Operator: [Operator Instructions] Your next question is coming from Austin Wurschmidt from KeyBanc Capital Markets.
Austin Wurschmidt : Piggybacking a little bit on that last question. I guess given the willingness to do more SHOP, I mean, would you look to do additional deals with the existing operators and scale up? Or would you look to kind of enter into new relationships and sort of diversify the operator base on the SHOP portfolio?
Eric Mendelsohn: This is Eric again. I’d be delighted to do both. If we’re going to go with the new operator, the profile would be much the same as Merrill Gardens or Discovery, our current SHOP operators. And by that, I mean deep operating experience, a balance sheet so that they can co-invest with us as joint venture partners and a great reputation. So those are kind of the criteria we look for when we’re picking a new SHOP operating partner.
Austin Wurschmidt : That’s helpful. And then kind of a 2-parter here on just maybe market rent resets in general. But on the Bickford formula clarification, is the revised repayment formula? Is there any cap on the amount that they would repay in any specific quarter? And then separately, I know Discovery isn’t as sizable as a tenant as Bickford, but there’s a market rent reset that was pushed into ’25, I believe. I’m just curious, as you look out, what type of opportunity do you see emerging there? How would you kind of compare it and contrast it versus the process for the Bickford rent resets? And how it stacks up occupancy rent coverage and so forth?
Kevin Pascoe: Sure. This is Kevin. On the Bickford reset, just to clarify your question, when you say a cap, are you referring to the base rent they would pay or the amount of deferred rent they pay at any given time?
Austin Wurschmidt : The deferred rent, just in the deferred rent formula, you talked about how that was revised. And I’m just curious if there’s any amount with which that quarterly payment NHI would be capped out.
Kevin Pascoe: Okay. Understood. Thanks for the clarification. No, there’s not a cap on there. What we are trying to do is keep in pace with revenue. And as a REIT, we cannot participate in the NOI on a lease. So that’s why we’re basing it off the revenue formula. We’re trying to also keep it in line with where we see margins, but margins, meaning that they still have some cash flow thereafter to continue to invest in the communities and in their operations. So again, no cap, but just more moving the pieces around. So we have the appropriate amount of base rent, but still allowing for a run rate that’s in line with what we signaled to the market previously. On the Discovery lease, that rent reset, it’s comparable in that we modified the base rent and then added in the revenue participation component.
That is still kind of fresh as compared to Bickford in terms of timing. So that was really just done in November. They’ve started to pay a small amount as it relates to the revenue portion of it. But it’s again, small as it relates to that deal now. So we would expect that to ramp up over time, and then we would do some sort of pricing reset like we did with Bickford in 2025. So that’s got a little bit more room to season before we’re there. They’ve made progress on occupancy. Overall, I feel like the buildings are operating pretty well, but they just need to keep their move-ins, which the underlying properties on those are not the same as what we’ve seen in SHOP, but we do have confidence in discovery. You’ve seen what their progress has been on the SHOP side.
They have similar teams that are focused on these buildings. So we have confidence in their ability to keep moving people in.
Operator: Your next question is coming from Juan Sanabria from BMO.
Juan Sanabria: Just wanted to use the time to ask about NHC. I know it’s kind of a unique situation with the related parties involved with the percent rent reset with the strength in ’23. Can you comment on how NHC’s lease — or sorry, how their revenue increased to 23% year-over-year and how that compares to pre-COVID levelS?
Kevin Pascoe: Juan, this is Kevin. So the percentage of rent increase was higher for sure this year than we’ve seen it in quite some time. Part of that, we think is payor is catching up. As an example, specific to Tennessee, there’s been some Medicaid rate increases. Some of them were watching to make sure that they’re going to be more long term in nature. But the nature of it is that several of the states have done catch-up payments lately. They’re rebounding from COVID seen revenues increase. Clearly, we’ve benefited from that on the rent side. So it’s something we’re watching closely, making sure that these revenues are going to be sticky. So far, it looks like they are. So I think that’s good news, but something that we’re still focused on.
John Spaid: Hey Juan, this is John. I think they are a record. And you got to remember that when you go to pre-Covid, pre-COVID included the 7 properties that we disposed of in 2022. So for the population that we have now, it’s a record.
Juan Sanabria: And do you guys have any visibility on how that margin would compare to that record on the same-store pool?
Kevin Pascoe: Well, I’ll give more of a global response to that. I think we’ve seen with labor margins have been pressured by a lot of operators. You can look at their filings and see what their kind of macro margins are on their buildings. So there’s been — there’s — I would think we’d all agree there’s been some pressure there. So probably a bit constrained compared to pre-COVID. So it’s good to see that the additional revenue is there. So they are producing additional NOI for themselves, but it’s — there are some counterbalancing factors there.
John Spaid: Juan, this is John again. We have a lot of limitations in terms of the information we’re getting from NHC. The best we can do is watch the same sort of public information that you see. So I think we’re continuing to see improvements of their total revenues on an aggregate basis. So we can’t completely relate that to our portfolio, but we’re a big piece of them, right?
