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Omega Healthcare Investors (OHI) Q3 2020 Earnings Call Transcript

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Omega Healthcare Investors (NYSE: OHI)
Q3 2020 Earnings Call
Oct 30, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to the Omega Healthcare Investors third-quarter 2020 earnings call. [Operator instructions] Please note that today's event is being recorded.I would now like to turn the conference over to Michele Reber. Please go ahead.

Michele Reber -- Manager of Operations

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 restructuring, 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 identify 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 independently verified by Omega. I will now turn the call over to Taylor.

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Taylor Pickett -- Chief Executive Officer

Thanks, Michele. Good morning and thank you for joining our third-quarter 2020 earnings conference call. First and most importantly, I again want to thank our operating partners and their staff who have cared for their tens of thousands of residents within our facilities. I would also like to recognize and thank the federal government and the states for their support for the skilled nursing and assisted living communities. The allocation and distribution of additional government funding along with the communication and evolution of clinical protocols have been critical in protecting and saving lives as we combat this unprecedented deadly pandemic. Turning to our financial results, we are very pleased with our third-quarter earnings. Our adjusted FFO of $0.82 per share, and our funds available for distribution of $0.78 per share allowed us to maintain our quarterly dividend of $0.67 per share.

The payout ratio further improved to 82% of adjusted FFO, and 86% of funds available for distribution. Additionally, for the third quarter, we collected virtually all of our contractual rents. Our second-quarter consolidated coverage, excluding CARES Act funding, was 1.05 times rent. This highlights the resiliency of the skilled nursing facility industry in the face of an unprecedented 800 basis point drop in occupancy. Our broad geographic and operator diversity has resulted in wildly different results among our operators, as COVID-19 hotspots have moved throughout the country. Importantly, as we've seen high infection rate geographies abate, we've also seen operator expenses drop, and related cash flows improve.

This dynamic, the ebb and flow of infections, and the ability of our operators to respond, control the virus, and flex their care delivery model provides us with cautious optimism that once the pandemic is controlled, free COVID operating environment with appropriate new infection control protocols will rapidly return. In the meantime, as we think about getting from here to there, the federal and state government support will be critical for the skilled nursing and assisted living care settings. The latest round of CARES Act funding, which requests providers to detail revenue shortfalls and increased expenses is an important step in targeting operators that have been disproportionately impacted by the pandemic. We remain hopeful that a vaccine will be available soon and appreciate the government focus on delivering the first round of vaccines, skilled nursing, and assisted living residents and their frontline caregivers. This will be a crucial catalyst for returning occupancies and cash flows to pre-COVID levels. I will now turn the call over to Bob.

Bob Stephenson -- Chief Financial Officer

Thanks, Taylor, and good morning. I would like to start by also thanking our operators and their employees for their continued heroic efforts during this pandemic. As Taylor said, they are saving lives every day and they were providing essential care to a portion of our elderly population. Turning to our financials, our NAREIT FFO on a diluted basis was $15 million or $0.06 per share for the quarter, as compared to $163 million, or $0.72 per diluted share for the third quarter of 2019. Our adjusted FFO was $192 million or $0.82 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 on our website. In the third quarter, in consultation with our auditors, we determined we will no longer record lease-related revenue on a straight-line basis for operators that have reported substantial doubt regarding their ability to continue as a going concern. We had three operators communicate to Omega going concern disclosures primarily as a result of COVID-19. As a result, we recorded revenue for each operator on a cash basis and wrote off as a reduction to revenue their previously recorded straight line receivable and lease inducements totaling $142 million.

This accounts for nearly 100% of the difference from our revenue reported for the second quarter. Revenue for the third quarter was approximately $254 million, before adjusting for the non-recurring writedown of the straight line receivables and other non-recurring revenue items. The revenue for the quarter includes approximately $8 million of non-cash revenue. We collected over 99% of our contractual rent, mortgage, and interest payments for the third quarter, excluding enforced rental payments due from Daybreak, which is under a forbearance agreement and has not been making payments in 2020. Our G&A expense was $9.3 million for the third quarter of 2020, in line with our estimated quarterly G&A expense of between $9.5 million and $10.5 million. Interest expense for the quarter was $51.8 million, with a $1 million decrease over the second quarter of 2020, resulting from lower average daily outstanding borrowings on our credit facility. On October 7, we issued $700 million of 3.375% senior notes due February 2031.

This transaction was a leverage neutral transaction. However, we anticipate our quarterly interest expense to increase approximately $1.8 million, as proceeds from the offering were used to repay $625 million of LIBOR based term loan debt, maturing in 2021 and '22, and $58 million a LIBOR based credit facility debt, replacing them with a slightly higher fixed rate treasury based debt. Our balance sheet remains strong, and throughout 2020 we continue to take steps to improve our liquidity. At September 30, 2020, we had $171 million of outstanding borrowings under our $1.25 billion credit facility and had approximately $36 million in cash and cash equivalents. Our October bond issuance repaid $683 million of short-term LIBOR based maturities. We have no bond maturities until August 2023.

