Omega Healthcare Investors - Q1 2024

Transcript

Operator (participant)

Greetings! Welcome to Omega Healthcare Investors First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After today's presentation, there'll be a brief question and answer session. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to Michelle Reber. You may now begin, Michelle.

Michelle Reber (Managing Director of Operations)

Thank you, and good morning. With me today is Omega CEO, Taylor Pickett, COO, Dan Booth, CFO, Bob Stephenson, 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, potential transactions, operator prospects, and outlook generally. Factors that could cause actual results to differ materially from those in the forward-looking statements are detailed in the company's filings with the SEC. 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 are available in the quarterly supplement. In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega.

I will now turn the call over to Taylor.

Taylor Pickett (CEO)

Thanks, Michelle. Good morning, and thank you for joining our first quarter 2024 earnings conference call. Today, I will discuss our first quarter financial results and certain key operating trends. First quarter FAD, funds available for distribution of $0.65 per share was better than expected, and should continue to improve as several portfolios are in the process of being transitioned, which will result in meaningful FAD upside over the next few quarters. Our dividend payout ratio of 103% remains slightly elevated, but should drop into the mid-90% range in the upcoming quarters. We continue to have a handful of cash basis operators, including Maplewood and La Vie, that will impact our go-forward AFFO and FAD, making full year 2024 FAD difficult to predict.

However, longer term, we believe all these assets, but in particular Maplewood, are well positioned to generate reliable and growing cash flows and related rent. Although first quarter AFFO of $0.68 per share was strong, we've elected to remain conservative with respect to our full year guidance, and accordingly, we are maintaining our 2024 AFFO guidance of between $2.70 and $2.80 per share. As Dan will discuss, key tenant occupancy and rent coverage metrics continue to improve. The under 1x EBITDAR coverage operator metric moved up slightly from 13.2% of total rent to 14.5% of total rent, due to a 3.3% operator that moved from slightly above 1.0x coverage to slightly below 1.0x coverage at 0.98x EBITDAR coverage.

We expect this operator to eventually move back above 1.0x coverage due to state Medicaid rate increases, leaving a balance of 11.2% of below 1.0x coverage operators. In looking at the 11.2% balance of below 1x operators, we can break the 11.2% into a handful of buckets. Operators representing 6.2% of the 11.2% are strong credits and therefore payment of rent should not be an issue. Operators representing 2.2% have fourth quarter and January EBITDAR coverage above 1.0x, or are benefiting from state rate increases and operational improvements that we expect to continue on a go-forward basis. That leaves operators representing just 2.8%, consisting of 8 small operating relationships.

Lastly, the government has issued its final rule for skilled nursing facility minimum staffing. Unfortunately, many of the constructive industry ideas and comments that include the use of technology and certain best practices were not included in the final rule. As there is a long lead time for the implementation of the final rule, we remain cautiously optimistic that the rule will be improved over the next couple of years. I will now turn the call over to Bob.

Bob Stephenson (CFO)

Thanks, Taylor, and good morning. Turning to our financials for the first quarter. Revenue for the first quarter was $243 million before adjusting for certain non-recurring items, compared to $218 million for the first quarter of 2023. The year-over-year increase is primarily the result of timing and impact of operator restructurings, transitions, and revenue from new investments completed throughout 2023 and 2024, partially offset by asset sales completed during that same period. Our NAREIT FFO for the first quarter was $153 million or $0.60 per share, as compared to $146 million or $0.60 per share for the first quarter of 2023.

Our adjusted FFO was $176 million, or $0.68 per share for the quarter, and our FAD was $168 million or $0.65 per share, and both exclude several items consistent with historical practices and outlined in our NAREIT FFO, adjusted FFO, and FAD reconciliations to net income found in our earnings release, as well as our first quarter financial supplemental posted to our website. Our balance sheet continues to remain strong. In the first quarter, we completed $55 million in new investments, excluding CapEx, and funded the investments with balance sheet cash and the issuance of $33 million in equity under our ATM program. In the first quarter, we repaid all of our outstanding HUD mortgages, totaling $42 million. These repayments stemmed from the previously disclosed La Vie asset sales and transitions.

