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CareTrust REIT Inc (CTRE) Q2 2019 Earnings Call Transcript

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CareTrust REIT Inc  (NASDAQ: CTRE)
Q2 2019 Earnings Call
Aug. 07, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the CareTrust REIT Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

As a reminder, this call is being recorded. I would now like to turn the call over to Lauren Beale, you may begin.

Lauren Beale -- Controller

Welcome to CareTrust REIT's Second Quarter 2019 Earnings Call. Please note that this call is being recorded. Before we begin, please be advised that any forward-looking statements made on today's call are based on management's current expectations, assumptions and beliefs about CareTrust's business and the environment in which it operates. These statements may include projections regarding future financial performance, dividends, acquisitions, investments, returns, financings and other matters, all of which are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied herein.

Listeners should not place undue reliance on forward-looking statements and are encouraged to review CareTrust's SEC filings for a more complete discussion of factors that could impact results as well as any financial or other statistical information required by SEC Regulation G.

During the call, the company will reference non-GAAP metrics, such as EBITDA, FFO and FAD or FAD and normalized EBITDA FFO and FAD. When viewed together with its GAAP results, the company believes these measures can provide a more complete understanding of its business, but cautions that they should not be relied upon to the exclusion of GAAP reports.

Except as required by law, CareTrust REIT and its affiliates do not undertake to publicly update or revise any forward-looking statements where changes arise in the result of new information, future events, changing circumstances or for any other reasons.

Listeners are also advised that CareTrust yesterday filed its Form 10-Q, and accompanying press release and its quarterly financial supplement, each of which can be accessed on the Investor Relations section of CareTrust's website at www.caretrustreit.com.

A replay of this call will also be available on the website for a limited period. Management on the call this morning includes Bill Wagner, Chief Financial Officer; Dave Sedgwick, Chief Operating Officer; Mark Lamb, Chief Investment Officer; and Eric Gillis, Director of Asset Management.

I will now turn the call over to Greg Stapley, CareTrust REIT's Chairman and CEO.

Greg Stapley -- President and Chief Executive Officer

Thanks, Lauren. And welcome, everybody, and good morning. As you already know, it was a big quarter for us here at CareTrust on the acquisition front. On April 1, we closed on $215 million 12 facility acquisitions. I'm pleased to report that to date those assets are doing every bit as well as we originally projected and they're continuing to improve. After that, we essentially match funded that investment with a well-received overnight and added nearly $150 million in new equity for us. And we continue to see solid deal flow as we head toward what could be a record-growth year for our portfolio. Our leverage is near to all-time low and we remain well positioned to select those and take advantage of opportunities, large and small, as they arise.

With those acquisitions and others, we crossed the $300 million mark in acquisitions very early this year. $300 million has always been an internal annual target for us that has historically taken a whole year to reach, but that has never been the overarching objective, that's never been the goal, I mean, certainly, never been the only goal. Our goal for 2019 is much the same as it has always been, to enter the next year in this case 2020 as a bigger, stronger, leaner and more sophisticated organization than we've ever been. Knocking out so much of our extra growth targets so early in the year that forwarded us the opportunity to more closely look inward now, which is something that all organizations must constantly do to survive, thrive and keep moving to the next level.

For us, this entails critically reexamining each individual asset in our operated relationship and our portfolio as well as every functioning department in the organization. We're still in that process, in fact, we would argue that we should never not be in that process to some degree. And we've identified through that process some positive changes that we think we can make. For example, like all REITs, we have a few less desirable individual assets in the portfolio that we've unavoidably picked up in larger transactions. We believe we can now consider trimming some of those assets from the asset base.

In our operator pool, we have a relationship or two, where the operator's situation, priorities or overall business have changed and maybe they don't necessarily align with our priorities the way we would like them to. And here at home, our relatively small, but still eager team, still has some long-term goals that are unmet and capabilities that need to be expanded. And so in a year, when others might have rested on their laurels after such a fast start, we're busier and making more waves than ever. Some of this is not easy, but we do it because we believe this wriggle will make us a stronger, leaner and more capable CareTrust now and for the future.

So with that, I'd like to turn some time over to Dave to talk about our current assets and operators, and to talk to you about one of the upcoming changes that we're making. Then Mark will discuss recent acquisitions in the pipeline, and Bill will wrap up with financials and guidance. Dave?

Dave Sedgwick -- Chief Operating Officer

Thanks, Greg, and good morning. So on our last call, I discussed how we are continually reevaluating the portfolio and our operator pool. This practice has been helpful and asking some hard questions about where operators and assets are and where they might be headed. In that light, let me talk about Trillium in Ohio. In December 2017, Trillium moved quickly to replace Pristine in the more challenging part of our Ohio portfolio, which included seven assets in the Cincinnati area. Ohio was a new state for them, and they struggled to gain traction there. We've reported for several quarters that we've been staying close to them as they work through what they need to, to return those buildings to prior-performance levels. But we've been clear that we never felt that they were out of the woods yet.

In recent weeks, we and Trillium have come to the conclusion that a change is best for them and for these facilities. Replacing Trillium allows us to accomplish three objectives: one, to prune a couple of the most challenging facilities that would otherwise require a lot of heavy lifting to return them to prior performance; two, to bring in an operator for the remaining assets with more experience and resources in the region; and three, to allow Trillium to refocus their efforts in Iowa, where we expect to retain them in 10 facilities.