In March, we entered into $400 million of 10-year interest rate swaps, at an average swap rate of 0.8675%. These swaps expire in 2024 and provide us with significant cost certainty when we refinance our 2023 bond maturity. While we believe our actions today provide us with significant liquidity and flexibility to whether a potential pronounced and prolonged impact to our business. We continue to evaluate any additional steps that may be necessary to maintain adequate liquidity. At September 30, approximately 88% of our $5.2 billion in debt was fixed, and our net funded debt to adjusted annualized EBITDA was 5.25 times and our fixed charge coverage ratio was 4.3 times. It's important to note, EBITDA on these calculations does not include any revenue related construction and process associated with two new builds scheduled to become operational within the next 12 months. When adjusting to include a full quarter of contractual revenue for new investments completed in the quarter, as well as the two new builds, and then eliminating revenue related to assets sold during the quarter, our pro forma leverage would be roughly 5.12 times.

It's important to note, we have lowered our leverage four consecutive quarters with a goal of returning our leverage to less than five times. I will now turn the call over to Dan.

Dan Booth -- Chief Operating Officer

Thanks, Bob, and good morning, everyone. As of September 30, 2020, Omega had an operating asset portfolio of 957 facilities with over 96,000 operating beds. These facilities were spread across 69 third-party operators and located within 39 states in the United Kingdom. Trailing 12 months operator EBITDARM and EBITDA coverage for our core portfolio increased during the second quarter of 2020 to 1.84 and 1.48 times respectively, versus 1.68 and 1.32 times respectively for the trailing 12-month period ended March 31, 2020. These numbers were negatively impacted by a number of external factors affected by COVID-19 including a significant drop in inpatient census and a dramatic spike in operating expenses particularly labor costs, NPP and which were offset by the positive impact of federal stimulus funds. During the second quarter, our operators cumulatively recorded approximately $175 million in federal stimulus funds as a result of the CARES Act. Without federal stimulus monies being included trailing 12 months operator EBITDARM and EBITDA coverage would have decreased during the second quarter of 2020 to 1.61 and 1.26 times respectively. EBITDAR coverage for the stand-alone quarter ended June 30, 2020, for our core portfolio was 1.87 times including federal stimulus and 1.05 times excluding the $175 million of federal stimulus. Operator performance, as described, was significantly affected in the second quarter of 2020 and will continue to be affected in the foreseeable future.

On the negative side of the equation, cumulative occupancy percentages for our core portfolio went from a pre-COVID rate of 84% in January of 2020 to a low of 75.1% in August of 2020. Based upon what Omega has received in terms of occupancy reporting for October to date, occupancy has rebounded slightly to 75.6%. It's important to note that the impact on a specific facility occupancy correlated closely with the number of confirmed COVID positive residents and employees in any given facility. Some heavily affected facilities have seen occupancy erosion of 25% or more, while relatively unaffected facilities in non-hotspots have seen only minimal occupancy declines, or in some cases, none at all. In addition to COVID's negative effect on occupancy, the virus has also caused a significant spike in operating expenses, particularly labor costs and personal protective equipment or PPE. Per patient day operating expenses for our core portfolio increased approximately $25 from January 2020 to June 2020, but decreased about $2 per patient day as of the end of August, the latest stats available. While too early to confirm an absence of a significant COVID spike.

We expect PPD expenses to decline in the coming quarters based upon our ongoing conversations with our operators. As previously stated, our combined coverage for the second quarter ended June 30, 2020. On a stand-alone basis was 1.05 times without taking into account the benefit of the approximately 175 million in federal stimulus funds recognized in the quarter. It is not hard to envision the financial devastation the virus would have had on so many operators has the CARES Act not been implemented. It should be noted that initial guidance from the Department of Health and Human Services, or HHS, on revenue recognition for monies received via the CARES Act has resulted in Omega's operators recording and recognizing the stimulus funds on an inconsistent basis. These inconsistencies have resulted in unrealistic and unsustainable coverage ratios after applying and recognizing the federal stimulus funds associated with the CARES Act.

However, we believe that newly released HHS guidelines will help operators achieve a more consistent methodology for the recognition of revenue in the coming quarter, thus resulting in coverages that, on average resemble those coverages reported prior to the pandemic. Turning to new investments in the third quarter of 2020 Omega funded capital expenditures totaling $22 million. Year to date, Omega has made new investments totaling approximately $163 million, including $93 million for capital expenditures. Turning to dispositions, during the third quarter of 2020 Omega invested six facilities via six separate transactions for total proceeds of $61 million. Year to date, as of September 30, 2020 Omega has divested a total of 19 facilities for $117 million. Lastly, I would once again like to applaud our operators, tireless selfless efforts, particularly those employees on the front line.

Thank you for your unwavering commitment to the health and welfare of our nation's most frail and vulnerable, elderly population. I will now turn the call over to Megan.

Megan Krull -- Senior Vice President of Operations

Thanks, Dan, and good morning, everyone. Since our last earnings call additional support has been provided by the CARES Act under the $175 billion healthcare fund. Details of the second targeted distribution to Medicare-certified nursing homes of $5 billion that was announced July 22, have subsequently been formalized. The first $2.5 billion was paid out in August at $10,000 per facility, plus $1,450 per certified bed, equating to approximately $160,000 per facility. The second $2 billion will be payable in five monthly payments starting in October, based on each nursing homes performance for the month prior and one payment for the aggregate performance in terms of its rate of infection being below the county infection rate, and its death rate being below a national performance threshold for nursing home residents. The remaining $500 million is likely to be based on infection control collaborations as well as for COVID-specific units. In September, HHS announced that assisted living facilities would be eligible to apply for up to 2% of 2019 patient revenues under the Phase 2 general distribution allocation, which I previously only been open to Medicaid and CHIP program providers.