We ended the quarter with over $360 million in cash on the balance sheet and over $1.4 billion in credit facility borrowing capacity. Subsequent to quarter end, on April 1st, we repaid our $400 million maturing bond using balance sheet cash, April 1st rent collections, and borrowing the remaining balance on the credit facility. At March 31st, 99% of our $5.1 billion in debt was at fixed rates, and our net funded debt to annualized adjusted normalized EBITDA was 5.03x, and our fixed charge coverage ratio was 3.9x. Turning to guidance, as Taylor mentioned, we affirmed our full year adjusted FFO guidance of between $2.70 and $2.80 per share.

To reiterate a few of the key assumptions from the last earnings call, we're assuming no change in our revenue related to operators on an accrual basis of revenue recognition. We're assuming La Vie continues to pay at the existing rate of $1.5 million per month until completion of the portfolio restructuring and continued improvement in Maplewood's ability to pay contractual rent. We're assuming $82 million in asset sales related to the facilities classified as assets held for sale at the end of the first quarter. We've included the annual impact of our 2024 investments completed through May 2nd, as disclosed in the earnings release. We project our quarterly G&A expense to continue to run between $11.5 million and $13.5 million per quarter.

We assume no material changes in market interest rates as they relate to either the interest earned on balance sheet cash or interest expense charged on credit facility borrowings. Our 2024 adjusted FFO guidance does not include any additional new investments or asset sales, as well as any additional capital transactions other than what was already mentioned. As several operator transitions are still in negotiations and the precise timing is unknown, we continue to provide a wide range to our AFFO guidance. As stated in yesterday's earnings press release, in the first quarter, La Vie paid approximately $4.4 million in rent, and in April, they paid $1.5 million in rent.

In addition, in the first quarter, we recorded $100,000 in rent related to two transitioned La Vie facilities and anticipate $300,000 in rent per quarter related to that transition. Turning to Guardian, we applied the remaining $60,000 in security deposits in the first quarter, and no additional cash rent was received from Guardian, and the portfolio has been transitioned with estimated annual rent of $5.5 million starting in mid-April, with the potential to increase up to $12.4 million annually. Lastly, Maplewood paid $11.3 million in rent in the first quarter. In April, Maplewood paid $3.8 million in rent. Dan will provide additional color on these operators in his prepared remarks. With that, I will turn the call over to Dan.

Dan Booth (COO)

Thanks, Bob, and good morning, everyone. As of March 31, 2024, Omega had an operating asset portfolio of 866 facilities with approximately 84,000 operating beds. These facilities were spread across 73 third-party operators and located within 42 states and the United Kingdom. Trailing 12-month operator EBITDAR coverage for our core portfolio as of December 31, 2023, increased to 1.33x versus 1.28x for the trailing 12-month period ended September 30, 2023. During the fourth quarter of 2023, our operators cumulatively recorded approximately $13.5 million in federal stimulus funds, as compared to approximately $12 million recorded during the third quarter.

Trailing 12-month operator EBITDAR coverage would have increased during the fourth quarter of 2023 to 1.28x, as compared to 1.21x for the third quarter, when excluding the benefit of any federal stimulus funds. EBITDAR coverage for the standalone quarter ended December 31, 2023 for our core portfolio was 1.48x, including federal stimulus, and 1.41x excluding the $13.5 million of federal stimulus funds. This compares favorably to the standalone third quarter of 1.33x and 1.27x, with and without the $12 million in federal stimulus funds, respectively.

