million of revenue for the quarter includes approximately $11 million of noncash revenue.

For the month of April, we collected 98% of rents, mortgage interest and notes. Our G&A expense was $10.9 million for the first quarter of 2020, which is typically our highest quarter within the year. We project quarterly G&A expense of between $9.5 million and $10.5 million for the remainder of 2020. Interest expense for the quarter, when excluding noncash deferred financing costs, was $52.7 million, with a $4.6 million increase over the first quarter of 2019, resulting from higher outstanding borrowings. In September 2019, we issued $500 million of 3.625% senior notes due October 2029. And in December 2019, we assumed $389 million in HUD debt related to a $735 million acquisition. Our balance sheet remains strong, and we continue to take steps to improve our liquidity. Based on the uncertainty in the credit markets that existed in March, resulting from COVID-19, under an abundance of caution, we borrowed approximately $300 million under our revolving credit facility to provide additional balance sheet liquidity. At April 30, 2020, we had $618 million of outstanding borrowings on our $1.25 billion credit facility, and we had approximately $490 million in cash and cash equivalents. We have no significant bond maturities until August 2023. In March, we entered into $400 million of 10-year interest rate swaps at an average swap rate of 0.8675%. These swaps expire in 2024 and provide us with significant cost certainty upon refinancing of our 2023 bond maturity.

While we believe our actions to date provide us with significant liquidity and flexibility to weather a potential pronounced and prolonged impact to our business, we will continue to evaluate any additional steps that may be needed to maintain adequate liquidity. At March 31, approximately 82% of our $5.6 billion in debt was fixed. We had $348 million in cash, and our net funded debt to adjusted annualized EBITDA was 5.38 times, our fixed charge coverage ratio was 4.1 times. It’s important to note EBITDA in these calculations does not include any revenue related to construction and process associated with five new builds scheduled to become operational within the next 12 months. When adjusting to include a full quarter of contractual revenue for acquisitions completed during the quarter and the five newbuilds and then eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5.2 times.

I’ll now turn the call over to Steven.

Steven J. Insoft — Chief Corporate Development Officer

Thanks, Bob, and thanks to everyone on the line for joining today. In conjunction with Maplewood Senior Living, we continue to work on our ALF memory care high-rise at Second Avenue and 93rd Street in Manhattan. The COVID-19 outbreak in New York City has posed challenges to the schedule and cost of the project. While the project is deemed a critical resource due to its license nature and construction has been allowed to proceed by the city of New York, the capacity of the construction crew has been meaningfully limited in order to provide a safe working environment. The slowdown of construction, when combined with certain supply chain challenges and the need for innovative enhanced infection control protocols will delay the opening to Q3 at the earliest and correspondingly increase the project cost. While project will cost approximately $310 million, an exact estimate of the final cost will be difficult to determine until we have better clarity on the opening date. The COVID-19 pandemic poses certain challenges unique to senior housing operators, including increased costs, the challenges of managing COVID-positive patients and meaningful practical limitations on admissions. While census was strong in our senior housing portfolio through most of the first quarter, we are seeing a 1% to 3% per month occupancy reduction once buildings impose touring and visitation bans.

Additionally, senior housing operators, to the extent they are private pay and large employers were offered little help from the various fiscal stimulus programs. Including the land and CIP of our New York City project, at the end of the first quarter, Omega Senior housing portfolio totaled $1.6 billion of investment on our balance sheet. All of our senior housing assets are in triple net leases. Approximately 50% of our investment is in Maplewood assets, which are in one master lease, and 25% of our assets are in the U.K. with two master leases, one for the Gold Care assets and one for Healthcare Homes, respectively. The remaining 25% are intermixed with SNF assets in various master leases. Our overall senior housing investment comprises 130 assisted living, independent living and memory care assets in the U.S. and U.K. This portfolio on a stand-alone basis saw a slight uptick in lease coverage in the fourth quarter of 2019. However, recent events will highly likely put downward pressure on that number.

While we remain constructive about the prospects of senior housing, the COVID-19 outbreak warrants an ongoing evaluation of our development pipeline. This analysis may take several fiscal quarters as we have an opportunity to see how market demand and facility cost structures adjust. While we further underwrite our pipeline development opportunities and make progress on our existing developments, we continue to work with all of our operators on strategic reinvestment in our existing assets. We invested $39.5 million in the first quarter in new construction and strategic reinvestment. $24.1 million of this investment is predominantly related to our active construction projects. The remaining $15.4 million of this investment was related to our ongoing portfolio capex reinvestment program.

I will now turn the call over to Megan.