The willingness of HHS to establish a portal for licensed assisted living facilities is a giant step in the right direction in terms of much-needed support for that sector. In October, HHS announced a new $20 billion Phase 3 general distribution for which an application process is open through November 6 available to all healthcare providers previously eligible for payouts. So [SNF and ALF will be able to apply] after all applications have been submitted and reviewed, payouts will be based on some yet to be determined the percentage of change in net operating income related to patient care. Additionally, the repayment of advanced Medicare payments originally to start in August over a 90-day period has been extended out to one year from receipt of payments March through April 2021. And will be payable over an extended period of time with recoupment at 25% agreement over the first 11 months 50% over the following six months, and any remaining amount via a lump sum. With testing key to the control of the virus prior to a vaccine, CMS in August mandated the regular testing of nursing home employees weekly, biweekly, or monthly based on the positivity rates in the county each nursing home is located. And with accessibility to test at reasonable rates key to that mandate, as well as the visitor testing has given revised visitation guidelines, CMS has also bolstered its initiative to provide access to tests. In early September, CMS announced that it had contracted with Abbott to provide nursing homes with an initial 750,000 antigen rapid test where no machine is needed, with additional tests expected to go out in regular intervals throughout the remainder of the year, including to assisted living facilities.

These tests can then be purchased at $5 per test. HHS also announced in October that it has signed agreements with CVS and Walgreens to provide vaccines to nursing home residents, likely as a priority group once the vaccine is available. The steady continued support of the government both financially and on the testing front for the long-term care industry has been critical in providing operators the ability to control the virus that is unlike any other that the industry faces today. But there is no rest for the weary as it relates to the battle against COVID-19 and continued government support into 2021 is necessary to combat but the long-term and short-term effects of this virus on the industry and the population that it serves each and every day. 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. In conjunction with Maplewood Senior Living, we have completed work on our ALF Memory Care high-rise at Second Avenue in 93rd Street in Manhattan. The opening of the project is pending licensure by the New York State Department of Health. The final project cost is expected to be approximately $310 million. The COVID-19 pandemic poses certain challenges unique to senior housing operators, including increased costs the challenges of managing COVID positive patients, and meaningful practical limitations on admissions.

While they very much appreciate the help they have received private-pay senior housing operators have not seen the level of government support provided to other areas of senior care. We saw challenges to our senior housing census throughout the second quarter with variations tied to when and where COVID outbreaks were encountered. However, we have seen evidence of stabilization and strengthening of census in markets where admission freezes have been lifted. By example, our Maplewood portfolio which is concentrated in the early affected Metro New York in Metro Boston markets saw meaningful census erosion early in the pandemic, with second-quarter census hitting a low point of 80.4% in early June. That said, their portfolio occupancy has returned to 84.5% by the end of August. Well, anecdotal this experience provides some evidence that the pent up demand during admission freezes can translate to faster than typical fill rates in the months that follow, including the land and CIP at the end of the third quarter Omega senior housing portfolio totaled $1.6 billion of investment in our balance sheet. All of our senior housing assets are in triple-net master leases, excluding our investment in our New York City development.

Approximately one-third of our investment is in Maplewood assets, which are in one master lease. A third is in the UK with two master leases one for Gold Care assets in healthcare homes assets, respectively. And a third is intermixed with SNF assets in various master leases. Our overall senior housing investment comprises 130 assisted living, independent living, and memory care assets in the United States and the United Kingdom. As expected, this portfolio on a stand-alone basis had its trailing 12 months EBITDA lease coverage falls to 1.16 times in the second quarter of 2020.

With COVID outbreaks affecting different markets at various times, it is reasonable to think that coverage may see additional downward pressure during the course of the pandemic. While we remain constructive about the prospects of senior housing the COVID-19 outbreak has warranted a far more selective approach to development. 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 $22.3 million in the third quarter in new construction and strategic reinvestment. $12.6 million of this investment is predominantly related to our active construction projects. The remaining $9.7 million of this investment was related to our ongoing portfolio capex reinvestment program. I will now open the call for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question today comes from Tayo Okusanya with Mizuho.

Tayo Okusanya -- Mizuho Securities -- Analyst

Yes. Good morning, everyone. Hope you are all keeping well and keeping safe. My first question is a two-part.

Just on government reimbursement. Obviously, I think the rent coverage ratios indicate that -- that's been a big help. But question is for how much longer do you think Omega ends up supporting the space. Specifically, what are you expecting in terms of another round of stimulus and even with some of the current stimulus in place as it pertains to programs that are temporarily in place. Do you expect those to keep going or do you end up when they expire, do you expect the government to kind of stop supporting them just kind of curious for the government support?

Taylor Pickett -- Chief Executive Officer

Good morning, Tayo. A couple of things. Remember, there is still $30 billion of unallocated CARES Act money available. And at some point that will be allocated, I would expect that skilled nursing facility industry will receive an amount that's consistent with what we've seen in prior routes.

