Gen Digital Inc.
Q3 2015 Earnings Call Transcript

Published: 6 Nov 2015

[Operator:]

Good morning, my name is Jackie and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Lori Mayer, Vice President of Investor Relations. Please go ahead.

[Lori Mayer:]

Good morning and thank you for joining us today. We filed our earnings press release yesterday afternoon. This announcement is available in the Investor Relations section of our website at www.genesishcc.com. A replay of this call will also be available on our website for one year. Before we begin, I would like to quickly review a few housekeeping matters. First, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate. These statements are subject to risks and uncertainties that could cause our actual results to materially differ from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements, and I encourage you to review our SEC filings for more complete discussions of factors that could impact our results. Except as required by Federal Securities law, Genesis HealthCare and its affiliates do not undertake to publicly update or revise any forward-looking statements or changes that arise as a result from new information, future events, changing circumstances or for any other reason. In addition, any operation we mention today is operated by separate independent operating subsidiary, that has its own management, employees and assets, references to the consolidated company and its assets and activities, as well as the use of the terms, we, us, our, and similar verbiage are not meant to imply Genesis HealthCare has direct operating assets, employees or revenue or that any of the various operations are operated by the same entity. Furthermore, we supplement our GAAP reporting with non-GAAP metrics. When viewed together with our GAAP results, we believe that these measures can provide a more complete understanding of our business, but they should not be relied upon at the exclusion of GAAP report. GAAP to non-GAAP reconciliations are available in today's press release. To facilitate comparisons before and after the February 2015 combination with Skilled Healthcare, we have also provided certain non-GAAP financial information on the basis assuming the combination of Skilled Healthcare and Genesis HealthCare occurred at the beginning of each reporting period. This data is labeled Pro-Forma. Also, when we reference earnings per share, we are always referring to diluted earnings per share. And with that, I will turn the call over to George Hager, CEO of Genesis HealthCare.

[George Hager:]

Thank you, Lori. Good morning and thank you for joining us today. I would like to begin today's call with a brief overview of our results, and provide an update on a number of our operational and strategic initiatives. Then I will turn the call over to Tom DiVittorio, Genesis HealthCare's Chief Financial Officer. In the third quarter, on a pro-forma basis, we reported EBITDAR of 188.8 million, EBITDA of $67.2 million and earnings per share of $0.07, all exceeding our expectations. I am extremely proud of our performance that this is the third consecutive quarter with EBITDA growth in excess of 10%, with the third quarter posting year-over-year EBITDA growth of 13.1%. Clearly, our cost saving initiatives, the realization of Skilled Healthcare synergies, our acquisition and development strategy and success managing controllable costs relative to fluctuations in business volume are all contributing to our strong year-over-year earnings growth and EBITDAR margin expansion of 60 basis points. In the third quarter, we realized $10.2 million of savings related to our expense reduction initiatives and $25.7 million of savings through the first nine months of 2015. We are on track to realize $35 million in savings in calendar 2015. We realized $4.1 million of Skilled Healthcare transaction synergies in the third quarter and $8.1 million through the first nine months of 2015. We remain confident in our $13 million synergy estimate for 2015 and $25 million of full year run rate synergies by mid-2016. I want to thank all of our caregivers and employees for making the third quarter of 2015 yet another very successful quarter for Genesis. Moving on from our third quarter results I would like to discuss our progress in three important strategic areas

[Tom DiVittorio:]