Megan M. Krull — Senior Vice President of Operations

Thanks, Steven, and good morning, everyone. As you will hear more about today, this is a high-touch industry and therefore, controlling the spread of the virus once it gets in a building is difficult to say the least. Our operators are faced with numerous challenges, not the least of which is adapting to the COVID-19-specific infectious disease control guidelines set forth by CMS and the CDC. All new admissions are treated as presumptive positive and quarantined for 14 days. Vendors in most areas are not permitted entry into buildings and lastly, food and other deliveries outside for employees to bring in. Our operators are having to find ways to reconfigure their buildings so that they have dedicated wings for positive or suspected positive residents. They are also looking at their portfolios to determine whether there are buildings that can be fully dedicated to COVID-19 patients. We have several instances of that in our portfolio. And while the number of these dedicated buildings is likely to grow, we do not believe that it will grow substantially. The challenge of following these best practice protocols is exacerbated by the scarcity of personal protective equipment, or PPE, which also comes at an increased cost. While masks are now becoming easier to source, the availability of gowns remains an issue. Additionally, the lack of availability of testing has only recently started to ease. The Department of Health in each state previously determined who got tested.

Through much of this pandemic, due to the lack of test kits, even when there was a positive case for the building, oftentimes only those with symptoms and in some states, only those with multiple symptoms would get tested. You can imagine how tough it is to control the spread of this virus, especially as it can be spread asymptomatically, when the ability to test is severely limited. Lately, whether it is through departments of health or our operators working with private companies, we are hearing that full buildings are getting tested, which will obviously add to the number of positive cases, it will also make it easier for our operators to take all necessary steps to control the spread. In an industry that was already hampered by staffing shortages, operators are now faced with an additional strain on staffing, as any employee with symptoms was quarantined for two weeks at home and others have needed to stay home to care for young children due to schools being closed. While we expect agency expense to increase, we believe the larger expense increase will be in the form of hazard pay, bonuses and overtime to permanent staff. Most operators are trying to limit the use of agency as their permanent staff have their culture and protocols ingrained in them. Additionally, operators are striving to keep up the morale of their employees through in turn work to maintain the morale of residents who are not able to see loved ones. This includes such things as video blast out to their hero employees or hero banner stressing the entrance to the facilities. All of these challenges are coming at the same time that occupancy is impacted.

With the added expense constraint associated with providing care in these settings, key to our operator’s success is federal and state support. The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was passed on March 27, 2020. That stimulus package included a variety of programs available for the nursing home industry. Payouts under the $100 billion healthcare fund, which was increased by $75 billion on April 24, started the week of April 10, with an additional tranche flowing out starting April 24. Both tranches have been to Medicare providers early. First tranche was equal to 6.2% of all 2019 Medicare billings but was ultimately netted against the second tranche. The second tranche was equal to 2018 net patient revenue divided by $2.5 trillion, which is the total health care spend, with the resulting percentage multiplied by $50 billion, again, with the first tranche funds netted against the results. The estimated impact of both tranches combined is an average of approximately $150,000 to $175,000 per facility that provides Medicare services with obvious variances amongst buildings, depending on overall revenue. To date, assisted living facilities have not received any payouts under this fund and as of now, we believe only those with some level of Medicaid revenue will get a payout in the future.

Operators were able to participate in the accelerated and advanced payment program through Medicare, which provided up to three months of advanced Medicare billing or some lesser amount at their option. Payback is via recoupment 120 days out over a 3-month period. This program has now been suspended. While some of our operators participated in this program, many others did not, given the short payback window and the lack of visibility into where occupancy would be at the time of payback. Many of our operators have also taken advantage of the Section 2302, employer payroll tax deferral, which permits to deferral of employer FICA taxes from March 27, 2020, through December 31, 2020. Repayment is 50% by year-end 2021 and 50% by year-end 2022. The 2% Medicare sequester is suspended from May one through December 31 of this year with a possible 1-year extension. This will have the effect of increase in Medicare rates by 2%. The total estimated impact to our portfolio is $25 million for the May through December period. The 6.2% FMAP boost, which provides federal funding to state Medicaid programs is in effect from January 1, 2020, through the end of the month in which the national emergency is lifted. The decision on if and how much to allocate to long-term care facilities is left to the discretion of the individual state. And to date, only a handful of states have made such an allocation. Our thoughts and prayers are with our operators and their residents and employees that are affected by COVID-19. We continue to try to find ways to support our operators during these troubling times.

As part of that effort, we have instituted regular e-mail blasts to share pertinent information as well as to ensure that everyone feels connected to one another. Those e-mails blasts include a variety of topics, such as information on the CARES Act, including eligibility, interpretation and best practices, reimbursement information such as the ability to skill in place, information on PPE suppliers who have current availability as well as service providers, best practice sharing from our operators with respect to various COVID-19 clinical protocols and data analytics. Additionally, we have provided some of our operators with short-term loans to purchase PPE. Our goal is to continue to be a source of support and information to our operators as they deal with frontline issues. Prior to the development of a vaccine and widespread testing, our operators are faced with figuring out how to navigate what will be the new normal for the industry. As stay-at-home orders start to lift and the rest of us start to get back to some semblance of normalcy, our operators, their employees and residents will be dealing with this for a long time to come. The nursing home industry is resilient, but there is no overnight fix to this pandemic as it relates to long-term care. We are hopeful that the federal and state governments recognize the ongoing struggles that the nursing home industry will face and will continue to provide the necessary support to ensure that the most vulnerable in the population are cared for appropriately.