During the second half of 2020, as the pandemic began to meaningfully impact our tenants' operations, the federal government began to provide relief in the form of direct stimulus payments to virtually all nursing home operators throughout the country. Knowing that the federal stimulus dollars were intended to offer short-term relief to cash-strapped operators, Omega began to report its coverage ratios on both a before and after stimulus basis. As federal stimulus dollars have essentially ceased, our coverage reporting, beginning in the first quarter of 2024, will exclude any mention of federal stimulus funds. Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 2022 to 80.8% as of mid-April of 2024, based upon preliminary reporting from our operators.

For comparative purposes, occupancy for our core portfolio was 83.2% for the fourth quarter of 2019, just prior to the onset of the COVID pandemic. Turning to portfolio matters. La Vie. After a considerable number of divestitures in 2023 and the first quarter of 2024, Omega's remaining portfolio with La Vie consists of 31 facilities, which include 13 facilities in North Carolina, nine in Pennsylvania, six in Mississippi, two in Virginia, and one in Florida. We remain in ongoing discussions with La Vie on the best overall future of each of these remaining 31 facilities. La Vie has paid approximately $1.5 million per month in rent for the last 6 months, including April of 2024. Maplewood. During the first quarter of 2024, Maplewood paid rent of $11.3 million.

In April 2024, Maplewood paid $3.8 million in rent. Maplewood continues to see strong performance across the portfolio, with 16 of the 17 facilities fully stabilized. Occupancy at Inspire New York City is currently at 66%, while the 16 stabilized Maplewood communities are currently at 93%. Guardian. During the first 4 months of 2024, Omega released the remaining six facilities that were formerly Guardian assets to an unrelated third party. This concludes our restructuring of our Guardian portfolio and our relationship overall. In addition to the aforementioned restructurings and transitions, Omega is working with several other relatively small operators on various restructurings. Turning to new investments.

During the first quarter of 2024, Omega completed a total of $75 million in new investments, comprised of $41.2 million in real estate loans, $13.3 million in real estate acquisitions, and $20.5 million in CapEx investments. The new loans have a weighted average interest rate of 9.6%. The new acquisitions have a weighted average annual yield of 9.8%, with 2.5% annual escalators. Subsequent to the first quarter of 2024, Omega closed on $165 million in new investments, comprised of $71.7 million in real estate loans and $93.7 million in acquisitions. The $71.7 million in loans were made to an existing U.K. operator and bear an interest rate of 10%.

The subsequent acquisitions include a $62.7 million sale leaseback transaction, whereby Omega acquired 32 care homes in the U.K. and leased them back to a new operator at an initial cash yield of 10%, with 2.5% escalators, and a $31 million sale leaseback transaction, whereby Omega acquired one facility in Michigan and leased it back to an existing operator at an initial cash yield of 11.5%, with annual escalators of 2%. Year to date, Omega has closed on $240 million in new investments. I will now turn the call over to Megan.

Megan Krull (SVP of Operations)

Thanks, Dan, and good morning, everyone. The staffing mandate was finalized in April, despite the fact that a majority of facilities in the United States do not currently meet the requirements and that CMS provided for no funding mechanism. Although there is a delayed implementation based on urban versus rural, other than a very limited waiver exception, no adjustments were made in the final rule to take into consideration the wide variability of access to staffing across geographic regions or the actual acuity level of residents at any given building. The rule stayed largely unchanged from what was initially proposed, despite calls for LPNs to be used to cover some of the proposed requirements and for the 24/7 RN requirement to be covered by telehealth or on-call RN support.

Instead, the one change that was made was to increase the overall hours from 3 to 3.48, with the additional 0.48 added to be covered by any mix of RNs, CNAs, or LPNs. That overall number is to take effect in 2 years for urban facilities and 3 years for rural. Unchanged from the proposed rule were the 24/7 RN requirement going into effect in 2 years for urban facilities and 3 years for rural, and the required 0.55 and 2.45 hours per resident day for RNs and nursing aides, respectively, going into effect in 3 years for urban facilities and 5 years for rural. As a reminder, while there is obviously a longer term impact that this mandate could have on the industry, the impact is negligible in the near term, given the delayed implementation.

