Omega Healthcare Investors Inc

NYSE:OHI

Earnings Call Transcript 2021-Q3

[Operator]

Good morning and welcome to the Omega Healthcare Investors Third Quarter 2041 earnings conference call. All participants will be in a listen-only mode. [Operator [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Michele Reber. Please go ahead.

[Michele Reber, Director of Asset Management]

Thank you, and good morning. With me today are Omega's CEO, Taylor Pickett; COO, Dan Booth; CFO, Bob Stephenson; Chief Corporate Development Officer, Steven Insoft; and Megan Krull, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructurings, rent payments, financial condition or prospects of our operators, contemplated acquisitions, dispositions or transitions, and our business and portfolio outlook generally.

These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including without limitation, our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures such as NAREIT FFO, adjusted FFO, FAD, and EBITDA.

Reconciliations of these non-GAAP measures to the most comparable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures are available under the Financial Information section of our website at www.omegahealthcare.com. and, in the case of NAREIT FFO and adjusted FFO, in our recently-issued press release. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been into independently verified by Omega. I will now turn the call over to Taylor.

[Taylor Pickett, CEO]

Thanks, Michele. Good morning. And thank you for joining our Third Quarter 2021 earnings conference call. Today. I will discuss our third quarter financial results. Skilled nursing facility industry trends and operator liquidity issues. We posted strong quarterly results with third quarter adjusted FFO of $0.85 per share and funds available for distribution of $0.81 per share. We have maintained our quarterly dividend of $0.67 per-share. Dividend payout ratio remains conservative at 79% of adjusted FFO, and 83% of funds available for distribution. However, approximately $0.07 per share of our funds available for distribution is the result of applying letters of credit and other collateral to fund third quarter rent and interest obligations. Fortunately, our liquidity and our balance sheet have never been stronger, as we work with our operators to navigate through what is hopefully the tail end of the pandemic.

Turning to skilled nursing facility industry trends. Positive trends include: 1. Occupancy continues to improve and is now 76% for the Omega portfolio. 2. Approximately 20% of our facilities are at or above pre - COVID occupancy levels. 3. Federal government has released $25 billion in provider relief funding with distribution anticipated over the next several months. And 4. Most states continue to support the industry through supplemental Medicaid reimbursement. Negative trends include; One, labor and the continuing labor shortage and related increasing wages combined with the dramatically increased usage of staffing agency labor at increased hourly cost. Two, we are several months into the recruitment cycle for those operators that took Medicare advance payments when the pandemic started.

Repayment of these advances has significantly impacted operator liquidity, including the liquidity of the GEMO and Gulf Coast. Three, the pace of occupancy recovery remains a big question mark and we could see additional operators faced liquidity issues in the coming months and 4. Uncertainty regarding the amount and timing of ongoing federal and state support. Turning to operator liquidity issues and restructuring, Dan will provide detail regarding specific operator current liquidity and restructuring issues. In general, these efforts include one or more of the following actions: 1. Rent deferrals, 2. Asset sales or transitions to a new operator, and 3, in certain cases, rent resets with other amended lease provisions. Examples include elimination of purchase options, future upward potential rent resets, lease extensions were revisions over renewal rights, and collateral enhancements, adjustments or usage.

Historically, in many of our restructurings, one or more of the actions that I've outlined are sufficient to protect the value of our assets and most, if not all, of the long-term cash flow generation from the restructured assets. We continue to remain hopeful that the outcome of our COVID restructurings will yield a similar result. Finally, I again thank our operating partners, and in particular the front line caregivers and staff, who have cared for the tens of thousands of residents within our facilities. I will now turn the call over to Bob.

[Robert Stephenson, CFO]

Thanks, Taylor, and good morning. Turning to our financials for the third quarter, our NAREIT FFO for the quarter was $181 million or $0.73 per share on a diluted basis as compared to $15 million or $0.06 per diluted share for the third quarter of 2020. Our adjusted FFO was $209 million or $0.85 per share for the quarter and excludes several items as outlined in our adjusted FFO reconciliation to Net Income found in our earnings release, in our supplemental, and also on our website. Revenue for the third quarter was approximately $282 million before adjusting for the non-recurring items compared to $119 million for the third quarter 2020. The year-over-year increase is primarily the result of straight-line and lease inducement write-offs that occurred in the third quarter of 2020 of $142 million related to 3 operators that were placed on a cash basis in 2020 due to substantial doubt regarding our ability to continue as a going concern.