As we reported in our Q and press release yesterday, we're in the process of selling three of the facilities and retenanting the remaining four. As we sit here today, and we expect those transfers to occur on September 1, subject to normal diligences in data approval processes. After the dust settles on the repositioning of these seven assets, the new Trillium lease will represent approximately 2.2% of our revenue.

Shifting gears to our seniors housing portfolio. Overall coverage declined from 1.3 times in Q1 to 1.22 times this quarter. This appears to be fairly consistent with what we think we're seeing across the industry on a trailing 12 basis. However, during the quarter, we began to see some real improvements in several of our assisted living assets. For example, our largest seniors housing operator outside of Ensign is Premier. And last quarter, we previewed for you some of the initiative and personnel changes are under way at that tenant. Those initiatives have begun to produce some solid occupancy increases in a number of our Premier facilities in the second quarter and since.

There are only 20 assets included in our non-Ensign seniors housing lease coverage number as reported in our supplemental. And the Premier assets, represent eight of them or about 47% of that revenue. So it's worth keeping in mind that 20 assets is a relatively small group and a swing in the performance of the couple of facilities can make for fairly volatile coverage graph quarter-to-quarter. That said, we're seeing positive trends, not only in Premier, but also in other areas of the seniors housing portfolio, and we expect to see overall coverage climb modestly over the next couple of quarters.

Internally, in the recent months, we've strengthened our asset management and underwriting processes with third-party data sources. As we become more adept with them, we're impressed with the way these sources are helping us benchmark our current and prospective operators as well as target acquisitions against the competition in their markets in states. We've also recently hired another outstanding former operator to supplement Eric and our asset management team.

Looking at the broader industry, there hasn't been any material change to the playing field since last quarter for our operators. Labor costs are still challenging, highlighting how being the best-in-class employer and healthcare provider go hand-in-hand. The 2.4% Medicare rate increase coming in October, is certainly positive for our skilled nursing operators, and we and our tenants likewise remain optimistic about the opportunities from the switch from RUG-IV to PDPM.

And with that, I'll hand over to Mark to talk about the pipeline. Mark?

Mark Lamb -- Chief Investment Officer

Thanks, Dave, and hello, everyone. In Q2, we closed approximately $241 million in new investments. This included the $215 million acquisition of the 12 holding portfolio in Texas and Louisiana that we closed on April 1. It also included our May 1 acquisition of 118-bed skilled nursing facility located in the Dallas-Fort Worth MSA with Next Gen P for $10 million. Lastly, in June, we triggered our purchase option on Cascadia of Nampa, a brand-new state-of-the-art 99 beds skilled nursing facility located in Nampa, Idaho for $16.1 million. Our year-to-date total investment amount is $305.2 million, and we expect to add to that over the coming months.

Among other things, we anticipate that our preferred equity investments in Cascadia of Boise, a second brand-new state-of-the-art 99-bed skilled nursing facility located in Boise, Idaho, that is now nearing stabilization, will close by year-end at a similar price to the price we paid for its sister facility in nearby Nampa. The acquisition market continues to be made up of mom-and-pop sellers, one-off facilities to small and mid-sized portfolios of non-strategic facilities, ranging from non-stable and broken to breakeven and more stabilized.

Pricing for SNF continue to be aggressive in states, such as California, in Maryland, in Virginia, while states like Texas continue to see fallout as the sale bed tax proposal from this past legislative session with several buildings that are on the market and more on the way. We continue to underwrite and evaluate mini deals and pair them with our operators in their specific markets as well as the markets in which they'd like to grow. We've seen some lumpiness in our deal flow over the past quarter, which is normal. And we would expect investment opportunities to tick up as we head into the fall and next months in that conference.

Turning to the pipeline. As we sit here today, the pipeline is in our normal $100 million to $125 million range. It consists mostly of singles and doubles and a couple of small portfolios and includes tack-ons for our existing operators as well as deals we can pair with our new operators.

Please remember that when we quote our pipe, we only quote deals that we're actively pursuing, which need to yield coverage and underwriting standards we have in place from time to time, and then only if we have a reasonable level of confidence that we can lock them up and close them.

And now, I'll turn it over to Bill to discuss the financials.

Bill Wagner -- Chief Financial Officer

Thanks, Mark. For the quarter, we are pleased to report that normalized FFO grew by 35% over the prior year quarter to $33.1 million and normalized FAD grew by 34% to $34.3 million. Normalized FFO per share grew by 9.4% to $0.35 and normalized FAD per share grew by 9.1% to $0.36. Given our most recent dividend of $0.225 per share, this equates to a payout ratio of 64% on FFO and 63% on FAD, which again represents one of the best cover dividends in the Health Care REITs sector. Our leverage and liquidity positions continue to remain strong.

In the quarter, we closed our largest investment to date and sold via an overnight offering 6.6 million shares at $23.35 per share, resulting in net proceeds of $149 million. We do not sell any shares under our $300 million ATM that we put up in Q1 and our revolver balance currently sits at $55 million.

