So, we have got a much stronger group of operators now than we did before the pandemic. So, I think that helps as well. Look, before the pandemic, you had operators that were good. They did a nice job. And you had great operators and you had weaker operators. But the operators that were okay, it wasn’t good enough anymore with the pandemic. So, it really separated operators out even more. And again, we were able to take advantage of some of those opportunities, so we feel pretty good about where we are.
Michael Costa: Yes. And the other thing I will add to that, Rich, you alluded to underwriting. And in this environment where inflation has been where it’s at, it’s not like we are underwriting annual increases of 5%, 6% going forward into the future. And in fact, our existing portfolio and most everything we underwrite has largely fixed rate increases that are going to be between 2% and 3%, which again would insulate our operators in the event inflation comes down. They are not seeing those rate increases they are getting now, while their fixed cost is only going up by a smaller amount as well.
Rich Anderson: Okay. Great. Thanks for the color.
Operator: Your next question comes from the line of Wes Golladay with Baird. Your line is open.
Wes Golladay: Hey. Good morning to everyone. We talked a lot about the revenues in the managed care. Just can we talk about the expenses a little bit? Do you expect any normalization next year in the easy comps, whether it’s having more open positions, taxes or anything that needs to be called out?
Rick Matros: I think on the operating expenses, it’s really been labor, that’s a big driver. The rest of the operating expenses held in pretty reasonably. And labor, it’s still going to be tough going for a while. The level of wage increase has come down. Registries come down, temporary agency that is. So – but you are still going to – you still have some inflation on the wage side. I think because labor is the only impediment to growing occupancy even more quickly, operators are willing to pay a little bit more to fill those spots so they can increase their admission rates because that’s going to more than compensate for the difference.
Wes Golladay: Got it. And then on the labor, are you still seeing some shortages where maybe it’s been a governor on occupancy gains?
Rick Matros: Absolutely, I mean we have gotten a pretty decent chunk of those folks that burned at our back, but we still have ways to go. So, it’s not normal yet. And it’s going to – it’s still going to take some time. So, I hope you are not hearing that everything is hunky dory from anybody else on labor because it isn’t. It’s just better than it was and it keeps improving and the wage increases in 2023 are not nearly as high as they were in 2022. And then when you bring temporary agency down because that is so expensive, particularly with the price gouging that occurred during the pandemic that net-net, even when you are raising wages on your employees you are in better shape from a margin perspective because of the cost of that temporary agency.
Wes Golladay: I guess maybe just a quick follow-up on that, just trying to get out of me head, obviously flattish spend this quarter is amazing. But when we look out to next year, I mean how much of that is just burning off an easy comp on these temp workers who are potentially gauging? And then next year, we get to a more normal environment? Would that be more of a, I guess normalized growth year next year?
Michael Costa: Yes. I think on the senior – because I think you are talking about senior housing, correct?
Wes Golladay: Correct. Yes, the managed side. Yes.
Michael Costa: Yes. I mean in our senior housing, the agency labor and the temp labor was predominantly on the SNF side. We didn’t – I think in the comps that we are looking at, there wasn’t that much, if any agency labor in those comps.
Talya Nevo-Hacohen: And we also talked about sequential comparison. So, expenses have come down if you look year-over-year, but on a sequential basis, it’s basically holding – people are holding tight.
Wes Golladay: Okay. Thanks so much.
Operator: Your next question comes from the line of Michael Griffin with Citi. Your line is open.
Michael Griffin: Great. Thanks. On the recently transitioned assets, I am curious if you can give us any color, I mean what Inspirit is doing different relative to Enlivant in order to get that occupancy uplift? And can we continue to see occupancy increases despite getting into a more seasonal time of the year?
Rick Matros: Yes. So, some of it is just basic blocking and tackling. With Enlivant, you had a company that was being sold that we are losing people and management, basically every week. And so the portfolio was just floundering. So, bringing in an operator one that it happens to be very good and we knew. But secondly, they are laser-focused and they are supporting the business and putting the initiatives in that are necessary to grow occupancy, it’s really kind of as simple as that. There is still plenty of room for occupancy to grow that portfolio was in the mid-90 percentile before the pandemic.
Michael Griffin: It sounds good. And then just on the asset sales this quarter, I am curious if you can comment on maybe buyer appetite for those or kind of the IRRs or anything that they are underwriting to on those type of transactions?
Talya Nevo-Hacohen: I would say that there continues to be strong appetite for skilled nursing facilities, and we certainly continue to get reverse inquiries on various parts of our portfolio, geographic parts of our portfolio. That’s one. Pricing, I think is more unit or bed based as opposed to cap rate base for the most part because most of the buyers that we are seeing are owner-operator or owners with – capital partners with affiliated operators. So, they are capturing 100% of NOI, let’s say, in skilled nursing, whereas we would capture a rent stream, which would be certainly less than 100% of NOI.
Michael Griffin: Thank you.
Operator: Your next question comes from the line of John Pawlowski with Green Street. Your line is open.
John Pawlowski: Hey. Good morning. Thanks for the time. I just had one question related to senior housing triple-net business. Curious what you think sustainable EBITDARM coverage level ratios are today given potential deferred CapEx in the portfolio and probably some higher interest expense on kind of short-term working capital lines for operators?
Talya Nevo-Hacohen: Yes. Senior housing, we don’t see ABL lines as a prevalent mode. In skilled nursing, where you are paid – essentially, you have to bill and then get paid, you see ABL lines being prevalent. In senior housing, people pay their rent the first of the month, which is in advance. It’s not really a factor. Do I think we are going to get back to 1.25, 1.3, yes, I don’t think that’s – I think that’s within reason. On CapEx, there is room for CapEx in that coverage number for sort of usual maintenance CapEx. Any sizable capital projects, we would as the landlord consider participating in that and essentially financing that for an operator, because it enures to the landlord’s benefit because it’s – we are improving our fixed assets. Does that make sense?