As previously disclosed, a GMO failed to make its 2021 contractual payments for August and September, and subsequently October. During August and September, we recorded $8.4 million of revenue by drawing on GMO's letters of credit and application of their security deposit. Additionally, we recorded a provision for credit losses of approximately $16.7 million related to 2 outstanding loans to Agemo. As discussed during our second quarter earnings call, in June, we placed Gulf Coast on a cash basis as they informed us they would be unable to pay its rental obligations.

In Q3, despite Gulf Coast continued failure to pay, we were able to recognize $7.4 million of revenue through the application of their security deposits and other collateral against uncollected contractual rent. It's important to note NAREIT FFO and adjusted FFO include our ability to apply collateral and recognize revenue related to these operator's non-payments. However, when this collateral is exhausted and if these tenants continue not to pay, we expect that this would reduce our near-term financial results, including NAREIT FFO, adjusted FFO, and FAD. Our balance sheet remains strong thanks to the steps we've taken over the past year to further improve our liquidity, capital stack, and maturity ladder.

On the debt side, at September 30th, we had no outstanding borrowings on our $1.45 billion revolving credit facility and approximately $103 million in cash. And we have no bond maturities until August of 2023. On the equity side, in the third quarter, we issued 1.3 million shares of common stock through a combination of our ATM and Dividend Reinvestment and Common Stock Purchase Plan, generating $49 million in gross cash proceeds. Year-to-date, we have issued 7.5 million common shares, generating $280 million in gross cash proceeds. At September 30th, over 99% of our $5.3 billion in debt was fixed. Our net funded debt to adjusted annualized EBITDA was 4.9 times. And our fixed charge coverage ratio was 4.6 times. It's important to note, similar to NAREIT FFO, adjusted FFO, and FAD, EBITDA in these liquidity calculations, includes our ability to apply collateral and recognize revenue related to the operator non-payments previously discussed.

However, if the collateral is exhausted, a decrease in EBITDA will increase our liquidity ratios. While we believe our actions to date provide us with significant liquidity and flexibility to weather a potential prolonged impact to our business, primarily driven by COVID -19, we will continue to evaluate any additional steps that may be needed to further enhance our liquidity. I will now turn the call over to Dan.

[Daniel Booth, COO]

Thanks, Bob. And good morning, everyone. As of September 30th, 2021, Omega had an operating asset portfolio of 944 facilities with over 96,000 operating beds. These facilities were spread across 63 third-party operators and located within 42 states, and the United Kingdom. Currently 12-month operator EBITDARM and EBITDA coverage for our core portfolio as of June 30th, 2021 decreased to 1.63 and 1.28 times respectively versus 1.81 and 1.44 times respectively, for the trailing 12-month period ended March 31st, 2021. During the Second Quarter of 2021, our operators cumulatively recorded approximately $49 million in federal stimulus funds. As compared to approximately $74 million recorded during the First Quarter.

Trailing 12-month operator EBITDARM and EBITDA coverage would have decreased during the 2nd quarter of 2021 to 1.22-.89 times, respectively, as compared to 124 and 0.9 times respectively for the first quarter when excluding the benefit of any federal stimulus funds. EBITDA coverage for the standalone quarter ended 6302021 for our core portfolio was 1.2 times, including federal stimulus and 0.99 times, excluding the $49 million of federal stimulus funds. This compares to the standalone first-quarter of 1.17 times and 0.83 times with and without $74 million in federal stimulus funds, respectively.

Based upon what Omega has received in terms of occupancy reporting for October to date, occupancy has continued to improve, averaging approximately 75.5%, up from a low of 72.3% in January of 2021. While coverage's have improved quarter-over-quarter, the fact that coverage without stimulus remains below one times highlights the reason why we have had a handful of operators unable to pay rent this quarter and into October. The lack of or delay in additional Federal and state stimulus in certain circumstances coupled with a very slow occupancy recovery and a tough labor market have put a strain on the cash flow of our operators with certain operators being hit particularly hard.

For the third quarter ending September 30th of 2021, the percentage of rent and interest collected, including the application of security deposits, letters of credit, and other offsets, was 99%. Excluding the application of the aforementioned collateral items, the percentage drops to 93%. For the month of October 2021, those percentages are 91% and 88%, respectively, as much of the collateral available for this purpose was utilized in the third quarter. Turning to portfolio matters. In June of 2021, Gulf Coast, an operator representing approximately $30 million or 3% of annual revenue, informed Omega that the June rent of approximately $2.5 million would not be paid and that future rent payments would not be remitted in the coming months.