For guidance, in yesterday's press release, we maintained our 2019 annual normalized FFO per share guidance of $1.35 to $1.37. And our 2019 annual normalized FAD per share of $1.40 to $1.42. This guidance includes all investments made and announced to date, including the expected close in Q4 of our remaining preferred equity investment, as Mark mentioned. The Trillium restructure, as previously discussed by Dave, a diluted weighted average share count of 93.4 million shares and also relies on the following assumptions.

One, no additional investments or dispositions, nor any further debt or equity issuance this year. Two, inflation-based rent escalations, which account for almost all of our escalators at an annual -- at an average rate of 1.5%. Our total rental revenues for the year, again, including only acquisitions made to date are projected at approximately $166 million, which includes approximately $2 million of straight-line rent. Not included in this amount are tenant reimbursements or write-offs of accounts and straight-line rent receivables, which we previously accounted for on their online items in the income statement. Due to the new leasing standard, these are now grouped with rental revenues. Three, our three independent living facilities are projected to do about $500,000 in NOI this year. Four, interest income of approximately $4.2 million. Five, interest expense of approximately $28.5 million.

In our calculation, we assumed a LIBOR rate of 2.25%, that plus the newly introduced grid-based LIBOR margin rates of 125 bps on the revolver and 150 bps on the seven-year term loan, make up the floating rates on the revolver and term loan.

Interest expense also includes roughly $2 million of amortization of deferred financing fees. And six, we are projecting G&A of approximately $13.9 million to $15.1 million. Our G&A projections also include roughly $4.1 million of amortization of Stockholm. As for our credit stats, calculated on a run-rate basis as of today, our net-debt-to-EBITDA is approximately 3.4 times, leverage is about 20% of enterprise value and our fix-charge coverage ratio is approximately 6 times. We also have $10 million of cash on hand.

And with that, I'll turn it back to Gregory.

Greg Stapley -- President and Chief Executive Officer

Thanks, Bill. In Dave's remarks, he mentioned that Eric's asset management team crowned with the addition of a new operator, we're excited about that. I'd be remissed if I didn't mention that CareTrust family is growing with the addition of a new Lamb in the family. Mark and Erin had a new baby over the weekend and he's little blurry eyed today, but we congratulate them.

We hope this discussion has been helpful. We thank you for your continued support. And with that, we'd be happy to answer questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jordan Sadler of KeyBanc Capital. Your line is open.

Jordan Sadler -- KeyBanc Capital -- Analyst

Thank you, and good morning.

Greg Stapley -- President and Chief Executive Officer

Good morning.

Jordan Sadler -- KeyBanc Capital -- Analyst

I just wanted to start with Trillium, if I could. Bill, maybe can you walk us through what's embedded in guidance for the reduction from Trillium, I guess, from an FFO versus AFFO perspective?

Bill Wagner -- Chief Financial Officer

Yeah, I can do that. We have -- for the remaining rest of the year, we have Trillium in there at around $300,000 per month. We have a new tenant coming in at around $2.2 million on an annualized basis, and we also have interest income or we're providing seller on the assets that we're selling and we have about $2.8 million in there on an annualized basis for that. So you just have to put it in for those periods that they are outstanding within 2019 for -- to arrive at your guidance number.

Jordan Sadler -- KeyBanc Capital -- Analyst

So on the latter two things. So on the new tenant and the $2.8 million of interest income, those are starting 09/01?

Bill Wagner -- Chief Financial Officer

Correct.

Jordan Sadler -- KeyBanc Capital -- Analyst

September 1st. Okay. And those are -- are those all cash numbers you just threw at me, $300,000 a month, the $2.2 million and the $2.8 million?

Bill Wagner -- Chief Financial Officer

Yeah. They are all cash.

Jordan Sadler -- KeyBanc Capital -- Analyst

Is there a difference versus GAAP? I imagine, Trillium's got escalators, right?

Bill Wagner -- Chief Financial Officer

Trillium has escalators and there is a slight increase in the straight-line rent from last quarter to this quarter of about $100,000.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay.

Bill Wagner -- Chief Financial Officer

Spread out over a period July through December.

Jordan Sadler -- KeyBanc Capital -- Analyst

Okay. I think I'm going to have to follow up with you for that, but just because Trillium was paying you $12 million of GAAP rent in 2Q or $1 million in change a month versus now, something that looks like $300,000 a month plus the straight-line rent. So that's probably a big delta. So I'll follow up with you after, unless you have a quick explanation there. But separately, you talked about, Greg, in your process here looking forward that -- it's incumbent upon you to basically asset manage portfolio and to look within, opportunistically and fix what's going on before it -- seems like before it's an issue. So one, I'm kind of curious, what the catalyst was for Trillium in Ohio that sort of that was the straw that broke the camel's back, so to speak. And then was there -- are there any others tenant-wise or assets that you identify that you could sort of point to? That also you managed out or managed somehow?

Greg Stapley -- President and Chief Executive Officer

Sure. No, I'm not sure to point at any particular straw that broke the camel's back. It was just after 19 months, it was really just time to have a serious conversation about how they were doing, there's been a couple of quarters that we've been saying, look, they're not out of the woods, we're not on of the woods. And so it just became time to have that hard conversation. As we mentioned, that piece of the Ohio portfolio included the most challenging assets, and we really felt like there was a different tack that we wanted to take there with them. So it took some discussion, but very quickly, they realized that, that was probably right.