A lot can happen in the two years until the first set of requirements is set to be enforced. In addition to bipartisan legislation that has already been introduced in Congress and the potential for legal action, there's also the potential that additional rulemaking will change the mandate in the coming years. Irrespective of all that, at the end of the day, as has been the primary focus on reimbursement over the last couple of years related to inflation, the states in this case, are really the ones that will need to step up in a meaningful way if this mandate remains as is.

...Notwithstanding the overhang, there remains positive momentum in the fundamentals of the business. We continue to hear from our operators that agency usage is down and in certain portfolios has been eliminated entirely. However, the wide variation by market remains. Occupancy continues its steady improvement, with a slight anticipated slowdown in the winter months. The number of core facilities recovered is now at 44%, up from the 42% reported in the third quarter. Additionally, 21% of core facilities that have not yet fully recovered are at or above 84% occupancy. I will now open the call up for questions.

Operator (participant)

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit your questions to one question and one follow-up. One moment please, while we poll for questions. Thank you, and our first question is from Jonathan Hughes with Raymond James. Please proceed with your question.

Jonathan Hughes (Analyst)

Hi, good morning. Th`anks for the prepared remarks and commentary. I was hoping you could share some details of what the investment pipeline looks like today in terms of size, fee simple acquisitions versus loans and maybe opportunities in the U.K., since we've seen some more deals there by you recently.

Taylor Pickett (CEO)

Yeah, good morning. I would say that the pipeline today is about as active as we've seen it in many years. That's spread across, really everything. That's SNFs, that's senior housing, that's U.S., that's U.K. We don't really toggle a dollar amount to that number of deals, but it's substantial. And quite frankly, there's just a lot of deals flowing in at the moment, so I'd say very active.

Jonathan Hughes (Analyst)

All right. And then maybe on the operator transitions, those are, I mean, those are a normal part of your business in the industry, and it was great to see Guardian completed. I guess, have you found it more challenging recently to find replacement operators, given some of the uncertainty facing skilled nursing on the regulatory and labor availability front? Or maybe do transitions just take longer now because there might be more uncertainty? Just any color there on transitions would be great.

Taylor Pickett (CEO)

You know, I think it depends. Guardian was a restructure, took place in three parts over several years, and what we were left with at the end was probably the greatest assets in some difficult states. So those were challenging. But for the most part, what we are looking at and what we've restructured over the course of the last several years is not-- hasn't been really all that challenging. Now, we've sold a number of assets, which is not our first choice, but you know, that was the better thing to do given the time. But right now, we're fortunately, we're not in the big restructure mode with the exception of the remaining La Vie portfolio. So we're not seeing a lot of that.

Jonathan Hughes (Analyst)

Okay, that's great. And then maybe one more quick one. What's the timeline for the Guardian, you know, rent increase potential? I think I saw there 5.5 today, and it could go to 12. Is that possible, you know, over the next year or more, like several years from now?

Taylor Pickett (CEO)

So that could be this year. It's really, it's a revenue-based kicker, if you will. So, you know, the operator that's in there today, that just came in, has been in there for 30 days, so it's too early to predict where they're gonna come out in terms of, you know, increasing revenues. It could be low point, mid-point, high point, just too early to say once again, but it is revenue-based. We do expect there to be some increase in the number over the 2024.

Jonathan Hughes (Analyst)

All right. Thank you for the time.

Operator (participant)

Our next questions are from the line of Vikram Malhotra with Mizuho. Please proceed with your questions.