Thanks George and good morning. Before I discuss our earnings outlook, I would like to address the disclosure in our press release regarding the Skilled Healthcare loss contingency reserve. Genesis is currently engaged in discussions with representatives of the Department of Justice in an effort to reach mutually acceptable resolution of two investigations involving therapy matters and staffing matters related to the former Skilled Healthcare business before it’s combination with the Genesis. Discussions have progressed to a point where we believe it is appropriate to accrue an estimated loss contingency reserve of $30 million. Recognition of the loss contingency reserve is not an admission of liability or fault by the company or any of its subsidiaries. Because these discussions are ongoing, there can be no certainty about the timing or likelihood of a definitive resolution. As these discussions proceed and additional information becomes available, the amount of the estimated loss contingency reserve may need to be increased or decreased to reflect this new information. Throughout our history, Genesis has embraced a strong culture of compliance. We operate in a regulated environment and have worked hard over the years that have a respectful and productive relationship with our State and Federal regulators. And these relationships are important to us in serving our healthcare mission, for our patients, employees, and their families. We are committed to resolving these legacy Skilled Healthcare matters if principled and workable resolutions can be reached. Now to our outlook. We are reaffirming with confidence our 2015 EBITDAR and EBITDA guidance range, the midpoint of this range implies EBITDAR of $763 million and EBITDA of $275 million, which yields 10% EBITDAR and 23% EBITDA growth of the 2014 results on a pro-forma basis for the Skilled Healthcare merger. We are also reaffirming our 2015 diluted EPS guidance range of $0.34 to $0.39. Based on our performance thus far in 2015, we are increasingly confident in our ability to perform above the midpoint of our 2015 EBITDAR and EBITDA guidance. While we are not ready yet to issue guidance for 2016, I would like to remind you to take a look at Slide number 20 in our investor presentation, which you can find in the Investor Relations section of our website. Slide 20 illustrates the incremental value creation in 2016 of the initiatives and transactions we’ve engaged in over the last nine months. You will see that these transactions position us nicely to drive growth into 2016 and beyond. Benchmarked off the midpoint of our 2015 guidance, and assuming that we are in place for a full year, these transactions before taking into account any normal levels of organic growth and other transactions we may enter into will generate EBITDAR growth of over 6%, EBITDA growth of nearly 25% and free cash flow growth of nearly 67%. In conclusion, we are very pleased with our performance through the first nine months of 2015. We expect to finish out the year on a strong note and we are excited to continue executing on our operational strategic initiatives to drive growth. With that, we’d be happy to answer your questions. Jackie, if you could open up the lines.

[Operator:]

[Operator Instructions] Our first question comes from the line of Joanna Gajuk with Bank of America.

[Joanna Gajuk:]

Good morning. Thanks for taking the question. So, just talking about the core business about Skilled mix , the way it’s presented in the press release down year-over-year, but I was trying to see whether you have a number that compare, I guess, on a same-store basis with skilled mix and I guess, on the same metric, same-store admissions in patient segment?

[Tom DiVittorio:]

Sure, Joanna, we – the KPIs that are in the press release are not comparative and I think that’s what you are struggling with, because the prior year does not include skilled and the current year quarter does. So, if you are looking at occupancy and you are saying a 300 basis point drop, that’s not real on a same-store basis, as you know, skilled ran at a much lower occupancy level than did Genesis. So, to answer your question, on a same-store basis, the occupancy is down about 150 basis points and that is disproportionately being driven by the Skilled Healthcare facilities and principally so in the Midwestern markets, sort of the Kansas, Missouri, Texas markets is where we are struggling the most with some top-line pressure. I’d say the rest of the portfolio both Skilled and Genesis is more stable in terms of occupancy. The same metric from a skilled mix point of view, the KPIs in the press release show 50 basis points of decline. Skilled Healthcare is - skilled mix was very similar to Genesis’s and so the comparison there is a little bit more comparable to same-store, but same-store basis skilled mix is down about 40 basis points. And again, more heavily weighted towards the Skilled Healthcare facilities and also more heavily weighted in the Midwestern markets.

[Joanna Gajuk:]

So what’s driving the weakness in those markets?

[George Hager:]

I’m sorry, what was the question?

[Joanna Gajuk:]

What is driving the weakness in those particular markets?