And so we've been working cooperatively since the middle of July 2 to come to a resolution that results in the best outcome for both them and for us and most importantly, for patients and residents in those facilities and for the preservation of value in those facilities. We could have waited longer. We could have let this go and kind of crossed our fingers and hoped that things would get better. We could've continued to work with them as we do with all of our tenants to provide input and insight on what we thought could happen. But honestly, it was just -- there were just much better options and they and we agreed on that for those assets and that investment going forward.

With respect to the rest of our operator pool, I got to tell you, we really love our operators, almost all of them are very open and transparent with us. We have really good back-and-forth dialogues. They welcome the portfolio management efforts that we are making and the operator background insight that we can provide as a rule. That said, sometimes things just change and there are -- every once in a while you have an operator who just decides they don't want to grow. We had that happen with an operator that we had in the portfolio. I think the first deal we ever did, was with an operator out of Idaho, who ultimately, decided that his life was going to take a different direction. And so we sold those back to him at a small profit and are on our ways, just wasn't worth maintaining a relationship that small.

We have other operators, whose situations change for one reason or another and you just got to constantly reevaluate that and look at it. Somebody who was a superstar two years ago may for no -- through no fault of their own or may be through fault of their own, it's not the best choice for a portfolio looking forward today. And I think there's ample precedent for the idea that you should be -- anybody with a business or a portfolio or a group of businesses should be constantly striving to be the very best in the business and sometimes that means you take the bottom tier and you do something with it, whether you fix it, change it, lump it off or do something. And I think as I said or I think we'd be remiss, if we were not proactively asset managing our portfolio and our operator pool all of the time. Is that OK?

Jordan Sadler -- KeyBanc Capital -- Analyst

Yes. No, that works. And that's helpful. I guess the one other sort of follow-up on Trillium would be, this is sort of -- Pristine sort of rearing its head, again, and I think that post-Pristine, the lessons learned were really enhancement and the focus on the scorecard. So I know Trillium was an existing operator for you guys that you kind of moved over into the Pristine assets. I'm just curious what sort of -- if there is sort of a lesson learned postmortem here on either some portion of the assets here in Cincinnati or on -- for the scorecard vis-a-vis Trillium?

Greg Stapley -- President and Chief Executive Officer

Yeah. I appreciate your bringing up the fact that these assets were assets that we transitioned from Pristine. If you remember, where we were back in the fall of 2017, we were working very hard again to preserve value in a very large portfolio that, at the time, represented like 16% to 17% of our revenue. And to be able to move the rougher half a bit off into the hands of an operator that we knew and liked and trusted in Trillium was -- and to do in fairly short order, we moved that on December 1, '17, was a real win for us. Especially, when you consider the very minimal amount of rent leakages that we experienced in that transaction.

So -- but as Dave pointed out in his prepared remarks, Trillium was a new to Ohio at the time. They were having to import resources, they were having to do other things, they were having to learn new systems. And as they went through that process, they were doing OK, initially, and then they lost a couple of key personnel, who they'd invested in heavily in that state and that was back in the beginning of this year, and since then, it's just been a really tough slog for them. And so -- and plus at the same time, you may recall, because I know you cover other landlords, they were engaged in some fairly some sort of conversations with one of their other landlords over some assets in another state that needed to be closed and that we believe, they've told us, has taken a very substantial toll on their time, their attentions and their cash flows. And so it really got to mid-July and it was just time to really have that hard conversation with them.

We don't dislike Trillium. We update our scorecard regularly and certainly, things for them have changed a bit, on the way, you look on that scorecard, but it's still good enough for us that we want to keep them in Iowa and the Georgia asset and continue our relationship with them.

In terms of other things that we've learned, I guess, the bottom line is, if you've got the time and opportunity, which I don't believe we really had back in 2017, you would place a very high premium on the importance of local knowledge, experience and relationships, when you are looking for the right fit between an asset or group of assets and an operator. And I think you would also be very careful to have a Plan B, C and D in terms of operators, every place where you have assets that could change over -- where the situation could change overnight. This is healthcare business and you don't want to foment any kind of worries about headline risk with healthcare, but you all know it very well. And you know that it changes. And so it's really good to have options if and when those changes pose challenges to the folks operating your assets.

Jordan Sadler -- KeyBanc Capital -- Analyst

I appreciate all the color. Thank you.

Greg Stapley -- President and Chief Executive Officer

You bet.

Operator

Our next question comes from Chad Vanacore of Stifel. Your line is open.

Greg Stapley -- President and Chief Executive Officer

Hi, Chad.

Operator

If your cellphone's muted, please unmute.

Greg Stapley -- President and Chief Executive Officer

Let's -- we'll come back to Chad.

Operator

Our next question comes from Jonathan Hughes of Raymond James. Your line is open.

Jonathan Hughes -- Raymond James -- Analyst

Hey, good afternoon. Can you give us an update on the other former Pristine assets in Ohio that are operated by Trio and Hillstone that, I think, were admittedly the easier ones?