And I think ultimately, we will see another round of stimulus when the politics get settled out. It just doesn't make sense to provide it, the type of support that's been provided today, and then to just stop. And that goes back to just as you know the nature of this business and important piece of the continuum. So, our expectation is that there is a lot of money in the system, not all of it has been used. There is more forthcoming, and I think at some point, we'll have another round of stimulus.

Tayo Okusanya -- Mizuho Securities -- Analyst

That's helpful. My second part on that is again some of your tenants have weaker rent coverages. I mean, they're all currents and rent, which is great. But is there any risk kind of lease restructurings happening at some point down the road if you continue to get a significant government stimulus in support?

Taylor Pickett -- Chief Executive Officer

Yes, I think that's always a risk. But the one thing I would point out, that I pointed out in my comments earlier is, we've seen the hotspots move around the country. So you'll see stress with the hotspots that abate. And so it's very difficult to predict long-term the operators that will have ongoing stress, but we have seen operators rebound pretty rapidly as well.

So, I think the possibility is out there. I don't think it's broad and being much more targeted. And from our perspective, we haven't had those discussions to-date. And we ultimately do any form of rent relief would be in the form of deferred rent. Because ultimately, we know the back end of this team that returned occupancies and markets as the virus has abated, I think that's the dynamic we're going to see going forward.

Tayo Okusanya -- Mizuho Securities -- Analyst

Gotcha. OK. [Inaudible] Thank you

Operator

Our next question comes from Nick Yulico with Scotiabank.

Nick Yulico

Hi, good morning, everyone. Just a question on skilled nursing occupancy I mean, you did talk about how it's been a bit of a challenge for occupancy to come back for operators. Maybe you could just talk about what you're hearing from your operators about, why that delay is happening. We have seen elective surgeries picking up again in the U.S.

hospital system and yet, it doesn't seem like that's really creating a bigger flow of discharge to skilled nursing and post-acute rehab yet?

Taylor Pickett -- Chief Executive Officer

So the first thing that we had to see was kind of a flattening of the occupancy trend, right? It's been going down for quite a few months. We think it -- bottom if you will in August of this year. We have seen it creep up it's, you know, depends market-driven obviously. Some areas have seen it come up faster than others.

But in our conversations with the operators what they're looking for to see is a rebound more of the long-term care resident. You know, that's the one that has a much longer length of stay but the admissions of those residences is much lower totally, you know, it may be one, two, maybe three a month in a given facility. So that's a slower clawback if you will to regain pre-COVID occupancy levels. On the Medicare side, we have seen a pickup in occupancies in acute care hospitals. They're certainly not back anywhere near what they were before COVID but I think people that are doing elective surgeries are really more of your healthy folks that have put these elective surgeries off and not the type of patients that would go from an elective surgery into a nursing home for rehab.

Those would be more of your 80-plus-year-old residents with comorbidities. So a lot of these elective surgeries, they're not being discharged to skilled nursing facilities. They would never have been in the past and they're not now. So, I think sort of the last piece of the hospitals having elective surgeries come back is these elderly population right now, who is I think, just quite frankly where you're going into keep your setting, and ultimately perhaps a skilled setting.

Nick Yulico

OK. Thanks. It's helpful. Our second question is just on the -- your acquisition market right now.

I mean, are you seeing much in the way of opportunities and I mean, how does underwriting work in a COVID world for -- looking particularly to buy it in skilled nursing.

Taylor Pickett -- Chief Executive Officer

We have seen a little bit of an uptick in the acquisition environment. We've seen some more deals, underwriting it is challenging depending on how hard you know what we're looking at has been care. We, of course, look to historical levels pre-COVID with a bridge to get back to those levels, but it is challenging. But we have seen an uptick we are going to be opportunistic if we can.

We see deals that present themselves we will look at them very, very hard.

Nick Yulico

And any pricing change that you guys are seeing I mean is it an attractive time if you are going to be buying skilled nursing, others have talked about that pricing has gotten more attractive on senior housing. So what about skilled nursing?

Taylor Pickett -- Chief Executive Officer

I don't think we've seen and upgrades in skilled nursing to really decide I mean, I think, we're going to have a price where we see it. And maybe that will dictate where pricing ultimately ends out. But there has not been enough deals consummated at this point.

Nick Yulico -- Scotiabank -- Analyst

All right. Thanks, everyone.

Taylor Pickett -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Connor Siversky with Berenberg.

Connor Siversky -- Berenberg Capital Markets -- Analyst

Good morning, everybody. Thanks for having me. First question on skilled mix. I mean, it seems to be sequentially improving still and a little unsure of how to look at this going forward.

So I mean, is this a trend that has just been exacerbated by the pandemic, or is it something that we should expect to moderate overtime? Details will be appreciated.

Bob Stephenson -- Chief Financial Officer

Yeah, so we have seen an uptick in the skilled mix. And it really is because of the ability to facilities to skill in place. So you have a resident that is otherwise not Medicare-eligible is infected with COVID, they automatically skill into a skilled resident. So that's really behind the big upswing in the Q mix going up.

And so, we can only expect that to continue as long as you've got COVID out there and COVID outbreaks. We would think that would moderate over time, as the COVID cases decline.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK, thanks for that. And one other. Looking at EBITDA coverage above one times during Q2. And then given some of the occupancy declines we'd seen may be worse in some markets than others.