I will now turn the call over to Dan.

Daniel J. Booth — Chief Operating Officer

Thanks, Megan, and good morning, everyone. Today, I’m going to stray materially from my usual script and talk about what’s on the forefront of everyone’s mind, the COVID-19 virus and its impact on our operators, their residents and their frontline employees. As you can imagine, the virus has taken an unprecedented toll on our operators and their residents. As of March 15, 2020, we had 0 known cases. As what we posted on our website this past Friday, we were aware at that time of 4,136 confirmed cases, including residents and employees within 250 facilities with at least 350 deaths. Suffice it to say, these numbers are only going to climb as this virus continues to spread and more test kits become available within our facilities. Based on discussions with our operators, overall occupancy has declined on average between 3% and 6%. While quality mix is down due to the discontinuation of elective surgeries, offset slightly by the scaling up of residents that have tested positive for COVID-19 or potential cases amongst operators, patient populations. Rather than talk about our coverages, which have stayed virtually steady through the fourth quarter of 2019 or our new deals or dispositions, which are relatively immaterial in the first quarter, I’d like to talk about what is more poignant and timely in today’s environment. I’d like to give everyone a sample of the day in the life at our 966 facilities, both SNFs and houses. In the aggregate, on any given day, there are an average of approximately 75,000 patients and residents across the facilities as well as approximately 100,000 full and part-time staff, providing care on the front lines.

When extrapolating a handful of what are now normal daily routines across Omega’s vast numbers of our operators’ residents and frontline caregivers, the resulting numbers are staggering. Here are several examples. Every patient is monitored for COVID-19 signs and symptoms, including temp and oxygen levels up to six times a day or approximately 450,000 times every day across all Omega facilities. Virtually all of our operators’ staff of approximately 100,000 are required before starting their shift to have their temperature and oxygen levels taken and in many instances, they have to complete a screening questionnaire. With communal dining no more a possibility, every patient is served meals in their room and many have to be physically fed their meal by hand. That’s 225,000 meals served every day one at a time. Medications are administered three to five times a day, and most residents have to be assisted in taking medications. On average, that’s 300,000 times a day our operators are administering medications. Every resident, whether COVID positive or not, have to have their teeth brushed, get bathed and get dressed, most with the assistance of our operators’ caregivers. Donning and doffing a proper PPE is required for every staff member entering or exiting an isolation unit to care for a COVID-positive resident. Normal daily activities, including life enrichment and social well-being, is conducted in every patient room on a daily basis due to restrictions on community settings. Family visits with patients and their loved ones are conducted through windows or on iPads or laptops. If the iPad or laptop is provided by the facility, the equipment must be cleaned and disinfected after every virtual visit. All levels of therapy are performed in every patient room due to restrictions on having patients in a therapy gym.

Our operators’ direct care staff is asked to bring a separate change of clothes, change out of their uniform before leaving work and laundry their uniform every day in order to protect their families when they go home. They are asked to quarantine themselves from their family and others so that when they return for their next shift, they don’t potentially infect residents. This is about a small sample of what goes on during a day in the life of our operators’ caregivers. Can you imagine? There is no social distancing in a nursing home or assisted living facility. These are high-touch, face-to-face activities that occur multiple times per day throughout our nearly 1,000 facilities. These efforts place our operators’ frontline caregivers at serious risk of not just quarantine, but of becoming seriously ill or even dying. Unfortunately, these risks carry over their loved ones as well. These efforts are nothing short of heroic. Ultimately, it would be both premature and irresponsible to attempt to project the impact of this virus on any given facility’s residents or staff, their occupancy, financial performance or otherwise. Until that time comes, when the virus has subsided and some new form of normalcy has returned Omega, as we have shown in the past, will continue to stand behind our operators, provide support and assistance to their frontline caregivers and continue to tap their day-after-day heroic efforts. In addition to hundreds of our operators’ residents losing their lives, sadly, they are also losing their caregivers.