Dave Sedgwick -- Chief Operating Officer

Yeah. Hey Johnathan, this is Dave. Regarding Hillstone, they took two of those buildings and are doing just fine with those. Trio took the Dayton area portfolio, those were admittedly better performing assets compared to the Cincinnati 7. I'd say that Trio's senior operational and clinical leadership has personally invested countless hours into those operations and markets and those efforts are starting to translate into some traction with key decision-makers in those markets and key relationships with major health system there, which we -- which has some momentum that they were really happy to see that we believe will lead them to really ramp up their census and hitting their census projections. Another tailwind for Trio is just to increase in the Medicaid rate that Ohio recently passed. That's going to be a material benefit for their portfolio, especially if you couple that with the increasing census that we expect in the second half of the year.

So they're making really good stride. They've invested a ton in their people, in their leadership, in marketing and in clinical results. So again, they -- like we said last quarter, they're also not in -- out of the woods yet, but they do have some momentum that -- and traction that we really never saw in Cincinnati.

Jonathan Hughes -- Raymond James -- Analyst

Do you think they would be open to take in the 40 [Phonetic] plan to keep? Or I mean, obviously, I assume they looked at it 18 -- looked at those 18 months ago or so and maybe didn't choose to take them then. Curious if we can expect maybe to see an existing operator to take some of those for or would it be a new relationship?

Dave Sedgwick -- Chief Operating Officer

Yes. So Trio has their hands full in the Dayton area, and we actually didn't show it to them because we know that -- we know where they're at with their planning in Dayton. We are right now talking to a few different operators for the remaining four, including new and existing CareTrust relationships. And so it's just -- unfortunately as we sit here right now, it's premature to say who that's going to be.

Jonathan Hughes -- Raymond James -- Analyst

Okay. And then, I guess just sticking with you, Dave. You did talk about senior housing coverage earlier. You mentioned premier is doing well. But I mean, that implies the other, I think, 12 of those 20 properties. So a pretty decent sequential dip, I get it's a small pool, so it can be vital. But were there one or two specific properties that caused that drag, or was it pretty broad-based in terms of the coverage dropped there?

Dave Sedgwick -- Chief Operating Officer

Yeah. There were two or three properties that really kind of took a step back from a census perspective. And we're working closely with those guys and watching and helping them get that back up. So.

Jonathan Hughes -- Raymond James -- Analyst

And maybe one on average for those 12 bought.

Dave Sedgwick -- Chief Operating Officer

When were they bought?

Jonathan Hughes -- Raymond James -- Analyst

Yeah. Well, it had been -- it was pre-2018, right?

Dave Sedgwick -- Chief Operating Officer

Yeah.

Jonathan Hughes -- Raymond James -- Analyst

Okay. Okay. I'll get back and look at that. All right. And then just one more for me. For Mark, first of, congrats on the new addition. But was hoping you'd give us some more details on the pricing for deals in the pipeline. You said it's aggressive on the West Coast and Northeast and then can you comment on the expected cadence of external growth through year-end?

Mark Lamb -- Chief Investment Officer

Yeah. So I think as we look at our pipe, the number of the transactions that were narrowing in on our off markets. So despite pricing being aggressive in certain of these states, we feel like we're buying them and right and pairing them with operators in specific markets that had experience in those markets. So we expect good things once we close the transactions and operators have the ability to get in and execute their business plans.

So as we sit here, I think -- the question, how close do we get to $400 million this year? I think we feel pretty good about a lot of our pipeline and just from a pricing perspective it's a mix of assisted living and skilled nursing, definitely slanted toward skilled nursing, pricing anywhere between I think 9 and 9.25 on start rates and then a couple that are kind of in the mid 9. So it's really all over the board, it's really kind of state specific and competition specific in those specific states. So does that answer your question?

Jonathan Hughes -- Raymond James -- Analyst

It does. And then maybe just pricing on the small senior portion of the pipeline that's in there -- the pricing there?

Mark Lamb -- Chief Investment Officer

Yes. I would say, it's kind of in the low to mid-8s in good West Coast markets.

Greg Stapley -- President and Chief Executive Officer

John, it's Greg. On the pricing, I would just add, it remains pretty aggressive and kind of is what it is, but we continue to maintain pretty tight underwriting standards on what we're willing to pay and what we'll put those leases out that. Our coverage requirements have actually climbed and we have been willing to even give up some yield to get better coverage, and that's probably one of the reason you see us doing less assisted-living senior housing than skilled nursing because the delta between what we're willing to do on the coverage front, when some of these assisted-living assets and what kind of the market has been, it's still fairly wide. It's much closer and more -- it's a gap that we can close on the SNF assets. Just wanted to add that.

Jonathan Hughes -- Raymond James -- Analyst

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

Greg Stapley -- President and Chief Executive Officer

Thanks, John.

Operator

Our next question comes from John Kim of BMO Capital Markets. Your line is open.

John Kim -- BMO Capital Markets -- Analyst

On Trillium, back a couple of years ago, when you transitioned the assets to them, to Pristine, you set the coverage -- the rent coverage at 122, [Phonetic] which at the time seemed tight. But I was wondering if you had set it at 1-3 or 1-5 [Phonetic] or just some number more conservative than that, would you have still transitioned Trillium out? Or would that change have been inevitable?