[George Hager:]

Joanna, I would say it’s principally integration issues for us. Those are unlike the far Western markets, new markets for us. Many of them are rural markets and we are – we’ve just closed on these skilled transaction in February. So, we are still deploying our programs around referral and admission. Our 800 - number – our admission process line or intake lines, we are beginning to deploy what we call admissions, clinical admissions, directors which were actually our ends in our referring hospitals. So, the infrastructure that we deploy company-wide to drive referral admission volume with our hospital partners was not fully deployed in these Midwestern markets. So in process, we expect improvement. We are also be looking at modernizing some of those assets as well.

[Joanna Gajuk:]

Okay, so just coming back to my original question, what about the admissions on a same-store comparable basis, what was that number year-over-year?

[George Hager:]

Joanna, we don’t typically provide admission data. It’s just not something that we put out publicly and I don’t even have honestly handy with me. So – but I think it’s probably safe to say that admission volumes are down slightly even on a same-store basis, this year’s quarter versus last.

[Joanna Gajuk:]

Okay, and then, it looks like, there is some shift between – I thought it would be in other operating expenses, but maybe that’s also related to the Skilled acquisition, but in general, are you – can you talk about the labor cost and are you seeing any pressure there in terms of wage increases or maybe inability to hire nurses, increased turnover, those kind of issues. We’ve heard from other acute care providers?

[Tom DiVittorio:]

Sure, we are seeing wage pressure only in isolated markets. It’s definitely not widespread throughout our geography. In fact, wage inflation overall is running below our year-to-date reimbursement rate growth. I think, previously we’ve said it’s been keeping pace and as we look at this quarter, we actually see it’s dipping a bit below where our reimbursement rate growth is. Also, as we continue to see some pressure on skilled mix in the business, we’ve been very successful converting through attrition some of our RM physicians to LTM physicians. And as well therapist physicians to therapy assistants which have also served to control growth in our overall weighted average wage rates. So, we are keeping a close eye on it but generally speaking, wage inflation has not been a big challenge for us. As far as, turnover and retention and recruiting, I would say that we are not seeing any unusual pressure that we haven’t seen in the past years. I mean, we would tell you that – although we don’t provide this information publicly and it’s calculated so many different ways and we’ve done a lot of diligence on large and small companies over the years, our turnover and retention statistics are very good relative to companies that we’ve been able to look at. There is still always opportunity there, but again, we are not seeing that as creating any unusual pressure on our margins.

[Joanna Gajuk:]

Great, and the last quick question, in terms of the guidance that tables at the end of the press release that imply that the revenue – was reduced by $20 million or so, is that for divestitures?

[George Hager:]

Yes, that’s right, I mean, we continue to add to our divestiture list many of which are on our REIT transaction slate. And so as those facilities are divested, that obviously, these aren’t facilities that generate a lot of EBITDAR and that’s why it doesn’t change our guidance at that level. But it certainly affects the revenue.

[Joanna Gajuk:]

Great, thank you. I’ll go back to the queue. Thanks.

[Operator:]

Our next question comes from the line of Frank Morgan with RBC Capital Markets.

[Frank Morgan:]

Good morning. Appreciate laying out the slide 20, kind of showing the run rate, but I am curious if you could kind of – as you look through and assess those, kind of what – say what the puts and takes, where do you see the most upside or any others that you think might be more of a challenge?

[George Hager:]

Frank, with respect to the transactions that are on slide 20, or you are talking more generally?

[Frank Morgan:]

Well, I’d say, those specifically in – any other comments around kind of where you see the best opportunities for upside and downside, but certainly those on the slide deck for sure.

[Tom DiVittorio:]

I’d say on the slide deck, the skilled transaction synergies, there is certainly some upside there. We’ve given our – what I would call our base case in terms of $25 million of synergies. So, I expect there is some upside there. I think there is certainly upside in the Revera acquisition. The pro forma that we’ve put in that slide, I would describe as conservative and there is quite a bit of upside opportunity in that transaction. Although some of it may take some time to realize. The rest of them are pretty straightforward. I mean, the asset sales, the re-transactions, for the most part, those are pretty well baked.