As you can imagine, this has a terrible impact on staffers who are unerringly quite scared for not only their own lives but that of their families. Yet day after day, these dedicated employees keep coming back to work. Allow me to relay one of many heroic stories. Recently, one of our operators lost an employed to COVID-19, a lifetime nurse who had been with the facility for just over one year. Upon her passing, the decision was made to cease admissions. When the COO informed the facility to redirect six pending admissions, the administrator in tears said, “Please do not stop sending new residents until I speak to the staff.” Within 20 minutes, she texted the COO and said, “The team still wants to admit. It’s what we do. We need to do this.” This is just one of 100 stories I have heard personally in the last few weeks. Lastly, as many of you might have noticed, and all of our operators have heard or seen, the public media has repeatedly maligned the skilled nursing industry as opposed to portraying their frontline caregivers as compassionate, courageous, heroic human beings who are risking their lives trying to make a difference by saving the lives of our most vulnerable population. Omega, along with ACA and our operators, intends to try and rectify this negative messaging with real stories of what is occurring on a daily basis on the front lines. We just hope they will start to listen.

I will now open the call up for questions.

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] And the first question we have will come from Connor Siversky of Berenberg. Please go ahead.

Connor Siversky — Berenberg — Analyst

Good morning everybody and thank you very much for having me. Hope you all are well. We appreciate very much your efforts to support the operators under the incurrent environment. First question on PDPM. Don’t want to lose sight of the impact amidst the ongoing pandemic. Has there been any commentary from your operators in regard to functioning under the new framework in this extraordinary situation?

C. Taylor Pickett — Chief Executive Officer

Well, I mean, obviously, the framework has changed. A lot of what PDPM did was change the dynamics of therapy, right? So it moved individual therapy protocols to group and concurrent therapies. With the discontinuation of the use of therapy gyms, those have all gone away. As I indicated in my talking points, all therapy is taking place in the patient room. So it’s dramatically changed what they had put in place six months ago from a daily living basis. So yes, it’s I mean, we’re not losing sight of it, but what they put in place is totally different today.

Connor Siversky — Berenberg — Analyst

Okay. Appreciate the color there. And then on rent coverage, it seems like a few operators have moved into lower buckets. I mean can you provide any color as to the extent of these moves, if the characteristics of these operators had changed meaningfully through the fourth quarter of 2019?

C. Taylor Pickett — Chief Executive Officer

Yes. Really not. This is what we’ve seen over and over again. These a lot of folks are kind of right on the fence line on these buckets, and they tend to move back and forth from the first to the second quarter. We had a movement downward second to third quarter, we they pretty much moved back up. And then once again, in the fourth quarter, we had a little bit back down. They’re not always the same operators, but they did tend to shift around. A lot of them straddle the fence, so to speak.

Connor Siversky — Berenberg — Analyst

Okay. And then on further iterations of the CARES Act, I mean, is there any expectation that there would be a provision from Medicaid at some point?

C. Taylor Pickett — Chief Executive Officer

We’re hopeful. There’s no clarity on that at this point, but we are certainly hopeful. So by far the largest vulnerable population. So we hope they get their fair share.

Connor Siversky — Berenberg — Analyst

Right. Right. And then last one for me, just quickly on external activity. Noticed you were able to sell several assets year-to-date. I mean, what kind of buyers are still out there in the markets? And then what would it take for OHI maybe to become more comfortable in acquisitions here?

C. Taylor Pickett — Chief Executive Officer

I think acquisition and disposition activity has gone from choppy to very, very choppy. It’s difficult to do due diligence on a facility we can’t enter and a third-party consultant come into your building. So it’s gotten quite choppy. The number of deals that we see out in the market has gone down considerably. There are still deals being marketed at this point. Whether they ultimately trade, I can’t tell you. But there are still some deals, but it’s very few and far between. I think we need to see a lot, lot, lot more clarity on where this virus ends up before we start to seriously look and talk about investing dollars in the coming quarters.

Connor Siversky — Berenberg — Analyst

Okay, that’s all from me. Thank you very much.

Operator

Next, we have a Tayo Okusanya of Mizuho.

Tayo Okusanya — Mizuho — Analyst

Yes, good morning everyone. Hope everyone is safe and healthy. Just first of all, to follow up on Connor’s question about PDPM. I guess, again, we’ve gotten the full quarter of PDPM in the fourth quarter rent coverage statistics. But your rent cover statistics were still fairly flat even though PDPM, I think most people expected that it would bring those numbers up. Could you just talk a little bit about what happened in the fourth quarter? And why coverage ratios didn’t go up more?

C. Taylor Pickett — Chief Executive Officer

So the coverage in the fourth quarter actually was up over the third quarter and the second quarter. But as happens often on December, you have a lot of accrual adjustments. Some years, it goes up, some years, it goes down. And this particular year, a lot of the accrual adjustments went the wrong way. And so December was down and thus, the quarter was down. But otherwise, it was a good quarter.

Tayo Okusanya — Mizuho — Analyst

Okay. That’s helpful. And then second question, color you gave around occupancy trends for senior housing and skilled nursing in the middle of the pandemic. You talked about declines of 1% to 3% on the senior housing side through the 6% on the skilled side. Are those declines kind of April over March? Is it April versus I’m just trying to understand how quickly those declines happen and what the implications could be going forward for rent coverage?

