Talya Nevo-Hacohen: And in terms of the depth of the acquisition pipeline, there are a couple of things I’d say. One, Senior Housing market is very active — it’s — it was very active mid last year. It has — since the start of 2024, it has — everyone is reengaged with a different perspective on pricing because there was a bid-ask spread that really made everything come to a halt. But now it feels like there are a lot of assets on the market. There are groups that are — that have to refinance or sell because of their situation with their lender. And so we’re seeing a lot of fairly new newer assets on the market on the Senior Housing front. Skilled nursing, I’d say the dynamic is a little different. We see — we don’t see that much product that’s quality marketed by the brokerage firms.
What we have found is that those transactions are happening off market, and it’s been incumbent upon us to insert ourselves into those relationships more actively in order to capture opportunities on skilled nursing. And they’re competitive as they are in Senior Housing. But it’s active.
Michael Griffin: Great. That’s helpful. And then maybe, Rick, just back to your point in your prepared remarks about skilled margins and being back at pre-pandemic levels. I realize I think you’re still about 500 basis points of occupancy below where you were pre-COVID. So I guess just given, I think, the expectation for more occupancy uplift here in the near and medium term, I mean, where could we see margins get to in that business?
Rick Matros: I mean it’s hard to predict where they can get to, but a few basis points above where they were pre-pandemic. There’s certainly a few percentage points certainly not out of the realm of possibilities. The really — the question really is just how long it’s going to take to get there. And it’s interesting, right, because over the past couple of years, there’s been so much focus on Senior Housing and how it’s great, because you’re pushing through these 10% rate increases and it’s private pay, and it’s got an advantage over the skilled nursing space. But the fact of the matter is, the cost report process at the state level and then the market basket process at the federal level has a time lag, but that time lag now has been catching up as we saw this past summer, in this past October 1, and we’re going to see that again this year.
So you’re getting some based — at least compared to historical trends, some really nice outsized rate increases in a lot of the states and with CMS. And remember, this year’s fiscal year market basket increase will not have the parity adjustment. So that’s going to help even more. So our revenue per patient day has really grown very, very nicely over the past couple of years. And our non-nursing labor has been relatively flat. It’s been really modest inflation. And now we’re seeing, as I mentioned, just under 4.5% inflation all in our nursing over the last year. So that’s really helped to compensate for the occupancy. So — but again, how far occupancy can go. We believe it can go beyond pre-pandemic levels, at least in a number of different markets where we’re starting to see access issues.
So there, I think the margin uplift will be even greater than a few percentage points.
Michael Griffin: Great. That’s it for me. Thanks for the time.
Rick Matros: Thank you.
Operator: [Operator Instructions]. Your next question comes from the line of Vikram Malhotra with Mizuho. Your line is open.
Vikram Malhotra: Afternoon. Thanks for taking the question. Maybe just first on the guidance. I understand this is obviously the first time post-COVID. So I’m just wondering — can you give us some specifics on what’s baked into the low and the high end? You talked about low teens same-store growth. But what else is specifically baked into reach either the lower high end? And is a potential credit issue baked in or not?
Michael Costa: Yes, I wouldn’t say there’s any credit issue baked in or not. I think the range is largely dictated by what Rick said earlier on the call, which it’s hard to predict where this is going to shake out. If we knew with certainty we’d just put out one number, right? So there is some uncertainty baked in there of where we’re going to end up over the course of the remainder of this year. So we’re just providing ourselves some cushion there and a reasonable amount of cushion, but nothing too broad for that. So that’s where it’s at. It’s not any credit issues or anything like that.
Vikram Malhotra: Okay. And then just on the regulatory side, two things, if you could. Any updated thoughts on kind of how you see the minimum staffing final ruling shaking out component wise or timing-wise? And then Rick, I think you alluded to the fact that there’s going to be a good — a decent Medicare bump. Should we think about it as like 4% to 5% this year. Is that fair? Thanks.
