Michael Griffin: Great, that’s helpful. And Megan, I appreciated your comments around the minimum staffing rolling in your prepared remarks. Can you just maybe highlight and again I realize it’s early days, but maybe some initiatives that the industry is looking to undertake to kind of line up against the mandate?
Megan Krull: Well, I mean, I think first of all, you have the Congressional legislation that’s already been introduced, right? And I think people feel pretty good about that. The Congressional Budget Office has come out and said that the mandate is actually going to cost the federal government $18 million. So, that’s helpful that they feel that way because they feel like several of the states will step up from a rate perspective and the federal government will optimize. There’s also a belief that, CMS really did not have the right to do this rule because there’s already statutes on the books related to staffing. And so, there is the legal route that can be, thought through and I think a lot of folks are looking at that currently.
And then, look at the end of the day this thing doesn’t kick in for another two years. And even CMS and their fact sheet basically said they’re going to continue looking at the rule, continue seeing what’s going on in the industry, and potentially will change the rule before that two years.
Michael Griffin: Great. That’s it for me. Thanks for the time.
Operator: Our next question is from the line of Tayo Okusanya with Deutsche Bank. Please proceed with your question. Excuse me, Tayo, please proceed with your question. And our next question is from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your questions.
Juan Sanabria: Hi, good morning. Thanks for the time. Just wanted to follow-up on the kind of the Guardian question and the issues in Pennsylvania and see if there’s any implications for LaVie. I think you said there’s nine assets there and the prospects of transitioning or selling those assets given your comments around the difficulty operating in that state.
Taylor Pickett: Yes, it’s a good question, Juan. So, there are nine assets. The LaVie assets actually do reasonably well given the difficult operating environment in Pennsylvania. But I will tell you that Virginia, North Carolina and Mississippi are so desirable that folks are looking at the whole package. We won’t have to chop it up. And they generate substantial cash flows, which again support rents above our current run rate.
Juan Sanabria: Great. Thank you. And then, just on the sub one-time tenant that more sounds like a rounding issue. When does the benefit of the Medicaid bump kick in to where you think that will get kind of pick back up into the above one-times coverage bucket? And apologies if I missed the prepared remarks.
Taylor Pickett: Yes, the rate change occurs October 1. So, that’s why we said eventually. And the one other thing I’d point out is you have 0.98 coverage but if you look at the EBITDARM coverage, it’s over 1.5x. So, there’s a lot of flexibility in this entity at that level of EBITDARM coverage to flex costs and be able to manage that balance sheet to October 1. We really have no concern. But they can — they will bounce around that number for the next few quarters.
Juan Sanabria: And sorry, just one incoming question that I received is, is there any incremental staffing being mandated in Pennsylvania that would be additive this summer that could be a drag to operators in that state?
Megan Krull: Yes, there is already staffing mandates there and it gets a little bit worse. But we’re still — we’re monitoring the situation. I don’t think, we have major concern that things will get much, much worse in the state from where it is now.
Juan Sanabria: Thank you.
Operator: Our next question is from the line of Michael Carroll with RBC. Please proceed with your questions.
Michael Carroll: Yes, thanks. I just wanted to touch back on LaVie. What’s left to be done to resolve that situations? I mean how many more assets do you need to sell and or retenant within that portfolio?
Taylor Pickett: So, there’s 31 assets in total. I think I gave you a breakdown by state. We’re not looking to sell those assets at this point. Those states are all very, very good, and the nature of the restructure, whether it’s a re-tenant or a revised restructure with the existing tenant has not yet been finalized.
Michael Carroll: Okay. So, there’s no other major transitions of those assets that need to be done. It’s just that I guess, what does LaVie need to do? Is it just they need to negotiate a new rent with you? I know previously you talked about rightsizing their ABL before they can get the necessary cash flow. Has that been done or are we waiting on that also?
Taylor Pickett: No, that was just done more or less automatically as their portfolio shrunk due to the asset sales. But once again, it’s not a — we’ve not concluded our negotiations or our discussions yet with LaVie. So, it’s too early to say that we’re just renegotiating rent with LaVie. It could go any which way at this point. We’re still in ongoing active discussions.
Michael Carroll: Okay. And then, — and just last one with me, I mean, can you kind of highlight the EBITDAR that those assets are currently generating? I guess is it well above the rent that they paid in the first quarter and that they paid in April?
Taylor Pickett: Yes, materially.
Operator: Okay, great. Thank you.
Operator: Our next questions come from the line of Alex Fagan with Baird. Please proceed with your questions.
Alex Fagan: Hello. Good morning and thank you for taking my question. The first one is on the sold Guardian Healthcare facilities. Kind of curious what is the trajectory of the new tenant to get into that $12 million plus in rent?
Taylor Pickett: Once again, it’s a revenue based kicker and the tenant has been in there for 30 days. So, to speculate on the trajectory of the revenue and how much we would benefit from that, it’s just way too early to tell. I would just be throwing darts.
Alex Fagan: Okay, fair enough. Second for me is, does the — I know it’s early days and Megan has highlighted some of the ways the industry is already pushing back on the CMS rule. But does the — when would the company plan on changing their underwriting criteria following this rule if it doesn’t get changed?
Taylor Pickett: I think for sure without a doubt you have to see how the next year plays out. And we’ll just have a lot more facts but given the facts that we have today I don’t think there’s any reason to change underwriting.
Alex Fagan: Got it. And one last one for me, are you seeing better opportunities in the U.K. right now relative to the United States? And do you have any concerns on the regulatory front for the United Kingdom?
Taylor Pickett: I think that — we were seeing during the latter part of COVID, we’re seeing more deals come out of the U.K. I think it’s a little bit more evenly weighted at this point. And we’re not concerned about the regulatory environment in the U.K. We feel very good about it actually.