C. Taylor Pickett — Chief Executive Officer

Okay. So that’s a good question because I wasn’t specific. And the reason is that it’s not specific. It’s not in a specific point in time. The last reported period for occupancy is December 31. The decline that I was talking about really was based upon our conversations that we have with our operator are pooling, if you will, of some of our larger operators where, on average, they were seeing a decline between somewhere around 3% to 6%. Obviously, we’ve seen facilities in certain markets with very little, if not no occupancy decline and then certain COVID facilities that are where the COVID is widespread where the occupancy has gone down considerably more. So the 3% to 6% is not based on a specific point in time. It’s based upon pooling of our operators throughout basically about a 2-week period within the month of April, and that’s just what they’ve shared with us. And so that’s what we wanted to talk about. It’s also kind of what we heard from the industry as a whole. So it’s not carried over a period, it’s just what they have seen in the as this COVID virus started to take have impact, that’s what they’ve seen the drop off beat, somewhere in the neighborhood of 3% to 6%.

Tayo Okusanya — Mizuho — Analyst

Got you. And you have kind of talked about is the biggest piece of the drop off, just is it really the lack of admissions? Is it just nothing coming in from the elective surgery? I’m just kind of curious what the biggest drivers of those declines if you can share that information.

C. Taylor Pickett — Chief Executive Officer

So yes, they do. It’s not specific. It’s kind of a combination of all the above. It’s the discharges from the hospitals have gone down, a lot of it due to elective surgeries being cut off completely. Unfortunately, you’ve got a higher number of deaths in the facilities. And then you’ve got a number of more a higher number of rehospitalizations because as patients become sicker and sicker with the COVID, a lot of times, they need to be sent back to the hospital because once they hit acute care or even intensive care levels, they have to be treated in a hospital. So they have to go back to the hospital. So I would say it’s really kind of a combination of those three things that are driving the occupancy down on the skilled side.

Tayo Okusanya — Mizuho — Analyst

Okay. That’s helpful. Last one for me. From a financial aid perspective, I just at this point, what else would Omega or the industry at large like to see from the federal government or from state agencies in regards to help for the overall industry? Is it is a specific allocation from the CARES Act? I’m just kind of curious how the industry is thinking about what else they need.

Robert O. Stephenson — Chief Financial Officer

Yes. Tayo, I think it is the CARES Act. There’s a substantial amount of money that has not been allocated out of CARES Act. And as Dan briefly mentioned, none of the CARES Act money has addressed the Medicaid population and skilled nursing facilities. So the thought is that we’ll see some additional allocations of dollars that correlate to Medicaid activity in facilities and then likely some allocation of dollars that correlate to positive COVID outbreaks in facilities where you see dramatic cost increases. I think those are the two prongs that have been discussed and hopefully, we see HHS move that forward.

Tayo Okusanya — Mizuho — Analyst

Thank you. And best of luck.

Operator

And next, we have Jonathan Hughes of Raymond James.

Jonathan Hughes — Raymond James — Analyst

Hey, good morning. I appreciate all the prepared remarks and efforts from you, your partners and caregivers during this difficult time. Can you talk about the tenants that may be asked for rent deferrals, if any, in April and May? What percentage of monthly rents they comprise? How much you might plan to grant in the mix of SNFs versus senior housing?

C. Taylor Pickett — Chief Executive Officer

It’s early in May, right? But as of today, on the 5th, we’ve gotten no request for rent deferrals.

Robert O. Stephenson — Chief Financial Officer

And Jonathan, just to clarify, the April, the 2% of rent that we haven’t collected yet for the month of April is not they’re not deferred rents. They’re rents that are still due. And we’re in discussions with our tenants about the status of those rents, but we have not we don’t have any formal deferrals of any rent at this point in time.

Jonathan Hughes — Raymond James — Analyst

Did any tenants ask for deferrals in April? I know you said May, there hasn’t been any yet, but I mean, it’s only five days in.

C. Taylor Pickett — Chief Executive Officer

Not more than a couple, three. Those rent builds were immaterial and none that we want.

Jonathan Hughes — Raymond James — Analyst

And what was the mix okay. And the mix of those handful that asked, I mean, were they SNFS? Were there some seniors housing in there? Just trying to understand who might be asking.

C. Taylor Pickett — Chief Executive Officer

No, it’s SNF operators for the most part.

Jonathan Hughes — Raymond James — Analyst

Okay. All right. On the Second Avenue project, I know that’s being delayed now until the third quarter of this year at the earliest. Is Maplewood paying rent until that delivery date? Or has that been renegotiated to match up with when that project is operational?

Robert O. Stephenson — Chief Financial Officer

Maplewood continues to pay rent. They have a line of credit that has adequate collateral. Frankly, we’re in conversations with Maplewood now because the plan was to open earlier, but we haven’t concluded any of those discussions at this point in time.