Bill Wagner -- Chief Financial Officer

It's a great question, John. And I wish the answer were that if we had set the coverage a little higher that we wouldn't have done what we did, but that's really not what the motivation was here. There were a lot of things going on for Trillium, and it would not have made a difference if we'd added another 10 or 15 or even 20 bps to that coverage. We still believe that, that portfolio has a lot of potential, a lot of upside and we like most of the assets pretty well, but we would still be doing what we're doing right now by way of cooperating with Trillium to refocus them in Iowa and take them out of Ohio.

John Kim -- BMO Capital Markets -- Analyst

Okay. And looking back again, the year after the Pristine transition 2018, it was a very -- relatively slow acquisition volume year for you. Doesn't sound like it's the case this time around and I'm wondering why you're confident that you'll continue to grow externally. Is it because you're a bigger company today? Or the balance sheet's better? Or you just see more opportunities in the pipeline?

Bill Wagner -- Chief Financial Officer

Yeah. I think kind of the timing of the transactions that we've been working on. As you know, when we closed on the two big transactions earlier this year, those took a lot of time. But while we kind of hit certain period in Q1 waiting for the big project Gulf Coast transaction to close, we were rerouting the pipe and working on everything that's kind of hitting now and over the next quarter. So it's really just kind of a function of the -- really the transactions and where they're coming in and the timing of those.

John Kim -- BMO Capital Markets -- Analyst

Okay. My last question is on Ensign. I think you have cited in the past that one of the successful characteristics of Ensign as an operator is that they have a decentralized management structure. And I'm wondering if you see that in your other operators, if you think that is important for some of your other partners and it's something that you potentially recommend that they adopt?

Bill Wagner -- Chief Financial Officer

Yes. We all want to answer that one here. Everybody has got an opinion on that. It's a great question. I'll just start and then will let Dave and anybody else jump in. That really works well for Ensign, and we -- having come from there, obviously believe wholeheartedly in that decentralized, highly internally accountable kind of organizational structure. It worked super well for them and I think it lends itself well with the personalities over there.

And one of the things we've learned as we've come out and started dealing on a very close basis with lots of other operators is that everybody's personality is a little bit different and some people -- while some people are able to do that and good at that, that it's a very different skill set and not a lot are able to let go of control. That said, most of our operators are fairly small and they're -- and so they're not really at that point where it becomes necessary for them, in our view, if you're applying the Ensign model and mindset for them to start relinquishing more of that control. But we do think that, that is a great management and operating philosophy. And we do preach it fairly regularly to our tenants. Dave, add.

Dave Sedgwick -- Chief Operating Officer

The only thing I would add to that is that in speaking with our operators and as we vet new operators, this -- the amount of priority that they give to the administrator and local leaders is always a really important point for us. And there's different ways to skin that cat, but if we come across the company that we feel -- does not value the local leader even if they had -- even if they don't have a decentralized model like Ensign, we're going to be really wary of doing business with them because what we are convinced of is that talent at the local level, even really discreet regional level, really matters a lot. And so that's certainly part of our conversation with our existing and prospective operators.

John Kim -- BMO Capital Markets -- Analyst

Thank you.

Dave Sedgwick -- Chief Operating Officer

Welcome.

Operator

Our next question comes from Chad Vanacore of Stifel. Your line is open. [Operator Instructions]

Greg Stapley -- President and Chief Executive Officer

We'll move on and pick up Chad later.

Operator

Our next question comes from Michael Carroll of RBC Capital Markets. Your line is open.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. Greg, can you provide some color on the company asset management plan? I know you said, Trillium was one of those more difficult decisions that you had to make. Do you anticipate making other decisions? Or is this just the only issue that you're currently tracking?

Greg Stapley -- President and Chief Executive Officer

Yeah. Mike, let me -- thank you for the question. Let me just clarify if I left the impression that was a difficult decision. I mean really by the time, we go to sitting down and really thinking hard about it, it wasn't that difficult at all. It was a difficult conversation, but the decision was fairly obvious at the time. So -- and we think that that's really the way it ought to be, if we look at these things and sort of stuff out where is this going and what's the likely outcome.

The urgency to act early while you have time before things really deteriorate is -- should be just all-consuming. So that's where we're at. We did say that we are looking at our whole portfolio, we did say that there are one or two other things in there that really merit some close attention. It would be premature to say anything specific about any of those situations, but we're having regular conversations with all of our operating partners and once in a while one or two of those conversations is a little tougher than the others, but for right now, that's probably the most we would say.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And those other two multiple conversations that you may be having. I mean, is that basically you offering additional support, giving them advice and what they need to do? Or is that could be much more sort of significant where you would have to help them transition part of their portfolio to somebody else?

Greg Stapley -- President and Chief Executive Officer

Look, it really runs a spectrum. And we probably portfolio manage different than others do because we do have these operating backgrounds and we are injecting Eric, Dave, Mark, these guys are all licensed nursing home administrators. The new guy that we're bringing in [Indecipherable] team licensed nursing home administrator with long and deep experience. And these guys are out in the field, talking to them on multiple levels and multiple -- depending on what they are seeing and what the opportunities are. I mean hopefully, they just seeing opportunities and leverage that have -- are yet unfolded, and those kinds of things.