Vikram Malhotra (Managing Director)

Thanks for taking the question. Just, you know, maybe building upon, Guardian, I guess, just versus the other two restructurings. I guess, with Guardian's new rent level for those assets, was it-- it seemed to be a bit below expectations, at least on our side. I'm wondering, is there any read across to resolution of La Vie or Maplewood, just given maybe still some industry headwinds and this minimum staffing? Or are those two situations unique enough where your, you are, you have a maybe more visibility to the ultimate revenue collection or rent collection?

Taylor Pickett (CEO)

Yeah, just, this is Taylor. Just a little more color. As Dan mentioned, Guardian was unique in that the bulk of those assets are in Pennsylvania, which is a very difficult state today. And I'll toggle then over to La Vie, where we have very desirable states with meaningful cash flow. And our expectation is the baseline rent we're collecting today, $1.5 million a month, will increase substantially. And then Maplewood, I wouldn't even really call that a workout. From our perspective, it's finalizing the issues with the estate, finalizing our business deal with the current management team, and just moving that forward and getting the noise away from that management team.

You know, we expect that those cash flows will improve throughout the year, especially as the team's able to focus on their business and not extracting themselves from the process of the estate.

Vikram Malhotra (Managing Director)

... Okay, that, that's really helpful. And then just second, I guess, you know, Bob, perhaps you could clarify how should we think about the trajectory of FAD or FFO, you know, over this year, especially just trying to understand, was the current Guardian rent baked into at somewhere in the guide? And, you know, is this sort of the low point going forward?

Bob Stephenson (CFO)

Well, a couple things. From a, from a guidance standpoint, you know, we gave a wide range, $2.70-$2.80, and, you know, at the low end, you would have the one aspect of Guardian. At the higher end, it would be, you know, approaching that, and same with, with, with La Vie as well. That's how I find the ranges so well. In addition, we have a number of operators on, on a cash basis. I would think the, If you look at second quarter, I can't give you all the components, but just taking a look at, you know, what could impact second quarter, it should flow from there. You have the full impact of the $55 million of first quarter acquisitions, the $165 million of acquisitions we already announced in the second quarter.

Dan already gave you a little update on Guardian. And then, you know, and then on the expense side, if you look at it, we did pay off $400 million of bonds April first, and we paid off a remaining $42 million of HUD in the last week of March. But we have to fund the acquisitions with a combination of credit facility and/or ATM to get it all set there. And lastly, you know, in the press release you saw, we had $82 million of assets held for sale. We did record 626,000 of FAD in the first quarter related to that. And the second note around the asset sales, assets held for sale, three of those buildings have already sold for roughly $27 million in cash.

Hopefully that helps you.

Vikram Malhotra (Managing Director)

Great. Thanks so much. That's helpful.

Operator (participant)

Our next question is from the line of Michael Griffin with Citi. Please proceed with your question.

Michael Griffin (Senior Equity Research Analyst)

Great, thanks. I just wanted to get a little more color on, you know, the acquisitions that you've done so far this year and expectations maybe throughout the balance of the year. Should we-- Is it fair to assume that these are immediately accretive to earnings? I mean, I know you don't provide speculative acquisitions in your guidance, but just trying to see how you might get to the midpoint or above of the guidance, just given where the annualized FAD was this quarter.

Taylor Pickett (CEO)

Sure. Yeah, we would expect them to be immediately accretive. We're quoting 10% yield numbers as the starting point. And that's, I believe, what you'll see going forward. Once again, it is quite active, and even though we did a couple loan deals in the first quarter and subsequent to the first quarter, the lion's share of our deals in our pipeline are, in fact, our normal bread and butter, which is acquisitions of fee simple properties.

Michael Griffin (Senior Equity Research Analyst)

Great, that's helpful. And Megan, I appreciated your comments around the minimum staffing ruling in your prepared remarks. Can you just maybe highlight, and again, I realize it's early days, but maybe some initiatives that the industry is looking to undertake to kind of line up against the mandate?