Jonathan Hughes — Raymond James — Analyst

Okay. And then last one for me on the guidance withdrawal, bit of a higher-level question. Why did you decide to pull this versus adjusted? I mean at the end of the day, you are a triple-net lease REIT with no external growth guidance. You collected most of I mean, 98% of your rent last month. And it seems like you could at least maybe maintain a run rate figure, and I understand guidance has been withdrawn everywhere across the REIT space in Corporate America, and there’s no shortage of uncertainty. But there was another triple-net lease health care REIT that maintained their run rate guidance last week. So I’m just trying to better understand what you see that caused you to pull it. If you can share your thought process there about the outlook.

C. Taylor Pickett — Chief Executive Officer

Yes. I think it really comes to duration and depth of the pandemic, Jonathan. It’s just no one is going to be able to give you data around that. And we know the government support to date has been critical to this industry. And we don’t know what the next round of government support is going to look like. So you combine that with just an unknown time frame. I think the important thing from our perspective is we look at the end of this pandemic, whenever that comes and the demographics, all the drivers of our business, and we don’t see any reason that our business doesn’t return substantially to where it is today. But in the interim, it’s just a big question mark. And that’s what we’re reflecting in pulling the guidance. We would just be guessing, and I’d rather not do that.

Jonathan Hughes — Raymond James — Analyst

Yes. Okay, thanks for the time.

Operator

Next, we have Nick Yulico of Scotiabank.

Nick Yulico — Scotiabank — Analyst

Thanks. I just want to go back to the occupancy drop that you talked about from serving operators. What were the operators telling you in terms of thoughts about whether it could get worse from here? And also if you’re hearing any sort of early expectations about how states opening up elective procedures again for hospitals? Any anecdotes on how that is already, I know it’s very early, but maybe helping the occupancy number for skill nursing?

C. Taylor Pickett — Chief Executive Officer

Yes. So I mean none of my operators were out going out on a limb trying to predict what this virus is going to do in the future. So they have no idea what’s going to how that’s going to affect occupancy, obviously. But if it continues to ravage their facilities and becomes more widespread, occupancies got to continue to suffer. If it starts to lighten up, occupancy should theoretically improve. We’ve heard rumors that certain states might start to open up. I haven’t heard of any specific state that has actually said that they’re going to start to allow elective surgeries. But I might have missed it. At this point, I know none that have specifically stated a date for when they would start to open up the doors for elective surgeries.

Nick Yulico — Scotiabank — Analyst

Okay. I guess, I mean, obviously, that’s a key component for getting the skilled nursing industry back to normal. When you look at the amount of federal aid that’s been given so far to the industry, and you run some math about occupancy pressures that operators are facing short-term expense pressures. What is your sense here about when you need to see the hospital system returning back to normal, so that skilled nursing can return back to normal? Is this do your operators have a lifeline until June, July? How should we think about that?

C. Taylor Pickett — Chief Executive Officer

Yes. Fair question, Nick. I don’t we don’t know. We know that there’s still a fair amount of CARES Act money that hasn’t been distributed. If that’s distributed reasonably consistently with what we’ve seen and the pandemic clears out by some point in the summer, I think, put all that together, the impact isn’t going to be that dramatic. But if things stretch out into the fall, it’s going to be difficult without another round of government support, which, obviously, we can only guess whether that would happen or not. So I think this is what we know today and you look at it and you go, okay, if we start to see Texas and other states open up elective surgery, that’s going to be helpful. I think the other thing we don’t know is human behavior in terms of individuals willing to go to the hospital for that elective surgery and how fast that ramps up. It’s a TBD. But yes, I get what you’re saying. I think that’s yet another reason we’ve kind of pulled back. The only other comment I would make is every Friday we posted up on our website what we’ve heard from our operators in terms of facilities with cases. So one thing that’s a little bit positive is at least the velocity of growth in the facilities week-to-week has declined a little bit. So if that’s another indicator that that will be helpful from an overall occupancy perspective. And we have buildings where we have net COVID positive cases and the occupancies have remained relatively stable. So all that goes into the equation. Hopefully, that’s enough color. I mean, ultimately, I don’t have the answer.

Nick Yulico — Scotiabank — Analyst

Yes, I understand. It’s a little tough to gauge. I guess just last question, Taylor, how are you thinking about rent deferral request if they come in? I get that there hasn’t been many yet, but as you’re saying, it feels like the industry in the short run is facing more pressure. You get through this period and then you get back to normal, and there are a lot of benefits that are in place via PDPM, the removal of sequestration cuts. So if you’re getting a rent deferral request this month, next month, what is your approach going to be? Are you going to make sure that the operator is fully exhausted every sort of federal program out there? Are you going to are you more likely to give a deferral versus some sort of permanent level of a rent cut? How should we think about what could still play out here for your portfolio?