I mean could you help build the bridge here, and then maybe outline some of the factors that were supporting coverage during Q2?

Taylor Pickett -- Chief Executive Officer

Well, some of the things that were supporting obviously, there was a government stimulus, federal government stimulus, there was also the state. So in many instances increase their funding both through FMAP and some just COVID-related increases in rates. As we just talked about the ability to skill in place that's favorably impacted our facilities. You have the impact of the 2% sequestration going away that was favorable. So you had some positive things that happened during the quarter, which I think bolstered coverage to some degree.

Right now, in the short run in the next few quarters, we don't see a lot of folks moving around these buckets too much, unless they change the methodologies I have alluded to about how they record federal stimulus. I think that for me is a big driver in how these somehow people move among these different buckets.

Connor Siversky -- Berenberg Capital Markets -- Analyst

OK. And then and one last quick one from me. Looking at some news in regard to state budgets, reduction in tax revenues, and a lot of cases? Is this a concern for you guys or something you have eyes on and just maybe offer some color of how you plan to navigate 2021 if this issue is to persist?

Bob Stephenson -- Chief Financial Officer

Yes, so we always, obviously pay attention to state budgets and think about the potential impact on our operators, revenue streams. But I will say that when you think about how Medicaid is funded and the fact that there's a substantial federal match, oftentimes up to three times the amount of the state funding for Medicaid. Very rarely do you see states confronted with budget constraints where they're cutting Medicaid rates because the federal match is a multiplier on that cost. So we historically seen states where there's budget issues, hold Medicaid rates flat, which, frankly in this environment, I think would be OK.

Connor Siversky -- Berenberg Capital Markets -- Analyst

All right. That's all for me. Thanks very much.

Bob Stephenson -- Chief Financial Officer

Thanks, Connor.

Operator

Our next question comes from Daniel Bernstein with Capital One.

Daniel Bernstein -- Capital One Securities -- Analyst

Hi, good morning. I'm wondering just trying to think about, pre or post-COVID I know this is more theoretical and hard to predict, but what is skilled nursing going to look like? Is it going to be much higher acuity Medicare and more Medicaid mix going forward than what it was pre-COVID just trying to understand how you guys might are thinking about what skilled nursing might look like, post-COVID?

Taylor Pickett -- Chief Executive Officer

So, I don't know that -- COVID is obviously pretty accelerated a lot of other changes and shifts in other industries, particularly technology. I think as it relates to skilled nursing, you're probably right, and that we've seen for the last decade, a shift into higher acuity Medicare, higher acuity Medicaid frankly I think that shifts just continues. I don't know that COVID accelerates it dramatically. But given as -- we all know the demographics that push along, that shift will be welcome in terms of not overwhelming the limited supply of this system. But I think that's what it looks like that we get post-COVID, you have what you just said, continued higher acuity on the Medicare side and a Medicaid base that's as more comorbidities that existed a decade ago.

Daniel Bernstein -- Capital One Securities -- Analyst

OK. Does that kind of vision allow you to underwrite assets? I know it's very difficult you guys have alluded to being difficult but if you can go this is probably what it's going to look like. Can you underwrite assets or is it just so varied by property-by-property or portfolio that it's just too much of generality to go, this is how it's going to look like we quit underwrite it?

Taylor Pickett -- Chief Executive Officer

Well, the one component of the underwriting is the structure of the physical plan. And we've seen almost the complete elimination of three and four-bed type rooms. I think that gets completely accelerated with COVID-19. So you have to at least underwrite the physical structure, knowing that you need to have at minimum semi-private rooms, and then obviously, the ability to control infections within those facilities. And so that goes to airflow and those type of dynamics.

So I think retrofitted buildings from the 1960s. That's a lot tougher to think about that purpose-built facilities in 1989.

Daniel Bernstein -- Capital One Securities -- Analyst

OK. And then the last question I have is just trying to understand portfolio performance in the skilled nursing industry itself? Was there and knowing that COVID wherever geographically COVID was high, it makes a difference. Did you see any difference between urban, suburban facilities, rural facilities in your portfolio in terms of performance? And then maybe again, where the facility started off with skill mix? Just trying to understand where the differences in performance are occurring within the skilled nursing industry?

Taylor Pickett -- Chief Executive Officer

Well, I mean in our portfolio, yeah, certainly we saw it hit the urban markets first and hardest. Obviously, the biggest outbreak was in the New York City areas, Connecticut and New Jersey, that was quite large, although, quite frankly, we don't have much in that region. But obviously, we did see it hit that area hard and hit the skilled nursing facilities hard. It also hit Southern California quite hard. And then if you just go around the country and pick out and bigger urban spots in those areas a lot of them were hit in Orleans, Detroit, Chicago.

So and then the rural areas, not near as much. I mean, there were some isolated hotspots. But they were pretty isolated we saw you know rural Texas not really get hit at all for many months, and still, it's pretty clean down there. So it did matter a lot where you were, and it did matter whether or not you had a hotspot in the community. So, if that community was hot with COVID.

It almost always carried into the nursing home within a week or two.

Daniel Bernstein -- Capital One Securities -- Analyst

So performance wasn't so much focus on like there was a Medicaid heavy facility versus a Medicare facility it was -- if you have COVID or not?