Rick Matros: Well, on the Medicare bump, I don’t want to get ahead of CMS, obviously, on anything, but we were at 4.1% last year with the parity adjustment. So I think something north of that is reasonable because there was still a lot of inflation to capture. So I don’t think that’s an unreasonable assumption. And on the minimum staffing, there’s no update really in terms of timing. They said in 2024, they’ll have the final rule. But I think it’s fair to say that at this point, we don’t believe no matter how much they may order down or maybe they don’t order it down. But to the extent that they do, we don’t think any staffing mandate is acceptable and particularly given the fact that there are nurses out there. So I think the industry will take a very strong stand and do whatever if things is necessary to ensure its defeat.
We’ve got bipartisan support in Congress, because the fact of the matter is, even though they’re not funding — let’s assume it was in place, even though they’re not funding it upfront, the cost report process at the state level and also at the federal level, will eventually capture those increased costs, and that will show up in increased rates. So it actually will cost the government billions of dollars a year, even if they aren’t funding it sort of upfront just because of how the cost report process work. So I think from a legislative perspective, that’s a big issue. I think the fairness of it and the lack of availability of nurses with certainly no movement on the hill relative to even having some controlled immigration for skilled workers, that would be really helpful to us.
I think all of those factor into why we’re getting so much bipartisan support from Washington and they’re not being a staffing mandate.
Vikram Malhotra: Great. And sorry, just one last clarification. In the — I remember last call, you had mentioned there may be a few more transition smaller ones. So I’m just wondering if you can help us roughly quantify the benefit of the transition that have already been completed in ’23, and what the benefit is in ’24? And are there any additional transitions planned?
Michael Costa: Yes. I mean, in terms of the transitions that we talked about last quarter, I think if you look at the trend from our — when we first put out this bridge in this — for the second quarter, and then we put out in the third quarter, you saw that, that number came down because we started capturing a little bit of that. And it’s not a large number in totality, I think it’s like $4 million I think at the total upside for that piece of the pie was like $4 million. We captured a little bit of in Q3, a little bit in Q4, and I think similar with the — with my comments on SHOP, I think by the time we get to the end of the year, we’ll see most of that are captured. But again, it’s small dollars and grand scene of things.
Operator: Your next question comes from the line of Rich Anderson with Wedbush. Your line is open.
Rich Anderson: Thanks. Good morning out there. So Rick, you mentioned investment opportunities, but no clear trends. Can you — what did you mean by that? I mean, do you talk about like what types of assets you might buy? I know there’s been some talk about that on this call, but do you have like sort of a defined kind of pipeline that you’re looking at? Or is that still sort of hard to quantify. I’m just curious what more color you can lend on the external growth front for this year?
Rick Matros: Sure. So one to one of Talya’s points, we’re not seeing much in terms of quality, skilled nursing deals out there. So it’s hard to predict kind of the volume and exactly where cap rates are going to settle in, although we think cap rates will stay in the 9% to 10% range. I don’t think we’re going to see the A handle stuff that you saw pre-pandemic days. So — but we just haven’t had — so we’re not seeing enough volume out there in all three of our asset classes, obviously, as Talya said, we’re seeing more in the senior housing side for us to be able to determine what we might be able — how much we might be able to get done, and also because of the pandemic. Prior to the pandemic, we never included acquisition assumptions and guidance, but we would somewhat and say, outside of guidance, we think we’re going to get X amount of investments done this year, and we think most of them will be in the third and fourth quarter or provide some color like that.
But given the pandemic, we just don’t have enough data, trend data to even determine are we getting to $200 million this year, we’d do $400 million this year. It’s just kind of impossible at this point. Hopefully, as we get a little bit further into the year, we’ll be able to be — have a little bit more granularity on where we think things may go. We’ll have the first quarter earnings call not that far out from now. And hopefully, we’ll have a little bit more data than that we can share.
Rich Anderson: Okay. Excellent. Thanks. In terms of the spread investing opportunity, if you using nine handle on SNFs something lower than that on senior housing. But what do you think the range of return spread — the spread to your cost of capital will be? Is it like — or should required to be, I should say, for you to pull the trigger on something that you like? Does it have to be 200 plus basis points? Or is that asking too much? I’m just curious where your mind is at in terms of the accretive nature of your external growth?