Megan Krull (SVP of Operations)

Well, I mean, I think first of all, you have the congressional legislation that's already been introduced, right? And I think people feel pretty good about that. The Congressional Budget Office has come out and said that the mandate is actually gonna cost the federal government $18 billion. So that's helpful that they feel that way because they feel like several of the states will step up from a rate perspective, and the federal government will have to match. There's also a belief that, you know, CMS really did not have the right to do this rule because there's already statutes on the books related to staffing, and so there is the legal route that can be thought through, and I think a lot of folks are looking at that currently.

And then you look at the end of the day, this thing doesn't kick in for another two years, and even CMS, in their fact sheet, basically said they're gonna continue looking at the rule, continue seeing what's going on in the industry, and potentially will change the rule before that two years.

Michael Griffin (Senior Equity Research Analyst)

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

Operator (participant)

Our next question is from the line of Tayo Okunsanya with Deutsche Bank. Please proceed with your questions. Excuse me, Tayo. Please proceed with your questions. Our next question is from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your questions.

Juan Sanabria (Managing Director)

Hi, good morning. Thanks for the time. Just wanted to follow up on the, kind of, the Guardian question, and the issues in Pennsylvania and see if there's any implications for La Vie. I think you said there's nine assets there and the prospects of transitioning or selling those assets, given your comments around the difficulty operating in that state.

Taylor Pickett (CEO)

Yeah, it's a good question, Juan. So there are nine assets. The La Vie assets actually do reasonably well, given the difficult operating environment in Pennsylvania. But I will tell you that Virginia, North Carolina, and Mississippi are so desirable that folks are looking at the whole package. We won't have to chop it up, and they generate substantial cash flows, which again, support rents above our current run rate.

Juan Sanabria (Managing Director)

Great. Thank you. And then just on the sub one-time tenant, that is, more sounds like a rounding issue.

... When does the benefit of the Medicaid bump kick in to where you think that will get kind of picked back up into the above 1x coverage bucket? And apologies if I missed it.

Taylor Pickett (CEO)

Yeah, the rate-

Juan Sanabria (Managing Director)

Remark.

Taylor Pickett (CEO)

Yep, yep. Yep, the rate change occurs October first. So that's why we said eventually. And the one other thing I'd point out is you have 0.98 coverage, but if you look at the EBITDA coverage, it's over 1.5x. So there's a lot of flexibility in this entity at that level of EBITDA coverage to flex costs and be able to manage that balance sheet to October first. We really have no concern. But they will bounce around that number for the next few quarters.

Juan Sanabria (Managing Director)

Sorry, just one incoming question that I received is, is there any incremental staffing being mandated in Pennsylvania that would be additive this summer that could be a drag to operators in that state?

Megan Krull (SVP of Operations)

Yeah, there is already staffing mandates there, and it gets a little bit worse. But we're still... We're monitoring the situation. I don't think we have major concerns that things will get much, much worse in the state from where it is now.

Juan Sanabria (Managing Director)

Thank you.

Operator (participant)

Our next question is from the line of Michael Carroll with RBC. Please proceed with your questions.

Michael Carroll (Managing Director)

Yeah, thanks. I just wanted to touch back on, on La Vie. What's left to be done to be, to resolve that situation? I mean, how many more assets, do you need to sell and/or, retenant within that portfolio?

Taylor Pickett (CEO)

So there's 31 assets in total. I think I gave you a breakdown by state. We're not looking to sell those assets at this point. Those states are all very, very good. So, the nature of the restructure, whether it's a retenant or a revised restructure with the existing tenant, has not yet been finalized.

Michael Carroll (Managing Director)

Okay, so there's no other major transitions of those assets that need to be done. It's just that, I guess, what does La Vie need to do? Is it just they need to negotiate a new rent with you? I know previously you talked about right-sizing their ABL, before they can get the necessary cash flow. Has that been done, or are we waiting on that also?