Taylor Pickett -- Chief Executive Officer

That's correct.

Daniel Bernstein -- Capital One Securities -- Analyst

OK. I appreciate it. I'll hop off. Thank you.

Taylor Pickett -- Chief Executive Officer

Sure.

Operator

The next question comes from Nick Joseph with Citi.

Nick Joseph -- Citi -- Analyst

Thanks. So you moved a handful of tenants to cash recognition and had the straight-line rent write off. So I'm wondering if you view that more as one-time or would you expect additional tenants to express growing concern and have additional write-offs going forward?

Bob Stephenson -- Chief Financial Officer

I wouldn't want to sit here and say it's one-time, but you know it is driven by accounting and how folks report their accounting. So to the extent that you have operators that haven't recorded the way Genesis and Agemo reported to-date. Could they change? Sure. That's a possibility, I think it's just as likely that they'll continue to report as they asked.

But remember, this is really driven by an accounting disclosure that requires us to think it in a different way about how we book our revenue.

Nick Joseph -- Citi -- Analyst

But there's nothing from a facility standpoint with those tenants that -- I know the rent is being collected, but there's nothing from the facility standpoint that you're seeing different with those tenants that you are off for the rest of your portfolio today?

Bob Stephenson -- Chief Financial Officer

The general answer is no, nothing different.

Nick Joseph -- Citi -- Analyst

Great. Thank you.

Operator

Our next question comes from Rich Anderson with SMBC.

Rich Anderson -- SMBC -- Analyst

Hey, thanks. Good morning, everyone. So to that accounting disclosure issue is that what you're talking about when you mentioned the inconsistent basis or the inconsistent recognition from HHS stimulus and can you give me a two-sentence definition of what that could mean I've just done --

Bob Stephenson -- Chief Financial Officer

Yeah, the inconsistent recordation of stimulus money had nothing to do with the write-off --

Rich Anderson -- SMBC -- Analyst

OK.

Bob Stephenson -- Chief Financial Officer

-- straight line. So it's just that the guidance initially was not crystal clear so, some of our operators didn't recognize any stimulus money even though they took it in their facility-level financial statements. Some of them attempted to apply it based upon I think, what they were intending to do, which is apply it to lost revenue and increased expenses. And different operators use different forms of that. And then some operators quite frankly, divided it by a quarter and did it up in three equal payments.

So there were all sorts of different methodologies and that's what I meant by inconsistency because all of our operators used it practically different ones.

Rich Anderson -- SMBC -- Analyst

So that could --

Bob Stephenson -- Chief Financial Officer

That's going to straighten down in the third quarter in part but more than likely in the fourth quarter.

Rich Anderson -- SMBC -- Analyst

Where so -- whatever coverages you disclose will be -- you'll have a lot more comfortable with I guess, is that correct?

Bob Stephenson -- Chief Financial Officer

That's accurate. Yeah.

Rich Anderson -- SMBC -- Analyst

OK. So, this is all great that stimulus is coming in and expected to continue and it's great that your coverage on average is above one even without it. But you obviously have, wide range, as you discussed. So in the aftermath of COVID, I'm wondering, is there going to be some kind of reset, where the government says, OK, we help you survive through this.

Now you're on your own, not on your own, but we have to scale it back a little bit. And so, there's going to be some winners and losers in the aftermath of all this. And my question is, you mentioned the good payout ratio on your dividend. Do you think that there's a reset among your tenants within Omega, such that you'll have to, OK, really kind of reset the bar across the board excluding stimulus because we're now in a more comfortable place regarding the virus and that there will be a fair amount of tenants where you'll have to have a conversation about rents and coverage and all that sort of stuff such that the dividend could also have to be reset? Is that a too farfetched of a scenario or is that a possibility in the aftermath of this?

Bob Stephenson -- Chief Financial Officer

I think it's unlikely. In the sense, you have to look past just the context of our world with 5% of the skilled nursing facilities in the country and think about the other 95%. And part of our underwriting is to have upper quartile type performers. So if you have an environment where you say, all right, we're going to just change the overall reimbursement in this industry, and we're going to drop it.

The lower quartile performers are not going to survive. And you think about the government support of this piece of a care delivery continuum. And the idea that you drop rates and force supply out of the system, the lower quartile performers, the upper quartile performers are going to survive like you take so much supply out of the system that you work -- it's a cross card you work against yourself. So I think it's -- look, you can never predict where the government falls, but the long-term ramifications aren't good public policy. And but that doesn't mean that we wouldn't obviously, we have such a big portfolio and there's going to be a component that's going to be in that lower quartile, but not much.

Rich Anderson -- SMBC -- Analyst

Well I guess, I'm not talking so much about cutting Medicare reimbursement or attacking PDPM or anything like that, it just stays status quo, pre-COVID, without stimulus. Your starting point in that environment is going to have a fair amount of operators that are underwater from relative to their rent payment. I'm just saying, leaving everything else alone, all else being equal. Do you think that there's kind of a reset that happens within your portfolio, even with a market basket of 2% and everything else that's involved typical?

Bob Stephenson -- Chief Financial Officer

I don't think so. I think if you look at where we were pre-COVID, and the trend of our coverages and the trend of occupancy, and we return to that state. There was not -- there's very little pressure in the portfolio at that point in time --

Rich Anderson -- SMBC -- Analyst

Right. There might be a period of catch up to get occupancy back up to that pre-COVID, right? And that's my point.