[George Hager:]

And the only other area not on slide 20 that, I’d like to highlight is around Vitality To You talking about - that program really – that’s what being a pilot this year only operational for 11 months. We have an average daily census of approaching 1000 today. We believe that is very, very scalable and critically important in our mission as we move to more of a value-based payment environment allowing us to follow patients and than the community in providing necessary rehab for them to keep them out of the hospital at least through their 90-day, the 90-day out rest period. So that is really an exciting opportunity for us and it’s why we are participating in the community-based or home care space.

[Frank Morgan:]

Okay. And maybe just at a even higher level, maybe talk through kind of what you see is, potential tailwinds and or headwinds as it relates to the higher level of either regulatory or rate environment in your head, maybe give us a rate on how you see – a little color on how you see rates for one year? Thanks.

[Tom DiVittorio:]

Sure, Frank, I would tell you that, as we think about 2015, our Medicare rate is growing somewhere at a rate of 1.5%. We are very happy with our Medicaid rate growth this year at north of 2%. As we look ahead to 2016, we know the Medicare rate is going to underperform given the 1.2% update factor. And then, with respect to Medicaid, we still have a couple of states that are moving around. At this point, I wouldn’t feel comfortable enough saying that we are going to match a 2.2% Medicaid rate growth which is what we are experiencing today. But I think it will be somewhere south of that, maybe in the 1.5% to 1.7% range for Medicaid.

[Frank Morgan:]

Okay. Thank you.

[Operator:]

Our next question comes from the line of Chris Rigg with Susquehanna Financial.

[Q –Frank Lee:]

Hi, this is Frank Lee on for Chris. Thanks for taking my question. Could you provide some more color on your view on capital allocation over the next 12 to 18 months? And specifically the balance that will be used for a new business development?

[George Hager:]

Well, I think, that our needs and our capital, but largest requirements for capital are laid out on Slide 20. Obviously, we will continue to be opportunistic and look at strategic, I’d say smaller to medium-size acquisition opportunities to increase our density and improve the quality of our facility profile in key markets. But we have not laid out or do we have a specific pipeline that we are working on today other than what’s laid out on slide 20. And you can see in slide 20, most of those transactions will be adequately financed either through the HUD program and/or through the proceeds from sales of our non-core assets. So, we do – or not looking at any strategic capital needs to deliver the growth rates that we put forth in slide 20 in our Investor Day.

[Frank Lee:]

Okay, thanks. And then regarding some of the new bundled payment initiatives, have you seen any resulting volume issues or referral pattern changes? And are you involved in any of the initiatives? Thanks a lot.

[George Hager:]

Yes, I would say that the – I think part of the industry issues regarding occupancy and skilled mix relates to some incremental pressure from more aggressive utilization management programs, whether they are coming from just pure managed care payers as they increase their penetration with the Medicare population or I would say, in a smaller way from at risk providers and/or payers that are looking to reduce utilization of post-acute services to increase and improve their opportunities and the gain share programs like bundled payments and/or accountable care for other similar types of programs. But once again, we’ve really are very optimistic about the evolution to a value based purchasing environment. Our scale and unique features of our clinical programs, I mentioned in my comments our own SNFist subsidiary, our care transitions infrastructure, and our ability to follow patients back into the community through rehab, really will and do provide us with unique opportunities and capabilities to drive very attractive outcomes for our at risk partners. So, we believe over time, there will be increasing concentration of referral volume into those select providers that have scale, that have technology, that have the clinical skill and that’s where we find our company and our strategy to be truly uniquely positioned in the post-acute spectrum. As far as the second part of your question, we have now 32 centers fully into the bundle payment program. We are participating in 38 bundles in those 32 centers represents about $130 million of Medicare program spend, which is about $25,000 per episode. And once again, we are participating in this program really as more of – around our needs to learn. What the bundle payment is giving us is tremendous access and visibility to data. We are seeing, for all of our bundles and all of our episodes, all the incremental cost drivers, that are ultimately contributing to what is significant variability in the post-acute spend. And really the opportunity here as opposed to acute provider is to narrow that variability, so reduced variability, reduced cost and improved outcomes and the data that we are accessing at this point is giving us a lot of insight as to what driving historic post-acute spend variability. So, exciting for us. I don’t think it’s a big – we do not expect it to have any material impact on earnings or earnings growth in the foreseeable future. But it’s clearly a great way for us to participate in the evolution to value-based purchasing. We will also, we also have an – our application in to participate in the Medicare shared savings program. And that application is under review by CMS and in that application, we are looking to include all of our physicians in Pennsylvania, New Jersey, Maryland and West Virginia into the Medicare shared savings program and one of the nice things about this program, it is a one directional at risk program. So it’s only a gain share program. There is no downside risk in the Medicare shared savings program. So, we are excited to participate in both the bundled payment program as well as the Medicare shared savings program. Clearly, this is where things are going into the future.