Subsequently, on October 14th, 2021, Gulf Coast filed for Chapter 11 bankruptcy in Wilmington Delaware, as part of that filing, the debtors and Omega agreed upon an entered into a restructuring support agreement. Ultimately, and subject to approval of the court, amongst other things, is the intention of both parties to transition the 24th facilities associated with the Gulf Coast to an unrelated third-party or parties. At this time, it is too early to predict the ultimate outcome or timing of those transitions. Since the failure of this Operator to pay rent in June, Omega has had two other material operators cease paying rent.

The first, Agemo, representing approximately $53 million, or 5.3% of annual revenue, stopped paying rent and interest in August of 2021, and has also failed to pay rent an d interest in September and October. Accordingly, Omega drew upon an existing security deposit of approximately $9.5 million to pay all rent due for August, September, and a portion of October, thereby exhausting our deposits. We are in ongoing discussions with the Agemo to bring this lease back into compliance and begin the resumption of lease payments.

[Daniel Booth, COO]

These discussions may involve the re-leasing or sale of certain facilities within the portfolio. The other operator, Guardian, representing approximately $37 million or 3.7% of annual revenue, failed to pay its contractual rent and interest in October of 2021. We have been and continue to be in active ongoing discussions with Guardian to transition a significant portion of this portfolio to an unrelated third-party. The exact number of facilities involved and the timing of such transitions has not yet been finalized. Turning to new investments. As previously disclosed on our second quarter earnings call on July 1st, 2021, Omega provided $66 million of mortgage financing to an existing operator.

The loan is secured by mortgages on 6 nursing facilities located in Ohio and bears an initial interest rate of 10.5%. Separately on July 14th, 2021, Omega completed $10 million purchase-lease transaction for 2 care homes in the UK. The facilities was added to an existing operator's master lease, with an initial cash yield of 8%, with 2.5% escalators. Year-to-date, Omega has made new investments totaling $821 million, including $144 million for capital expenditures. Turning to dispositions. During the third quarter of 2021, a negative 15 facilities for $110 million. As of September 30th, Omega has divested a total of 45 facilities for approximately $311 million. I will now turn the call over to Megan.

[Megan Krull, Senior Vice President of Operations]

Thanks, Dan, and good morning, everyone. In September, HHS finally announced a $25.5 billion release of funds from the Provider Relief Fund consisting of $17 billion for a phase for general distribution tied to losses incurred for the second half of 2020 and the first quarter of 2021, and $8.5 billion associated with the fund set aside for rural providers, those part of the American Rescue Act. As the application deadline was October 26, it is too soon to tell what level of funding our operators will receive, especially in light of the fact that the determination on what percentage of losses the building will be reimbursed for is not just based on the number of applicants, but also weighted differently depending on the size of the operator, whether it serves a rural versus an urban population, and whether it serves Medicare, Medicare, and chief residents.

On the state front, there's been positive news out of the state of Florida as yesterday, $100 million in FMAP funds for nursing homes was approved. This is extremely welcome news, as Florida had not previously provided any stimulus to the industry, it is still too soon to know what the ultimate payout will be for each operator. While we are cautiously optimistic about the benefit of both of these federal and state developments.

We had certainly hoped for a more targeted Federal distribution to the Long-Term Care space. In light of the devastating effects that COVID has had on the industry. In terms of COVID itself, case counts in Omega facilities have declined over the last two months, which appears to be the Delta variant surge tapering off. Thankfully, do the vaccination programs, the impact from this surge is not anywhere near what we saw throughout last year and into early this year. Vaccine rates for both residents and staff have also been increasing according to reporting into CMS and facilities have started administering booster shots.

Additionally, the interim final rule on vaccine mandate by the federal government on all healthcare workers was just released with a January 4th deadline for vaccination. Labor shortages continue to persist, which is exacerbating the slow occupancy recovery. According to a recent OCA intel survey, 58% of nursing homes have had to limit new admissions due to staff shortages. This is consistent with what we are hearing from our operators, many of whom say that the admissions are there, but for the fact that they do not have enough staff to allow them to fill the beds.

So while certain fundamentals are improving, that occupancy is slowly rebounding and COVID related expenses decreasing, operators are facing a double hit from the substantial labor shortages which are stilling the occupancy recovery while simultaneously also increasing labor expenses exponentially as a result of wage scale adjustments, overtime, bonuses, and substantial agency usage. Agency expense itself on a per patient day basis for our core portfolio for year-to-date 2021 is more than 4 times what it was in 2019. And this too is likely to get worse with the vaccine mandate, especially in locations where community vaccination rates are low.

