Talya Nevo-Hacohen: Sure. So last year, it was a high single to low double-digit growth on asking rents and – in place. So it was – operators felt they could justify it because – and customers were aware of it because labor rates have gone up so much, and everyone was experiencing what was going on with inflation and labor. So as inflation has softened, the view is the – I mean, I said 5% to 7%. I think I said something very similar last quarter. Our operators are somewhere at 5% like in Canada, some of our domestic operators are closer to 7%. That’s what our expectation is. In terms of discounting, that’s a good question. We have not seen any substantial discounting outside of normal and standard operating procedures. So I don’t think it’s that. I think it was just a seasonal matter and just the blend of assets that came together. You saw the growth on all the other stats. And frankly, cash net operating income is a real important one.
Juan Sanabria: Thank you.
Talya Nevo-Hacohen: Sure.
Operator: Your next question comes from the line of Rich Anderson with Wedbush. Your line is open.
Rich Anderson: Thanks. Good morning, out there. And heartfelt opening comments there, Rick, thanks for that. In terms of the going on offense sort of motif that you’re talking about here, if someone said to me, Rich, don’t do anything and we will pay you, I’ll be like, Sign me up. And so in this case, you’ve been rewarded sort of for doing that. And I don’t mean you’re not working, of course. But do you think that at this current stock price, you’d still kind of let this marinate and perhaps not go on offensive? Or do you need sort of extra effervescence to your stock price before you can actually go into this sort of net acquirer strategy for next year?
Rick Matros: Yes. So we’re definitely – we’re not going into Aaron Judge mode here, okay? So as Mike said – Talya doesn’t get that.
Talya Nevo-Hacohen: No. Out of my head.
Rick Matros: We need the stock price to improve more. Just being around NAV isn’t good enough. So we are going to let it marinate more. We think that we’ve created a really good story here. As I said in the opening remarks, we’re much better positioned than we were really at any point in time, however far you want to go back and not just before the pandemic. So we think as we let this marinate, to use your term, as we put guidance out for ‘24, people see earnings growth coming, we think that our cost of capital will improve and then we will be able to do what we said we’re going to do.
Rich Anderson: Okay. You said on the issue with CMS and the 40,000 responses, you said 2 to 3 years for implementation. Is that – are you saying like a phase-in type of phenomenon? Is that what you think ultimately comes of this? I mean can you picture how this gets rolled out to the industry?
Rick Matros: Yes. So if you go back and look at the proposed rule, there was a 2- to 5-year phase-in period. It’s broken down into different components. It was going to take some period of time before the final rule actually came out and then went into effect after that. It can take 6 to 12 months for the final rule to actually go into effect. So if you start playing all that out, you’re really looking at a few years from now before you start to see the beginning of the impact. So that’s why we’ve been saying to investors at conferences is really chill about this. It’s not today’s issue. The industry has to deal with it. Our lobbyists have to deal with it. But today’s issue is dealing with the shortage that we have. The actual mandate if it happens – because the industry also isn’t going to sit by if the final rule is something that we don’t believe we can live with. Then it’s a ways way down the line. So that’s really what I was referring to.
Rich Anderson: Okay. I just wanted to know what you meant by the 2 to 3 years. I get it now. And so last question for me. You have had some nice numbers out of Medicaid in terms of growth, Medicare 4% for the coming year. Talya, you said inflation has softened to a degree, of course, you are correct. But do you have a concern that if inflation continues to improve, that we could be looking at some sort of Medicaid/Medicare hangover event for the following year where you don’t quite keep up with what you are getting this year? And then suddenly, your external growth underwriting process becomes more difficult, and we go back to more like nominal 2%-ish type growth going forward. Is that the expectation that you will be sort of underwriting into your external growth process, or do you see Medicare/Medicaid sort of keeping a CPI-plus type of number for a period of a couple of years going forward?
Rick Matros: Yes. So, I get the question, Rich, but there is a lag time for Medicare and Medicaid, particularly Medicaid with the cost support process. So, we fully expect next year’s Medicaid rates will be higher than the 5%-plus aggregate we got this year. And we expect Medicare to be higher also as it will capture current inflation more. So – and if you remember, there was a component of the Medicare rate increase that was a takeaway. It happened over 2 years. Without that takeaway, the 4% would have been I believe, 6.2%. So, we think that number is – I am not going to sit here and tell you today that it’s going to be 6.2% next year, but we believe it’s probably better than 4%. So, we think we have at least another year of robust rate increases from both Medicare and Medicaid, which also buys you that much more time for occupancy to start exceeding pre-pandemic levels.
The industry is about 200 basis points below pre-pandemic level now. If you look at the NIC report, it says 82%, but the NIC report – NIC data when it comes to SNF isn’t really very good. It’s a small subset. NIC is really good for senior housing, not for SNF. So, we are getting pretty close. And as I have said in my opening remarks, given the decline in supply and obviously, it’s market driven, we fully expect occupancy to go beyond pre-pandemic levels on the skill side as well as senior housing. And that combined with these outsized rate increases will compensate for the increase in labor and get us not just back to margins that – or where they were pre-pandemic, but we believe margins that will be better. And the other point I would make just specific to our portfolio is we were able to take advantage of a lot of the opportunities presented to us during the pandemic to sell assets and transition assets.