Bob Stephenson -- Chief Financial Officer

Yes.Look, if you have a gap. It's going to be temporary, and you deal with it, but I don't think you deal with it in the form of a permanent step down. I mean, that's just not the nature of how we deal with our tenant relations ever.

Rich Anderson -- SMBC -- Analyst

Right. Fair enough. I appreciate it.

Bob Stephenson -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Lukas Hartwich with Green Street Advisors.

Lukas Hartwich -- Green Street Advisors -- Analyst

Thanks. Good morning. You touched a little bit on this earlier but I just want to ask the question a little bit differently. Do you think that the election outcome next week impacts the odds of continued financial support for the skilled nursing sector?

Taylor Pickett -- Chief Executive Officer

I actually don't. I think that however, whatever comes out of the election may affect the timing. But I think the odds are very, very high that normalcy continues [Inaudible].

Lukas Hartwich -- Green Street Advisors -- Analyst

OK. And then on the disposition, this quarter, do you have a sense of how the pricing on those transactions compared to where they were traded pre-COVID?

Taylor Pickett -- Chief Executive Officer

I think most of the deals were struck pre-COVID. I don't think the pricing moved at all.

Lukas Hartwich -- Green Street Advisors -- Analyst

OK. So retrading in that case. And then the last. Just a quick housekeeping question.

What was the $8 million in non-recurring revenue?

Bob Stephenson -- Chief Financial Officer

Yes, it's really two components there, it represents cash received related to a contractual repayment of a lease inducement as well as non-cash revenue related to this long acceleration of a low market in place leased assets resulting from transitioning a couple of facilities to a new operator. So really two components.

Lukas Hartwich -- Green Street Advisors -- Analyst

OK. So some cash and non-cash though.

Bob Stephenson -- Chief Financial Officer

That is correct.

Lukas Hartwich -- Green Street Advisors -- Analyst

OK. Great. Thank you.

Bob Stephenson -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Jon Petersen with Jefferies.

Jon Petersen -- Jefferies -- Analyst

Great. Thanks. Maybe I'll ask another election question. But, you know, obviously the elections next week.

But it kind of seems likely that we probably won't see any stimulus passed or go into effect until next February when after everybody's put into place. I mean is -- I guess what does that mean for your sector? Is there enough of a bridge of funding right now that everybody can smoothly get to that point next year until the government steps in again?

Taylor Pickett -- Chief Executive Officer

I'm not sure if everybody, but substantially, everybody, because remember we had mentioned earlier, there is still $30 billion of unallocated CARES Act money. And there is $20 billion in this latest round, where applications have made, but no distributions are yet made. So you have $50 billion that hasn't yet been distributed. Think about it.

There is 30% of the whole CARES Act poll. And we have three months to get into 2021.

Jon Petersen -- Jefferies -- Analyst

Got it. OK. All right. That's helpful.

And then I know you guys said in your prepared remarks that the second Avenue is completed, I think just waiting for kind of approval to get open. I guess, what's the timeline there like do you want to open it right now? Or is it better to wait given the environment? Just maybe give us a little more details on what we should expect there?

Taylor Pickett -- Chief Executive Officer

Yes, that's a good question. Stephen, you want to take that?

Steven Insoft -- Chief Corporate Development Officer

Sure. I think the short answer is we would open it as soon as the state provides us a license to do so, which to your earlier point is probably sometime in the next week or so till year-end ish. We're in a funky environment as you all know. It's a very tough environment in which to push the Department of Public Health given what's going on.

We did see a building in Brooklyn get licensed in the last few weeks. So we know the surveyors are out there. We're working in communicating with the state. But yes, as soon as possible.

Jon Petersen -- Jefferies -- Analyst

Got it. And then maybe just one more bigger picture question, I think you guys have alluded to and I think even in today's call talked about longer-term, the demographics are positive for your industry. And there is a potential shortage of beds down the road. I guess, does the current environment -- Does it put more of a spotlight on the skilled nursing sector? Does it help kind of alleviate those problems? Do we see more construction, more approvals stuff like that like further down the road? I know, we're all very focused on the COVID environment.

But if we think three to five years down the road, do you think anything has changed?

Steven Insoft -- Chief Corporate Development Officer

I don't know that anything has changed, I don't think so, I think the supply constraints that we see, and the time lags of states responding to lack of supply are always fairly big. So my guess is we will continue to see the dynamic that we saw pre-COVID for the next five, six, seven years.

Jon Petersen -- Jefferies -- Analyst

All right. Thank you. I appreciate it.

Steven Insoft -- Chief Corporate Development Officer

Thank you.

Operator

Our next question comes from Joshua Dennerlein with Bank of America.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, everyone. Just a follow-up question on acquisitions. Are sellers just not putting assets on the market right now or is pricing just -- or their assets on the market and pricing is just too far apart between buyers and sellers to get trades done? And if just the latter -- what is the big difference between buyer and seller underwriting?