So those conversations are happening all the time and then mostly, mostly, mostly go really, really well and are very, very well received. It's when you've gone out and you said the same thing five months in a row and there's still not anything happening that you -- that the conversation shifts a little bit. So again, we're very, very active on that front. We can't tell our tenants what to do. We can't make our tenants do anything in their operations, we would never try. But we can certainly offer a lot of counseling and insight, second set of eyes for them and again, almost all of them are almost all the time very receptive.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then related to the senior housing portfolio, I believe Dave was mentioning that there is some potential occupancy improvement or there has been some weakness in census and you're offering some support to get occupancy higher. What can the operator do to help drive occupancy? And is that something that we need to be watching more closely going forward?

Dave Sedgwick -- Chief Operating Officer

The operator can do a lot for senior housing occupancy and luckily, we've got in our asset management team Eric and the new incoming portfolio manager have actual experience, not just nursing home administration, but running seniors housing as well. The approach in seniors housing to drive occupancy is really multi-faceted. There's internal cultural customer service things, there's external facing items, curb appeal, how you give a tour. There's a -- I mean, we could go at length and I don't want a take up too much time on that. But Eric, when he is with those operators, he'll tour the building, he'll secret shop it, he'll secret shop the competition, he'll provide great feedback as to opportunities that they have to improve their process, to drive that census up.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. You think that the changes -- I mean, have they recently implemented changes that should help occupancy over the next few quarters? Or has this been going on for some time?

Dave Sedgwick -- Chief Operating Officer

They have recent changes from recent changes in leadership as well. And so when you have a change in leadership and organization at a regional or a Chief Operating Officer level, they bring in their ideas, it takes several months to get the water to the end of the row, but this is recent initiatives that are in place that we're already starting to see some improvement from.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great, thank you.

Greg Stapley -- President and Chief Executive Officer

Welcome.

Operator

[Operator Instructions] Our next question comes from Todd Stender of Wells Fargo. Your line is open.

Todd Stender -- Wells Fargo -- Analyst

Thanks. Greg, you kind of touched on this before with pricing in the skilled nursing space. You guys have been pretty good about getting 9% -- very consistent 9% yield. It's about as consistent as anywhere in the REIT space. But we're facing historically low interest rates. So does that essentially impact pricing? I know it's a different property type, it's kind of got a multiple in cash flow, but what do you think about rates coming in so low?

Greg Stapley -- President and Chief Executive Officer

It's a really good question and certainly a fair one and I'll let Mark weigh into this if he'd like. But I don't think we're seeing any impact from rates coming down or in cap rates for these assets. Pricings tends to be what pricing has been and it's probably more affected by changes in local markets and what's going on in local Medicaid program. For example, you look at what's probably already happening in Texas with the failure of the bed tax bill, pricing out there is going to come down and nobody is looking at interested moving 25 bps one way or the other to determine that. So I think the answer for us is, no. Mark, do you have any color to add to that? So, I think the answer for us is no. Mark, do you any color to answer that.

Mark Lamb -- Chief Investment Officer

I would just say from a competitive perspective on buying. As a lot of our competitors are buying assets and taking them to HUD, as long as HUD rates are -- stay low, it will impact, I would say competition for buying. But from a leasing perspective, I think we feel we're about as low as we possibly can be. Obviously, just adjusting for coverage and every now and again, there is a special asset or two that maybe you go below 9% because the potential coverage lift. Once a specific operator is in there, maybe it makes sense in a specific market like the Bay Area that has the highest reimbursement in the country. But for the most part, I think we feel pretty good about kind of being in the 9% to 9.25% range and feeling like that's a reasonable risk-adjusted spread for us.

Todd Stender -- Wells Fargo -- Analyst

That's helpful color. In the sense of maybe this doesn't apply, where sellers have better alternatives to sell these fact financing. Is that really not the case because it is skilled nursing?

Dave Sedgwick -- Chief Operating Officer

Well, I think there has always been some highly competitive alternative to refinancing out there for folks, who had the wherewithal to do that, who could make the down payments, HUD financing is out there and it's been at rock bottom rates for years. And yet, we in the REIT have not -- we've tried. Yes, it's definitely competition to us, but an operator, who wants to do that has to some up with a significant down payment. They have to wait a long time, they have to invest a lot of money on the front end, and we provide literally 100% financing, can do it in a short period of time and we also can bring those operators additional assets from our portfolio or from outside our portfolio as they want to grow. There's definitely competition, but I don't think declining interest rates overall are really making a big difference on it. Mark?

Mark Lamb -- Chief Investment Officer

Yeah. I though, I would just add. We're not seeing a ton of traditional sale-leaseback opportunities. I think most of what we're seeing on the market is, in our case, purchase, put in a new operator. So oftentimes, we bring an operator to the table and they have a sense of where our pricing would be from a lease rate perspective versus maybe four or five years ago where you saw many more sale-leaseback to existing operator.

Todd Stender -- Wells Fargo -- Analyst

All right. I guess looking at G&A, unless I missed it. With G&A up in Q2, maybe just a reminder about your incentive comp? And how investment volumes kind of play a role in that? And then how often is that calculated? Does that play a role in G&A being up in Q2?