Taylor Pickett (CEO)

No, that was just done more or less automatically as their portfolio shrunk due to the asset sales. But once again, we're not concluded our negotiations or our discussions yet with La Vie. So it's too early to say that we're just renegotiating rent with La Vie. It could go any which way at this point. We're still in ongoing, active discussions.

Michael Carroll (Managing Director)

Okay, and then, and just last one with me. I mean, can you kinda highlight the EBITDAR that those assets are currently generating? I guess, is it well above the, the rent that they're, that they paid in, in the first quarter and that they paid in, in April?

Taylor Pickett (CEO)

Yes, materially.

Michael Carroll (Managing Director)

Okay, great. Thank you.

Operator (participant)

Our next question comes from the line of Alec Fagan with Baird. Please proceed with your questions.

Alec Fagan (Analyst)

Hello, good morning, and thank you for taking my question. The first one is on the sold Guardian Healthcare facilities. Kind of curious, what is the trajectory of the new tenant to getting to that $12 million+ in rent?

Taylor Pickett (CEO)

You know what? Once again, it's a revenue-based kicker, and the tenant's been in there for 30 days, so to speculate on the trajectory of the revenue and how much we would benefit from that is just way too early to tell. I would just be throwing darts.

Alec Fagan (Analyst)

Okay, fair enough. Second for me is, when would the company plan on changing their underwriting criteria following this rule if it doesn't get changed?

Taylor Pickett (CEO)

I think for sure, without a doubt, you have to see how the next year plays out. And we'll just have a lot more facts. But given the fact set we have today, I don't think there's any reason to change underwriting.

Alec Fagan (Analyst)

Got it. One last one for me. Are you seeing better opportunities in the U.K. right now relative to the United States? Do you have any concerns on the regulatory front for the United Kingdom?

Taylor Pickett (CEO)

I think that we were seeing, you know, during the latter part of COVID, we were seeing more deals come out of the U.K. I think it's a little bit more evenly weighted at this point. And we're not concerned about the regulatory environment in the U.K. We feel very good about it, actually.

Alec Fagan (Analyst)

Got it. That's all for me. Thank you.

Operator (participant)

Our next question is from the line of Emily Mackler with Green Street. Please proceed with your questions.

Emily Mackler (Analyst)

Yeah, just kind of following up on that. I know it's early, but do you anticipate dislocation in property types, particularly in more rural areas, in the coming months due to an overhang of uncertainty on the staffing mandate?

Megan Krull (SVP of Operations)

Can you, can you repeat that?

Emily Mackler (Analyst)

Yeah. Just I was wondering if you guys anticipate dislocation in property values, particularly in the more rural areas, in the coming months due to an overhang of uncertainty on the staffing mandate?

Taylor Pickett (CEO)

I don't know that we'll see a dislocation in pricing until at least after the election, because people are just waiting to see where the politics and policy and legislation play out around the rule. And remember, there are rural carve-out exceptions that we don't even fully understand mechanically how they're going to work. So I don't think you'll see pricing dislocation now. If we're still sitting here a year from now with the same fact pattern we have today, then maybe you start to see it at that point.

Emily Mackler (Analyst)

Okay, great. And then, Megan, just one follow-up for you. What are the main drivers of the abnormally large staffing issues in Texas? Are these staffing issues primarily responsible for the lagging occupancy gains relative to the other markets, or is there something that might be fundamentally challenged in that state?

Megan Krull (SVP of Operations)

I mean, look, Texas has a lot of very rural areas, right? And so you have very small towns where it's not easy to go pick up staff, you know, from the neighboring town. You're really relying on your local market. So that plays into it, very wide and vast.

Operator (participant)

Thank you. As a reminder, to ask a question, you may press star one at this time. We'll pause a moment to assemble the queue. Thank you. At this time, I will now turn the conference back to Taylor Pickett for closing comments.

Taylor Pickett (CEO)

Thanks for joining our call this morning. As always, the team is prepared for any follow-up questions. Have a great day.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.