C. Taylor Pickett — Chief Executive Officer

Yes, you’ve described it. So the first step is have our operators exhaust at all the opportunities that might be out there in terms of liquidity. And do we have a good sense of that liquidity picture on a forward basis. And then step two, if we need to support that liquidity, would likely be in the form of deferral that would hang up in the balance sheet and hopefully be recouped when all of this normalizes. I think rent cuts are only going to come in an environment where you think we’re not going to return to where we left or somewhere in that code. And I just don’t see that today as we look at the landscape in front of us.

Nick Yulico — Scotiabank — Analyst

Okay, thank you.

Operator

Thank you. Next, we have Nick Joseph of Citi.

Nick Joseph — Citi — Analyst

Thanks. Just maybe in terms of May rent collections, I recognize we’re very early in the month and that rent is due maybe throughout the month and not necessarily on the first. So I was wondering if there’s any trends you’ve seen at least for the first few days of May relative to where you were on collections for the first few days of April?

C. Taylor Pickett — Chief Executive Officer

Yes. No trend. I mean it’s just too early. We’ve had the normal payers that we would expect early the month, but our rents are not all in the first of the month. They go throughout the month. It’s contract by contract. So really nothing to glean from any pattern for the first couple of days in May.

Nick Joseph — Citi — Analyst

So far, given the rent request comments earlier, there’s no indications that May collections would be different from April, at least thus far?

C. Taylor Pickett — Chief Executive Officer

Well, again, it’s just too early to know. But based on the couple of days we’ve seen and the dialogue that Dan and his team have had with our operators, I’d say it’s similar to April at this point in time.

Nick Joseph — Citi — Analyst

And then maybe just following up on the coverage and PDPM discussion from earlier. Is it fair to assume that coverage when you report next quarter, given that it’s a quarter delayed and 12 months trailing, coverage levels should be higher a quarter from now, and then we’ll start to see the impact of COVID in subsequent reports from there?

Robert O. Stephenson — Chief Financial Officer

Well, you’re going to see some impact with COVID in March. And so I’m very hesitant to talk about Q1 coverage, given the fact that we had COVID-related activity occurring in our facilities in March. Just too early to predict. But we’ll provide color around the first quarter in terms of what we saw pre-COVID expenses hitting facilities.

Nick Joseph — Citi — Analyst

Thanks.

Operator

The next question we have will come from Daniel Bernstein of Capital One.

Daniel Bernstein — Capital One — Analyst

Good morning. And again thanks for for all the color. We wish all your tenants and your residents well. Wanted to touch on expenses, which it seems to me that expenses are one of the larger issues. Can you talk a little bit about where the expenses at seniors housing and skilled nursing were kind of equitable in terms of their increases? Or are you seeing differences in expense needs between the seniors housing and skilled nursing facilities? And then maybe following up on that, what do you think is the permanence of those increases in expenses or decrease in margins? Is it too early to predict that? Or is that something that we need to think about for the long-term, is it kind of a permanent margin decrease for those asset classes?

C. Taylor Pickett — Chief Executive Officer

Well, I mean listen, labor was tight before we got into this pandemic. Labor has become increasingly tight, and the costs have gone up pretty much across the board in both SNFs and house. PPE, obviously, something that’s gone up considerably. A lot of PPE wasn’t used in-house before this pandemic and was only used sparingly in SNFs. On the backside of this pandemic, I’m pretty sure that you’re going to still have a fair amount of PPE being utilized for some time in the future. So I think part of that cost will remain in place. Labor. It’s easy to increase labor costs. It’s hard to walk them back. So I think in part some of those labor costs will stay higher than they were before we got into this situation. But in order to try to quantify that would be impossible at this point.

Daniel Bernstein — Capital One — Analyst

Okay. In terms of the extra cost that you’re seeing on the development side, especially for Second Avenue, can you talk a little bit more detail on what those costs are? What changes are being made to the facility? And are those kind of changes, maybe call them architectural changes or design changes, I assume that’s something that’s going to be more permanent within the industry, both seniors and skilled. I don’t know if you could just give a little bit more clarity on the architectural design issues that you’re seeing in second half and how that applies going forward.

C. Taylor Pickett — Chief Executive Officer

Steven, do you want to take that?

Steven J. Insoft — Chief Corporate Development Officer

Sure. The cost increases that we’re estimated at Second Avenue because of the COVID-19 pandemic have more to do with just cost of delays. And then there are some increases in the ordinary course that you might expect as time goes on. As far as architectural changes, that building was and is effectively beyond the state at which you would create additional architecture changes to the building. We’re just putting finishes at this point. There’s some discussion around negative pressure rooms going forward in some of the development activity. But beyond that, none of that affects Second Avenue.

