Jordan Saddler

Jordan Saddler inquired about the new tenant, Creative Solutions, asking for details on their financial standing, real estate ownership, and the underwriting process that provided comfort in the transition. He also sought clarity on the status of the company's dividend.

Answer

Chairman and CEO John McRoberts and Executive VP and CFO Jeff Walraven explained that Creative Solutions has a long, successful history in Texas, primarily leasing its skilled nursing facilities (SNFs) and owning some assisted living facilities. They highlighted the new tenant's scale, experience, and perfect rent payment history as key differentiators from OnPointe. Regarding the dividend, they clarified that the board has delayed a decision on the Q3 dividend until the Texas Ten transition is complete and rent payments commence in early 2019, emphasizing it is a delay, not a formal suspension.

Jordan Sadler asked for details on the Texas Ten portfolio, including the re-tenanting process timeline, market rent coverage, CMS star ratings, and remaining collateral. He also inquired about the assumptions in guidance regarding this tenant's rent and the nature of the $2 million in transaction costs.

Answer

CEO John McRoberts and CFO Jeffery Walraven explained that they are in discussions with several parties to re-tenant or sell the Texas Ten portfolio, expecting a resolution within 60-90 days. They noted that while new deals are underwritten at 1.4x-1.5x coverage, a transition could be lower. An unidentified representative provided an updated CMS star rating of 3.9. Mr. Walraven confirmed that guidance assumes contractual rent will be collected, though payments may be slow. The transaction costs were described as related to a separate, large, complex, and ongoing transaction.

Jordan Sadler from KeyBanc Capital Markets inquired about the structural changes in the GruenePointe/OnPointe tenant relationship, the capitalization of the Adora Midtown property, the credit impact of OnPointe losing two facilities, and the nature of a planned Q2 acquisition.

Answer

Executive VP and CFO Jeffery Walraven detailed the ownership restructuring, explaining that the OnPointe principles now fully own the operating assets, which he and CEO John McRoberts view as a positive alignment of operations and ownership. Walraven also broke down the Adora property's $24 million cap stack and confirmed the two lost facilities had a net-zero credit impact. McRoberts added that the upcoming Q2 deal is a standard sale-leaseback of an inpatient rehabilitation facility.

Jordan Saddler of KeyBanc Capital Markets inquired about the GruenePointe portfolio, seeking details on its original underwriting, the relationship between GruenePointe and its manager OnPointe, the terms of the upcoming covenant waiver, and the company's confidence in meeting its $150 million full-year investment guidance.

Answer

CEO and Chairman John McRoberts explained that the GruenePointe deal was a change of operator from a family business. The original underwriting identified low-hanging fruit for improvement, though a regional manager's cost-cutting focus initially backfired. He affirmed OnPointe's vested interest through ownership, personal guarantees, and contingent consideration. Regarding the investment guidance, McRoberts and CFO Jeffery Walraven expressed confidence, noting that three specific transactions totaling $65 million were in the final stages.