Eric Mendelsohn: Both, there’s a lot of good operators out there that don’t want to sign a lease and we’re well aware of that. So if we can partner with them or joint venture with them on better product and better markets. I think that’s an exciting way to grow.
Operator: Our next question comes from Connor Siversky with Wells Fargo. Please proceed.
Unidentified Analyst: Hey, good morning, guys. This is [indiscernible] on for Connor this morning. Thanks for taking the question. So just on the asset acquisition side activity for real asset acquisitions and developments has been muted over the past couple of quarters here. So just talk about the more recent trends. I think before you guys kind of highlighted that there was difficulties in the supply chain kind of getting stuff moving. So, just — is that still kind of creating obstacles? And just how should we think about you guys stepping the foot on the gas pedal here into fourth quarter and 2024?
Kevin Pascoe: Sure. This is Kevin. The issue has just been as Eric kind of highlighted the sellers coming to grips with the new cap rate environment. Furthermore operations still frankly healing as people — as groups have continued to improve occupancy NOI has followed, but I don’t I wouldn’t think where there’s not as much NOI dropping to the bottom line with those incremental residents. So there’s a little bit of a pro forma impact that I think a lot of people are wrestling with when they think about what is community look like on a stabilized basis. So there’s a lot of back and forth, between buyer and seller about what the real value is in prospective value. I think we’ve effectively disabuse people of looking back to 2019 at this point which is good.
But there’s still just some underwriting back and forth. One thing that we’ve looked at is maybe using some more debt as a vehicle to get it into the building or into the deal so to speak and let it season a little bit. That way we have our foot in the door when they are ready to truly sell. So we’re looking at some different ways to try and get in with some operating partners both new and existing working on different structures that might be appealing to them. But, yeah, there is still that push pull, I think operator or operators are starting – or sellers are starting to come around to what the new dynamics are. But we’re also as Eric alluded to just being cautious on our underwriting and what the operating fundamentals are going forward.
Unidentified Analyst: Appreciate the color there. And just kind of switching focus to the SNF on the – there was a big lift on the coverage side. You guys are approaching 80% occupancy, although it’s reported one quarter lag. Any moving parts or tenant specific situations that led such a healthy sequential improvement there? And what’s the latest you’re hearing from your operators in the skilled side of the portfolio overall?
Kevin Pascoe: Sure. This is Kevin, again. The biggest lift is going to be attributable in HC just because of their concentration in the portfolio and their – how that factors into coverage. Good to see their coverage has been down a little bit for them anyway but still very strong. Seen occupancy improvements, seeing labor start to level out a little bit. That’s kind of been across the spectrum on both assisted or on senior housing and skilled nursing. So also very good news. So I think those are the bright spots. There’s been a few states that were – we have communities in that have seen some rate increases on both the federal and state levels. So again good news there. I think the overhang and we addressed it a little bit in the comments is just what’s going to happen with the staffing mandates.
Think our operators are devising plans and prepared for it making comments during this common period to make sure their voices are heard. So if there’s again an overhang, it would be just how do they prepare for that. But given the coverages we have with particularly our two main operating partners we’re not overly concerned but we are staying in touch with them and making sure we understand what they’re seeing.
Unidentified Analyst: Appreciate the color. Thanks, guys.
Operator: [Operator Instructions] Our next question comes from Joe Dickstein with Jefferies. Please proceed.
Joe Dickstein: Great. Thank you for taking my question. Maybe just switch gears to SHOP OpEx. It looks like it accelerated a bit this quarter to roughly 9%. Maybe if you could just touch on labor costs and your operators, agency labor exposure. Would be great.
Kevin Pascoe: Sure. This is Kevin, again. So you’re asking specifically about the SHOP and labor there?
Joe Dickstein: Yes, correct.
Kevin Pascoe: Yeah. Unfortunately for us in the independent living model, we don’t have a ton of agency needs. We have seen a little bit of labor pressure in terms of having to pay some higher wages across the Board in most positions. But given that there’s not a level of care component, we’re not having, to hire nurses or if somebody calls out of a shift there’s ways to kind of reorganize the labor pool that you have instead of having to get that agency labor. So it’s a pretty small number for us there. And not really been a big headwind. The headwind if there is one is really just, having to pay a little bit higher pay rate. But that said, I think, our operating partners have done a good job of filling the open roles, making sure they have enough staff, revamping the teams where they need to be which I think is what you’re seeing in the occupancy improvement is that they’ve gotten their sea legs and have the teams set.
So I feel like we’re in a pretty good place there.
John Spaid: Hey Joe, this is John Spaid. Maybe I can tee up a better question here, for Kevin, on your behalf. We’ve seen some dramatic improvements in labor elsewhere and that’s — and evidence of that is through the coverage ratios that you’re seeing improved for Bickford. So maybe Kevin, can talk more specifically there.
Kevin Pascoe: Sure. One specific item I guess, I can mention, as it relates to Bickford there was a point in time where we were looking at 1,500 hours a week or so of agency labor. That’s down to like a couple of hundred. Now I believe in the most recent period where we look at it almost every week with them so we understand what’s going on in their business. So, dramatic improvement on the agency side there. One week does not make a trend. But the overall trend is very positive. And I think that’s a good proxy for what we’ve seen with some of our other operating partners is that agency usage has come way down. They’re actually able to start recruiting caregivers from the agencies instead of vice versa which was a problem for a lot of our operators there for a while. So it’s seemingly settling down quite a bit.