Bill Wagner -- Chief Financial Officer

Hey, Todd, it's Bill. Yes, it does play a role in the total expense for G&A. In Q2, we had -- well our three targets under our comp plan are leverage, investments and growth in FFO per share. And in Q2, we were up way over from Q1 and on our way to our annual plans. So we caught up our accrual as it related to that performance. Over the remaining part of the year, I would expect that it to be substantially lower than the $4.6 million total G&A in Q2. Does that help?

Todd Stender -- Wells Fargo -- Analyst

It sure does. Thanks a lot.

Operator

Our next question comes from Daniel Bernstein of Capital One. Your line is open.

Daniel Bernstein -- Capital One -- Analyst

Good morning. I guess on the West Coast.

Greg Stapley -- President and Chief Executive Officer

Good morning.

Daniel Bernstein -- Capital One -- Analyst

I wanted to ask a somewhat different way on Texas. You alluded to cap rates being very specific maybe state by state on Medicaid and you obviously know what happened in Texas on the provider tax. If cap rates are going up, are you inclined to add geographically to Texas or other states where operators are struggling?

Greg Stapley -- President and Chief Executive Officer

Our operators in Texas -- that's a great question. Our operators in Texas are not struggling, they're doing very well, they include Ensign, P&G, Providence, Southwest LTC, Next Gen. I think we've always been very selective about the operators we put in and the opportunities we pair them with. And we are looking -- even though Texas is our second largest state in terms of asset concentration or investments, I don't think we're definitely a red line in the state, there may be some great opportunities there as a result of this.

And we are opportunistic investors and are most of our operators are opportunistic -- have opportunistic mindsets as well. So we're not looking at it harder than we've ever looked at it, but we're definitely not turned off by what's going on over there. Most of our operators participate in the Quip program. That really goes a long way toward bridging the gap, they were trying to bridge the bed tax proposal the past two legislative sessions. And otherwise, if you make the right investment, there's still money to be made in a great state like Texas.

Daniel Bernstein -- Capital One -- Analyst

And I suppose making that to right price as well if cap rates go up. The other question I had was you're willing to review the entire portfolio and I guess it may be early in that stage, but where do you find particularly in the skilled nursing side, where are you finding deficiencies that you may need to address or operators need to address, is it on the labor side as much versus, again, maybe state-by-state Medicaid. Just trying to understand, is there some single item that's kind of sticking out as maybe something that a lot of operators need to work on?

Greg Stapley -- President and Chief Executive Officer

Yes. Some of those answers are going to be highly state specific, I mean even Ohio, you look it -- we look at what they are doing about their [Indecipherable] index rates and in other place in California, how are they doing on the QA scores, and are they going to collect the QA fee at the end of the year. So you really have to know a lot about the local business and what's going on and you really have to know a lot about what's going on inside these operations.

That's why we're building Eric's team right now. Eric is probably on the road, an average of three days a week and he spends that time in facilities, not just talking to the operators, but talking with their staffs, he's on a first-name basis with a lot of the administrators in the buildings we own. And that kind of hands-on knowledge and understanding is -- helps us to see all little things out there that go into determining whether somebody's going to be successful or struggle going forward.

Daniel Bernstein -- Capital One -- Analyst

Okay. And one last question. With PDPM kind of eminent coming in October, do you see any of the sellers that are -- potential sellers out there kind of holding on and waiting to see what will happen? Or again, maybe any changes in kind of the asking price in anticipation of PDPM?

Mark Lamb -- Chief Investment Officer

Dan, it's Mark. It's a -- I think the general consensus is I think some folks are waiting to see what the impact of PDPM will be. I would say, looking at our pipeline, there is an operator that is wanting to get out ahead of PDPM and is looking to sell. But I would say, the general sentiment in the market is potential sellers are kind of taking the wait-and-see approach. Because if you think about PDPM really affects the building that are running a Medicaid census and not to say that mom-and-pops can't run a higher Medicaid census.

But for the most part, they're going to probably be running something a little higher on the Medicaid occupancy front. So there may not be much change to them over, let's say, Q4 and Q1 next year and certain states continue to get increases in the Medicaid rate. And so I think most of the mom and pops that we either talk to or the investment brokerage community is talking to, a lot of them are taking a wait-and-see approach just to see how cash flow will shake out as a result of PDPM.

Daniel Bernstein -- Capital One -- Analyst

Okay. I appreciate the color. I'll hop off. Thank you.

Mark Lamb -- Chief Investment Officer

Thanks.

Operator

There are no further questions. I'd like to turn the call back over to Greg Stapley for any closing remarks.

Greg Stapley -- President and Chief Executive Officer

Well, thanks, operator. Thanks, everyone, for being on the call today. We appreciate the questions and the interest, and if you have any additional questions, we welcome a call or email and would be happy to help. So thanks.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Lauren Beale -- Controller

Greg Stapley -- President and Chief Executive Officer

Dave Sedgwick -- Chief Operating Officer

Mark Lamb -- Chief Investment Officer

Bill Wagner -- Chief Financial Officer

Jordan Sadler -- KeyBanc Capital -- Analyst

Jonathan Hughes -- Raymond James -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Todd Stender -- Wells Fargo -- Analyst

Daniel Bernstein -- Capital One -- Analyst

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