All of this means that the continued support of both the federal and state governments is critical to clearing the path to recovery for the long-term care industry as a whole. And while we applaud these most recent efforts, we also hope that they recognize the need to provide additional support in the future. I will now turn the call over to Steven.

[Steven Insoft, Chief Corporate Development Officer]

Thanks, Megan. and thanks to everyone on the line for joining today. Inspire New York, our ALF memory care high rise at Second Avenue Ninety-Third Street in Manhattan, leased to and operated by Maplewood Senior Living, opened at the end of March, and it is in the midst of lease up. Lease up momentum has been solid and in line with our underwriting and expectations. Maplewood's newest property, Maplewood at Princeton in Princeton, New Jersey, opened in August with very strong pre -leasing momentum and a strong early moving pace. The COVID-19 pandemic poses certain challenges unique to senior housing operators. While the rollout of vaccines has helped considerably in stemming the spread in adverse effects of the virus, operators continue to battle with increasing cost driven by scarcity of labor.

Additionally, private pay senior housing operators have not seen a level of government support provided two other areas of senior care. Along with continued pandemic-related challenges. We saw stability and signs of strength in our senior housing occupancy throughout the second quarter. The strengthening of occupancy is more evident in certain markets than others. Our Maplewood portfolio which is concentrated in the early effected Metro New York and Boston markets, saw a meaningful census erosion early in the pandemic was second-quarter 20 $0.20 as hitting a low point of 80.4% in early June of 2020.

That said their portfolio occupancy level had returned to 88.6% in August of 2021. Including the land and CIP, at the end of the first quarter, Omega's senior housing portfolio totaled $2.3 billion of investment in our balance sheet. All of our senior housing assets are in triple-net master leases, including our 24 recently acquired Brookdale assets. Our overall senior housing investment comprises 157 assisted living, independent living, and memory care assets in the U.S. and UK. This portfolio, including the 24 Brookdale properties, on standalone basis, had its trailing 12-month EBITDAR lease coverage fall 4 basis points to 0.98 times at the end of the second quarter.

With COVID outbreaks having affected different markets at various times, this decrease in performance was to be expected. Rising vaccination rates amongst residents and staff, as well as availability of labor, are critical to restoring occupancy and performance. While we remain constructive about the prospects of private pay senior housing, the pandemic along with its inflationary back draft has warranted a far more selective approach. Increases in labor and construction costs coupled with supply chain challenges are making attractive projects more elusive. While we make further progress on our existing ongoing developments, we continue to work with our operators on strategic reinvestment in our existing assets. We invested $96 million in the third quarter in new construction and strategic reinvestment. $80.1 million of this investment is predominantly related to our active construction projects. The remaining $15.9 million of this investment was related to our ongoing portfolio CapEx reinvestment program. I will now open the call up for questions.

[Operator]

We'll now begin the question-and-answer session. [Operator Instructions] If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. [Operator Instructions] Today's first question comes from Connor Siversky at Vandenberg, please go ahead.

[Connor Siversky, Vandenberg]

Good morning everybody. Thank you for having me on the call. So we've got a Agemo down, but for the other 2 disclosed tenants, Guardian Gulf Coast, that are not occurring on cash obligations, can you walk through how much revenue was booked in Q3 for each of the operators, and then in what composition, whether that was cash security deposits, letters of credit, or so forth?

[Robert Stephenson, CFO]

Hey, Connor. Thanks for joining us. It's Bob here. I'll walk through all 3 of them just to reiterate that. We laid them out in the press release. Both Dan and I talked a little bit about them. I'll start with Gulf Coast. Gulf Coast did not make any contractual payments in Q3. However, we recognized $7.4 million of revenue in Q3 through the application of $900,000 in security deposits. The remaining $6.5 million, we booked based on our legal right to offset any unpaid rent against certain Omega sub debt obligations. Gulf Coast, as we stated, filed for bankruptcy and will not be making any contractual payments in Q4. However, we'll use the sub debt obligation collateral and record $7.4 million of revenue in Q4.

Looking at Agemo, we recorded $12.9 million of revenue in Q3. Of the 12.9 million Agemo paid 4.5 million in July to to cover July rent and interest. The remaining $8.4 million was pulled from Agemo's security deposit and letters of credit to cover August and September. For Q4, we had $115,000 of security deposits remaining, which we pulled in October to partially cover October rent. The remaining fourth-quarter contractual revenue and interest is 12.8 million for Agemo, which will only be recognized in Q4 to the extent that Agemo makes any additional payments. As Dan stated, he's in ongoing discussions with the Agemo to bring that lease back into compliance. And the final almost Guardian, Guardian made all its contractual payments in Q3 and we recorded $9.3 million of revenue.