[Frank Lee:]

Great. Thanks for the question.

[Operator:]

Our next question comes from the line of Dana Hensley with Stephens.

[Dana Hensley:]

Hey, good morning. I appreciate the comments on the Midwest portfolio for legacy skilled. Could you just touch on some of their more mature markets in the west and Texas as well, I think it’s a new state for you how the progression is going there?

[George Hager:]

Right now, Dana, going very, very, well. I would say that we clearly haven’t optimized the opportunities. The skilled portfolio gives us tremendous presence in the State of New Mexico, clearly a dominant market share in the state. We are having very interesting conversation with the Vice of the University of New Mexico Health System around our ability to really drive improvement in post-acute services throughout the entire State of New Mexico. California is a very solid state. We are seeing very stable occupancy and skilled mix and once again, especially in the Southern California market, the LA County, Orange County, we are very, very excited about some of the conversations going on with some of the more innovative acute care systems in those markets. Once again, we think in both of those markets, we will need to put some capital into modernize some of both the skilled health and also on healthcare assets. But we see real solid opportunity in Southern California and in New Mexico. Texas is an interesting market. We’d like our position in – especially in the San Antonio and Dallas markets not only through the skilled assets, but we also acquired two power-back assets, one in San Antonio and one in a Dallas suburb. And we see opportunity there. In every case, we are still developing and rolling out, as I mentioned in an earlier question, our clinical admissions directors in our hospital partners and then our whole admission referral system, that we have in place in our more mature markets. So, those are still in progress, but we once again are encouraged with what we are seeing in the Texas, California and New Mexico markets.

[Dana Hensley:]

Okay, thanks for that. And then, on Vitality To You, as that gets a lot bigger, I think you said you expected it will increase four-fold in the next year. I am just – can you give some data on how we should be modeling this and I assume it’s going to be running through the Genesis rehab line. Just, how we think about revenue per day or revenue per patient, anything like that would be helpful?

[George Hager:]

Dana, I think, we mentioned that we are at around 1000 average daily patients on case load today. We mentioned that by the time we get to the end of 2016, that should be around 4000 ADC. The way we look at it is, every average daily census generates about $800 per month of revenue.

[Dana Hensley:]

Okay.

[George Hager:]

And the margin on that is, somewhere between 13% and 14%. So, we’ll ramp from 1000 to 4000 over the course of 2016 and I think those measures should help you model.

[Dana Hensley:]

That’s very helpful. How long is a typical patient in the census?

[George Hager:]

So, I think, on average, patient that’s in case load about 60 days I believe.

[Dana Hensley:]

Okay. All right. And then, last from me, just, on the seasonality, could you just remind us in your business, the third quarter is typically the weakest and is fourth quarter the strongest or is it more first, second quarters?

[George Hager:]

Yes, it’s more first, second quarters, third is definitely the weakest and I would describe the fourth as a moderate quarter. You typically see some uplifts in the fourth quarter from rate increases and better census dynamics.