Taylor Pickett -- Chief Executive Officer

You know I think there has been a pickup in deals in the market, but it's all relative right, compared to the last few quarters which was non-existent. It's picked up. You know there is a difficulty with underwriting and there is a difficulty with due diligence too, it's hard to go into a building and interview employees, kick the tires, bring in third-party contractors et cetera, do environmental assessments on capex needs. So it just makes it a much more challenging environment and I think the operators as a whole are just -- they're just trying to minimize the effect of COVID where it stands today. And I think there's a perception that if they were to put up a facility on the market today, it might seem like a little bit of a fire sale.

So I think that's slowing things down a little bit. It's just a challenging environment to do deals.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. OK. Thank you. And then maybe one other one, it was brought up in the opening comments.

You mentioned like the faster than normal fill rates of the Maplewood portfolio. Could you maybe elaborate on that? Like how much faster than normal so was going on?

Taylor Pickett -- Chief Executive Officer

Steve, do you want to take that?

Steven Insoft -- Chief Corporate Development Officer

Yes, sure. Just by -- by -- and again it's anecdotal but in early June, as I mentioned in my prepared remarks, they hit a low point in their portfolio of just slightly over 80%. The month of June was actually their highest moving rate in the past 18 months, and the point I was trying to make was just that there was pent-up demand that we saw in that portfolio. I can't quote you exact move-in without rates in that portfolio but it was about 3x for that month what they typically saw, which is what we found encouraging.

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

OK. That's all. That's great color. Appreciate that.

Thank you

Operator

[Operator instructions] Our next question is a follow-up from Tayo Okusanya with Mizuho.

Tayo Okusanya -- Mizuho Securities -- Analyst

Yes. The FFO impact on the move to cash accounting. Could you just let us know what that number is? And what kind of -- what we will be going forward as you can model for 2021?

Taylor Pickett -- Chief Executive Officer

Yes, Tayo. So if you look at it, there is basically you remove the straight line component of those two operators, most of that was removed in the third quarter, there was a little bit of residual that was not removed in the third quarter, roughly about $2 million of straight line related to both the timing of Genesis and Agemo when we put it on there. But that's going to get all set by Maplewood receiving their temporary certificate of occupancy. So from an AFFO standpoint, you'll see very little, and from a FAD standpoint, you won't see any.

Tayo Okusanya -- Mizuho Securities -- Analyst

From an FFO perspective, how much was it? How much of that the quarter impact?

Taylor Pickett -- Chief Executive Officer

The third quarter had roughly $2 million of straight line related to Agemo and Genesis.

Tayo Okusanya -- Mizuho Securities -- Analyst

OK, so it's like $8 million annually. OK. That's helpful. And then, Steve, again, I may have missed this but for Maplewood.

I mean, could you talk a little bit about what rents were kind of underwritten, and what kind of new stuff was underwritten when this project was started? And kind of what your expectations are now that it's about to open.

Steven Insoft -- Chief Corporate Development Officer

Yes, our expectations, I think the only thing that's changing the expectations is the timing. But the timing for a period in the past would have increased the delay in timing would have increased the overall cost because there was some additional accruals. There was also some additional construction costs, which I alluded to in last quarter's call but the deposit level has maintained fairly constant. Maplewood has not stopped their marketing. But that said, if you looked at the list of people who are on the deposit list today, it wouldn't be the same list that was in early April as you might expect given the frailty of the population.

I don't -- I think it's practical to think there. When we underwrote it, we were expecting a 36-plus month sell up. Will that fluctuate a little bit? I'd rather not handicap it because I don't know when we're going to get the license. But I don't think it's going to meet materially.

Tayo Okusanya -- Mizuho Securities -- Analyst

And what kind of rents were expected for that will be charged to residents, and is does that number changing materially, does that impact what kind of rents you're expecting to get from the operator of the building?

Steven Insoft -- Chief Corporate Development Officer

No, I don't think so. We're not seeing any degradation in there. What I call sort of revenue per occupied room in their Metro New York properties today. There has been very little if any resistance to pricing during the marketing.

We think it's going to be a mid-to-high teens average, call it monthly fee, because, as you well expect, some of that is a base fee and some of its value add health services. But there is no indication that the market and it works for that kind of care has really been altered.

Tayo Okusanya -- Mizuho Securities -- Analyst

Great. Thank you.

Operator

This concludes our question-and-answer session, and I would like to turn the call back over to Taylor Pickett for any closing remark.

Taylor Pickett -- Chief Executive Officer

Thank you. Thanks, everyone for joining our call this morning. Please feel free to contact Matthew or Bob with any follow-ups you may have.[Operator signoff]

Duration: 60 minutes

Call participants:

Michele Reber -- Manager of Operations

Taylor Pickett -- Chief Executive Officer

Bob Stephenson -- Chief Financial Officer

Dan Booth -- Chief Operating Officer

Megan Krull -- Senior Vice President of Operations

Steven Insoft -- Chief Corporate Development Officer

Tayo Okusanya -- Mizuho Securities -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Connor Siversky -- Berenberg Capital Markets -- Analyst

Daniel Bernstein -- Capital One Securities -- Analyst

Nick Joseph -- Citi -- Analyst

Rich Anderson -- SMBC -- Analyst

Lukas Hartwich -- Green Street Advisors -- Analyst

Jon Petersen -- Jefferies -- Analyst

Joshua Dennerlein -- Bank of America Merrill Lynch -- Analyst

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