And as Dan stated in his prepared remarks. Guardian failed to pay the contractual rent and interest in October, yet he is in active negotiations with Guardian, so Q4 revenue will be determined by the outcome of the negotiations. We currently have $7.4 million in letters of credit related to Garden. I hope I covered all that.

[Connor Siversky, Vandenberg]

You did. Thank you. That was very helpful. Dan I know you just mentioned Guardian but for Agemo and Gulf Coast. Is there any -- can you give us any sense of what kind of capacity is left in these backstops to continue booking revenue, assuming they're not paying cash in Q4 up to Q1?

[Robert Stephenson, CFO]

For Gulf Coast basically, when we -- at the end of Q4, we will have exhausted the collateral there from the TMOs standpoint I think there's still a personal guarantee sitting out there of roughly $8 million. And no more security deposits.

[Connor Siversky, Vandenberg]

Okay. And then for Agemo, you mentioned some conversations to get that lease back into compliance. I mean, what would that take, necessarily? Is that downsizing the portfolio and maybe shoring up Agemo's operations that way or providing a working capital? And just any color there. Appreciate it.

[Daniel Booth, COO]

The discussions, as we indicated, are ongoing. So it could be a whole host of different things that could involve some sales or some transitions. There is some -- virtually, all of our operators expect to have some federal stimulus money received either by the end of the fourth quarter or early in the first quarter, and then also out there, Megan talked about some Florida stimulus money that we also expect to get in probably the end of the fourth quarter and into the first quarter. So there is some money on the horizon from both the federal government and from the state of Florida specifically.

[Connor Siversky, Vandenberg]

Got it. Okay. That's very helpful. I'll leave it there. Thank you.

[Operator]

Our next question today comes from Amanda Sweitzer at Baird. Please go.

[Amanda Sweitzer, Baird]

Thanks. Good morning. On your comments about agency expense being used by your operators about 4 times higher today, do you have an data on what percentage of overall compensation or operator expenses that represents and then have you seen any moderation in that agency you said into the fourth quarter?

[Megan Krull, Senior Vice President of Operations]

We haven't been seeing any agency moderation unfortunately. I mean, it's gotten worse probably over the last quarter or 2. It's just a really, really tough market out there, and I'd have to find out what percentage that represents, but it's just tough from a labor perspective right now.

[Daniel Booth, COO]

It's going to vary tremendously by market as well.

[Amanda Sweitzer, Baird]

That makes sense. On tech allocation, have you disposed of assets? What have you seen in terms of demand and pricing for under performing assets in the private transaction market today?

[Daniel Booth, COO]

Interestingly enough, underperforming assets are still producing sales prices that would equate to a more normalized environment. There are people that are buying based upon, say, for instance, 2019 results pre -pandemic. And then they're also buying them off of historical bed values in the states that they are picking up. So we have not seen that buying activity weighing, it's still pretty hot market right now.

[Amanda Sweitzer, Baird]

You think the underlying volume or demand for that type of assets though, is deep enough if you were to go and try to sell additional assets today.

[Daniel Booth, COO]

Well, we have been selling assets and right now it's still runs pretty deep so we're hoping that continues for the foreseeable future.

[Amanda Sweitzer, Baird]

A couple. Appreciate the time.

[Operator]

And our next question today comes from Nicholas Joseph with Citi, please go ahead.

[Michael Griffin, Citi]

Hey, this is Michael Griffin on for Nick. Wanted to touch kind of on external growth opportunities and sort of how you view the current attractiveness of your cost of capital versus any future potential external growth opportunities.

[Daniel Booth, COO]

While we're -- been pretty successful as a seller because the market is hot, opportunities are somewhat limited, because the buyer market is hot, and things are getting better. We're not in the market right now of Buying a lot of distressed assets. So we're really looking at more sort of off-market transactions with our existing operators. We're seeing a fair amount of volume and the UK, but in the United States right now, it's a pretty tough market to be investing in.

[Michael Griffin, Citi]

And then --

[Daniel Booth, COO]

Thanks.

[Michael Griffin, Citi]

-- cost out of -- the cost of capital s high obviously it's not particularly attractive for us. But as Bob noted, we have cash on the balance sheet, and to the extent we're recycling capital, that makes sense for us.