[Dana Hensley:]

Okay. Thanks very much.

[Operator:]

Our next question comes from the line of A.J. Rice with UBS.

[A.J. Rice:]

Hello everybody. Couple questions if I may. First of all, I mean, we’ve sort of talked around this in some discussion around skilled mix, but I just want to put it to you directly and see if it’s the same that you talk about before if there is some other explanation. If I look at your Medicare Part B – Part A and B blended census, the patient days by payer, in the first quarter, you were very close to your prior year level in the mid-15%. But it sort of stepped down pretty significantly 14% in the second quarter, 13% and 0.4% in the third. Is that just – the things that you mentioned was skilled is that pressure on from Medicare, Medicare Advantage, people shifting to Medicare Advantage? What’s happening? Is that seems to be part of a bit of a headwind there for you and I am just trying to understand what’s going on?

[George Hager:]

There is a combination of things there A.J. One, look at it sequentially, you are going to see the effects of the seasonality in our business. So, the first quarter is always a peak quarter for us in terms of overall skilled mix. That begins to drop in the second, it bottoms out in the third and then we see a little bit of lift in the fourth. So, sequentially, that’s what’s happening. From a year-over-year standpoint, however, you do see some decline, even on a same-store basis in just looking an isolation at Medicare skilled mix. Some of that being offset by growth in the managed care and insurance census as managed care just continues to penetrate the Medicare indemnity program. So the way that we look at it is really on a same-store quarter-over-quarter basis, and looking at skilled mix in total, that’s where we are looking at around still about 40 basis points of overall decline this year’s third quarter versus last.

[Tom DiVittorio:]

And A.J. the majority of what you are seeing by looking at consecutive quarters, is without a doubt seasonality. That is an absolute norm. Our first quarter is always the highest in skilled mix, things like weather, flu, are big contributing factors. The resetting of an individual’s Medicare 100 day benefit in the Medicare program on an annual basis resets 1/1. So we have a lot of contributing factors to significant growth in skilled mix in Q1. It begins to trail off in Q2 then you have typically a significant reduction in especially elected surgeries with physicians and surgeons taking vacation and holiday time, that drives that type of admission volume down in the summer months in Q3. And we see it start to pick up again in Q4 again.

[A.J. Rice:]

Right, okay. Yes, I’d say it was down last year a bit on that seasonal pattern. It just – the year-to-year difference seems to increase as we progress each quarter and I guess, part of what’s trying to get at. Yes, okay. The other – another thing I was going to ask you about was your contract therapy. So you had wins this year. Some of the other companies are reporting about losses. I guess, you are taking business from them. Is there, is this just the normal course of business or is there is some dynamic going on in the contract therapy world that is making people reevaluate giving you an opening to grab some contracts?

[George Hager:]

Well, look, it’s competitive environment and we think we have a very competitive and innovative model and we have been able to grow that business organically. We had a bit of a step back in the fourth quarter of 2014 losing a couple of contracts. Some of those were losses through consolidation. We also benefit quite frankly by our partnership with our largest shareholder Formation Capital. So between both Genesis and Formation Capital we hold very large position to continue to look to consolidate in this industry and so Formation Capital and growth in the skilled nursing and in assisted living continues to afford us opportunity to at least pitch to a large portfolio of assets that come under the Formation Capital investee portfolio. So, those are things that are contributing. I don’t think it was anything terribly unique or different going on in the contract therapy business, but I do think GRS does really provide a extraordinarily high level of care to both our internal and our third-party customers and I think they are positioned in the market and will continue to grow.

[A.J. Rice:]

Okay and then maybe just a last question. I know, when we had the annual doc fix we tended to focus on why shouldn’t we got closer to the doc fix. Now we don’t have that. So, there is not one-time of the year where we focus on this stuff necessarily, but I know we did have the OIG report come out which made some comments about the industry and just wondered if you give us your current thoughts on the state of play and some of this background discussions about looking at payment structures and potentially at some point revising payment structures for the industry.