Daniel Bernstein — Capital One — Analyst

Okay. Okay. There’s been some talk as well that whether telehealth or telemedicine, telerehab might be a threat to seniors housing or skilled nursing. Do you guys have any views on that?

C. Taylor Pickett — Chief Executive Officer

I think it ends up as a benefit. And a very big percentage of our skilled nursing facility operators were using telehealth well before this pandemic arose. It stretches the ability from a caregiver perspective. It allows you to take care of residents in place for longer versus hospitalizations, particularly useful in rural settings. So I think it’s a plus from the skilled nursing facility setting. And frankly, from a higher acuity senior housing setting, I think you have the same answer.

Daniel Bernstein — Capital One — Analyst

That’s all I have. I’ll hop off. Thank you.

Operator

Next, we have Lukas Hartwich of Green Street Advisors.

Lukas Hartwich — Green Street Advisors — Analyst

Thanks. Hi guys, Can you provide more context for the $150,000 per property of government assistance that was received? I’m just curious how helpful that is. Maybe if you could provide what’s the average opex per facility in your portfolio?

C. Taylor Pickett — Chief Executive Officer

Well, obviously, the $150,000 to $175,000 that we which is an average by facility that they received was extremely helpful. I mean, it’s obviously, it will help offset a lot of the increased costs that they were seeing. So it was hugely important. Average opex cost per facility, I don’t even want to try to go there. I don’t know on the top of my head.

Lukas Hartwich — Green Street Advisors — Analyst

Is there any context for the $150,000? Like does that cover two months of opex? Is there some sort of number on that, that you can estimate?

C. Taylor Pickett — Chief Executive Officer

Yes, I think that’s a fair without Dan and his team can circle back up to you and get you the exact number. But a couple of months, that sounds about right. In terms of current COVID opex, COVID-related opex are seeing dramatic cost increases.

Lukas Hartwich — Green Street Advisors — Analyst

Perfect. And then I was hoping you could provide a little more context on just market level performance. Are there pockets of strength, weakness? Anything there would be helpful.

C. Taylor Pickett — Chief Executive Officer

Well, I mean, COVID has affected obviously targeted some markets, if that’s what you mean. I mean, obviously, the most heavily targeted has been New York, New Jersey, where Omega doesn’t really have a presence other than the Second Avenue building, which is still under construction. You’ve seen some other hotspots in one in Washington. We’ve seen it in the Detroit Metropolitan Area, South Florida, New Orleans, some of those, those some of those still remain hot areas. Obviously, a large portion of kind of the upper Midwest has been left largely alone in terms of the numbers that we’re seeing. So yes, there are different markets that have been much more heavily affected than others. And it seems to be couple of…

Lukas Hartwich — Green Street Advisors — Analyst

And I guess I meant more specifically for Omega’s portfolio, maybe EBITDARM, what’s happening to EBITDARM or anything like that. Because we can see the case count by market, and you guys provide some case counts by portfolio. But really, it’s hard to draw a conclusion then of what that does to revenue and EBITDARM and all that, occupancy, all those metrics.

C. Taylor Pickett — Chief Executive Officer

As it relates to EBITDARM, we just we don’t have that data. It’s pretty immature to even start to think about EBITDARM. We’ll have to factor in the government payments. We don’t know the exact expenses. We just need a lot more data there. The one other piece of color, I guess, I can give you is when you look at our facility count at 250 positive facilities as of April 30, 27%, 28% of our overall portfolio, our understanding is that’s reasonably consistent with what we’re hearing from a national perspective in terms of facilities with positive cases. So for what it’s worth, that’s about the percentage. And to the extent that we’re starting to see seemingly facility count growth decline. That’s good news.

Lukas Hartwich — Green Street Advisors — Analyst

Great, thanks a lot.

Operator

[Operator Instructions] Next, we have Joshua Dennerlein of Bank of America.

Joshua Dennerlein — Bank of America — Analyst

Hey, good morning everyone. Just a quick one for me. For the 2% of tenants that didn’t pay, was there any common theme across these operators on why they didn’t pay? Did were they harder hit with COVID-19? Do they have lower coverage? Just any insight there would be helpful.

C. Taylor Pickett — Chief Executive Officer

No. Actually, there was not. I would have to say, people wanting to kind of hoard liquidity at this point. But other than that, there’s no real rhyme or reason.

Joshua Dennerlein — Bank of America — Analyst

Okay, that’s it from me. My other questions are answered. Thanks guys.

Operator

Thank you. At this time, there appears to be no further questions. We will go ahead and conclude today’s question-answer session. I would now like to turn the conference call back over to the management team for any closing remarks.

C. Taylor Pickett — Chief Executive Officer

Thanks, Mike. Thank you, everyone, for joining our call today, and please stay safe.

Operator

[Operator Closing Remarks]