[Taylor Pickett, CEO]

Got you. That's very helpful. And then you noted the mortgage loan investments this past quarter. Just curious, your appetite for those going forward. And then, would you rather see more of those or other opportunities for future growth?

[Daniel Booth, COO]

Our bread and butter still remains buying the fee simple title to the properties. Mortgages are either accommodations for some structural nuance that requires a mortgage loan versus a purchase of the actual assets. So we'll still do mortgages, but it's pretty limited and it's not our mainstay.

[Michael Griffin, Citi]

Okay.That's it for me. Thanks for the time.

[Operator]

And our next question today comes from Tayo Okusanya with Credit Suisse, please go ahead.

[Tayo Okusanya, Credit Suisse]

Yes. Good morning, everyone. I wanted to understand a little bit better what's happening at the federal government level in regards to providing additional help for the sector. I think, correct me if I'm wrong, but you mentioned that they had released the final $25 billion in the emergency funds. Is any of that come into skilled nursing and exactly what's happening on the lobbying front to kind of help skilled nursing operators live to fight another day.

[Megan Krull, Senior Vice President of Operations]

So they haven't released everything in the fund at this point. What they agreed to release was $17 billion that was lapped in the fund, as well as $8.5 billion that was related to rural providers that was part of the American Rescue Act, and it's really tough to tell. That's for all providers. That's not necessarily directly to this industry. So it's tough to tell how much is going to go to the industry specifically. Part of it is going to be based on the number of applicants, right? So they have to put in thousands and thousands of pages of data related to their losses for the second half of last year and the first quarter of this year. So it's a number of applicants that are putting money or applying for it as well as whether they are rural versus urban providers, and a variety of other factors. It's difficult to tell how much will actually come to the industry.

[Tayo Okusanya, Credit Suisse]

Anything else from a lobbying perspective, is it possible that the Medicare advanced payments gets stuck or anything else can potentially happen just to give operators a little bit more breathing room?

[Megan Krull, Senior Vice President of Operations]

I mean, I think OCA is constantly lobbying the government to give more from the provider relief fund, and hopefully in a more targeted fashion, but in terms of the Medicare advanced payments, I don't think that's going away anytime soon. So I think folks will just continue paying that out.

[Daniel Booth, COO]

I think most operators will have actually paid back most of those advanced payments, either by the end of the first quarter early into the second quarter of 2022.

[Tayo Okusanya, Credit Suisse]

Thank you.

[Operator]

And our next question today comes from John Kuwolsky with Richard advisors. Please go ahead.

[Jonathan Hughes, Richard advisors]

Thanks for the time. Question about the distribution of EBITDA coverage across the groups. The 16% rent that's currently below one times. I'm trying to better understand the current level. Not on a trailing 12-month basis. So a couple of quarters from now, where does this number trend? Best guess is on where December trends is the cheaper labor cost issues fully flow through the financials and kind of the trailing 12 period rolls forward?

[Daniel Booth, COO]

I wish I had the answer to that. I would say that the -- there was a big chunk of federal stimulus money that came out the beginning of last year, which runs through these EBITDAR coverage buckets, if you will. And as there has been no or little federal stimulus money, those quarters are dropping off. So the coverages are naturally going away because of the lack of federal stimulus money. Have we bottomed out? I would say that at least on a quarter-to-quarter basis up, you heard the stats there, we saw improvement on a standalone quarterly basis within our portfolio. We hope that continues, and if it does, then this trend should cease and start to reverse itself.

[Jonathan Hughes, Richard advisors]

Okay. Great. And then is there anything you mentioned in the opening remarks just potentially the vaccine mandate causing more -- another shot of pain in terms of the labor pressures in certain states. Are there any regions in the country you're worried about tipping into the trebled bucket in the next few quarters that we haven't seen yet?

[Daniel Booth, COO]

I'm not going to call out states by name, but there are areas of the country which have lower vaccination rates than others. So yeah, there are -- those particular states are going to feel the vaccination mandate harder than those with higher vaccination rates. That's just a fact. So we could see some of that come through when the mandate kicks in on January.

[Jonathan Hughes, Richard advisors]

All right. Thank you for the time.

[Operator]

Gentlemen, as a reminder [Operator Instructions] Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Taylor Pickett for any closing remarks.

[Taylor Pickett, CEO]

Thanks. Thanks for joining us this morning. As always, feel free to reach out to the team, in particular, Matthew or Bob for any follow-ups you may have. Have a great day.

[Operator]

Thank you, ladies and gentlemen. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful weekend.