[Tom DiVittorio:]

I think we are – I think the reimbursement visibility is as good as it’s been for a long time at least through 2016 and we are not expecting anything significant here to occur through. 2016 we will be in an election year obviously in 2016 as well. As far as any transformative changes in reimbursement system, I know the American Healthcare Association with the support of the industry has put forth some recommendations around episodic payment. An episodic payment is something that we would very much support. We think about the entire healthcare delivery system, acute, long-term acute, acute rehab, home care and skilled nursing, I think we are the only major provider group that still gets reimbursed on a per diem basis. So, some form of that episodic payment, I think is – could be a next logical step for our industry, but I don’t see that in the near-term, but something we would be very supportive of.

[A.J. Rice:]

Okay, great. Thanks a lot.

[Operator:]

[Operator Instructions] Our next question comes from the line of Chad Vanacore with Stifel.

[Chad Vanacore:]

Hey, good morning.

[Tom DiVittorio:]

Hey, Chad.

[Chad Vanacore:]

Hey. So, since we were just talking about the new rehab business, can you parse how much of that is going to be Revera and how much of a new contract before year end?

[Tom DiVittorio:]

I mean, the 91 new contracts, Chad or, I am not sure what you are referring to?

[Chad Vanacore:]

Just overall growth in the rehab business between now and or before year end. Are most of those 91 contracts are Revera or…

[Tom DiVittorio:]

Actually, none of the Revera and we’ll pick up the Revera contracts if you will, when we acquire those facilities at the end of the year. So the 91 contracts actually started on July 1 and it’s – three or four large customers. So they will obviously continue to contribute into the fourth quarter.

[Chad Vanacore:]

Okay. And then, in terms of the divestitures, I think, you’ve updated us in the past, you are looking at 12 facilities to divest but, then you already divested a couple and you’ve added a couple. Can you give us an update on where you are in that process? And then, what kind of rent reduction that we are looking at?

[Tom DiVittorio:]

Sure, well, I think what we said is that, we are going – as part of our REIT transaction, overall REIT transactions that we would divest of 12 facilities and acquire 20 facilities. So, along the way, outside of our REIT relationships, we’ve divested of a couple of others, not many, and don’t really intend to invest – divest of too many more. But as far as, the 12 that we previously announced with our REIT partners, we have already divested of three. And the other nine will occur over the course of 2016. And the overall rent reduction of those 12 divestitures along with the facility buybacks, is roughly $30 million of incremental rent reduction that we will realize in future periods. So, we’ve already realized $5 million or $6 million of rent reductions on a full run rate basis for the transactions that we’ve closed to-date, but the vast majority of the upside continues to be looking ahead Chad, into 2016.

[Chad Vanacore:]

All right. Thanks Tom. And then, I just want to make sure, that’s all separate from the 100 to 150 sale of non-strategic assets?

[Tom DiVittorio:]

Correct.

[Chad Vanacore:]

Okay. Now, when all the announced transactions are complete, what would you estimate pro forma real estate ownership and rent coverage at?

[Tom DiVittorio:]

We estimate pro forma real estate ownership to be at 23%. Today, as we sit here today, it’s 15%. And rent coverage today that is in the sort of mid – between 13 and 14. We’ll be fast approaching the mid 14s.

[Chad Vanacore:]

Okay. That’s it for me thanks.

[Operator:]

And that was our final question and I would like to turn the floor back over to Mr. Hager for any additional or closing remarks.

[George Hager:]

I just want to thank everyone again for participating in the call and your interest in Genesis. We are extremely optimistic about our future and how we are positioned and once again, thanks for your support and Tom and Lori and I will be available if anyone has additional individual questions throughout the rest of the day. Thank you all.

[Operator:]

Thank you. This concludes today’s conference call. You may now disconnect.