Q3 2020 Sabra Health Care REIT Inc Earnings Call
Ladies and gentlemen, please standby your conference call will begin at approximately five minutes. Once again. Please standby your conference call will begin in approximately five minutes. Thank you for your patience and please continue to hold.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Sabra Health care third quarter 2020 earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session will need to press star one on your telephone as a reminder, today's program may be recorded.
I would now like to introduce your host for today's program, Michael Costa <unk> Executive Vice President of Finance. Please go ahead Sir.
Thank you.
Before we begin I want to remind you that we will be making forward looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations.
Including the expected impacts will be ongoing COVID-19, pandemic, our expectations regarding our opinions and operators and our expectations regarding our acquisition disposition and investment plans.
These forward looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially.
Putting the risks listed in our form 10-K for the year ended December 31st 2019.
Our form 10-Q for the quarter ended March 31st 2020 as.
As well as in our earnings press release included as exhibit 99.1 to the form 8-K, we furnished the FCC yesterday.
We undertake no obligation to update our forward looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter, but the comments that we make today are still valid.
In addition references will be made during this call to non-GAAP financial results.
Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results include on the financials page of the Investor section of our website at Www Dot Sabra health Dot com.
Our form 10-Q earnings release and supplement can also be accessed in the investors section of our website.
And with that let me turn the call over to Matros, Rick Matros, Chairman and CEO of Sabra Health care REIT.
Thanks, Mike and welcome everybody to our call appreciate everybody participating on first let me just start off by thanking all of our caregivers and all front line workers is for nine months and out to the pandemic and they really haven't had any breaks or any relief and continued to show up every day and it's just.
If we just look at that with all that they continue to do that that's their commitment to taking care of our patients and residents.
Just first and foremost in their mind, so I will never be able to express our gratitude adequately I also want to thank the government stimulus funds.
Sure on the skilled nursing space to now be assisted living space as well.
Their partnership on protocols and standards to address the virus. We are in better shape now than we were several months ago, we'll talk about that more as the call goes on.
I also want to note that the majority of the states that we're in made moves to help on that as well.
When I finish my remarks, I'll turn it over to Mike Costa, who will take you all through a detailed presentation everything related to the stimulus and the impact on the facilities and all other really good assistance. There is still $30 billion of cares Act stimulus left there's a phase $320 billion.
It's in the process of currently being distributed we do expect to another stimulus package.
The election get settled as well as an additional extension beyond the one recently announced that the P.H., yet which extends going in place and the math add on.
I also want to note and this was an important event for the industry. The deal that the government cut with Walgreens and Cvs to provide three vaccines for our patients residents.
Employed we still believe that the path to normalization.
Comes ahead of the vaccine.
That's with more and more testing once we have more testing now that we have obviously had in the past we still don't have enough, but once we get to really adequate effective rapid testing.
We will begin the path to complete normalization in the facilities will be able to touch quickly.
Great people better and have a more normal environment within the facilities because the social isolation component of dealing with the pandemic has been.
Briefly touch on our patients our residents.
And their families.
I think skeptical.
Large you know about about the vaccine and what it's actually going to be distributed.
And the last week, Mark Parkinson CEO of American Health Care Association and seem Afirma, who wrote CMS. Both commented that they take the vaccine will be ready for distribution and all of our facilities over January and February.
I don't know if that will be the case hopefully will be the case, if that does turn out to be true, yes. It will accelerate the normalization of the business one of the questions that I have about that as I think the INTECH is command baby that for everybody and I'm not sure you can mandate that workers and patients.
Im can actually actually have to take this.
Because if they go what do you do that it's one third of the stat decide that they don't want to take the vaccine. They don't want to be first in line does that mean that can't come to work and you don't have that folks to take care of patients and residents. So what kind of see how it we'll see obviously how that plays out.
So I'm cautiously optimistic, but we'll still see so I still have some level of skepticism there and still.
Focused on testing.
The most immediate answer to the challenges that the space is currently facing.
I would also note that a lot of the conversation that we've all been having is focused on the top line occupancy recovery, but it's important to note that we will start having margin recovery ahead of occupancy recovery and track already seeing that in different areas of the country.
As.
Certain areas of the country have been clearer than others.
Hoping that there are steps being taken by a number of operators to start normalizing the socialization aspects of the facilities and.
Construct having smaller group activities and recall that.
Based on protocols almost everything almost everything everything is really what or when the facilities.
No we don't even know group activities no group therapy, but.
But as that starts started as that starts to normalize levels.
See those labor expenses come down so we will start seeing margin improvement ahead of occupancy improvement similarly on supplies and specifically in regard to PPD. Our operators are starting to have more success building inventory and as we continue to build inventory those costs will no longer be recurring and it's something that.
Cost comes down as well, we're already seeing that in a number of the operations as well so.
I just want to point that out so we're not solely focused on.
Occupancy as a means to recovery.
In terms of our operational trends our top skilled operators as shown in the supplemental sure occupancy gains in the first week of August.
Last week of October a 50 basis points skilled mix for those operators at the end of October was 190 basis points higher than prepaid debit levels.
February average through the month of October averaged those operators were down approximately 10% with October 100 basis points higher than our low point in June. So so in other words occupancy has been slowly building it came down a little bit of some sort of spiking all over the place in the first three weeks of October and then started picking up again.
At the end of October the aggregate skilled nursing portfolio is down approximately 800 basis points when the February average through the end of October.
Skilled mix is higher than our top operators, maybe as the rest of the portfolio with the smaller operators.
As a whole, but all the trends are similar regardless of the operators that we're looking at and regardless of what their skilled mix is so for those operators not in our top 10.
They also have higher skilled mix.
The pandemic levels, just not as high as our top 10 operators.
EBITDARM coverage as noted in the PR was up sequentially. Thanks to government assistance.
Excluding that provider relief, we're pleased to note that our skilled portfolio for the trailing three months would have been above one times.
Senior housing Triple net which only recently receive federal assistance or coverage lower as expected, but with the anticipate continuation of assistance, we should see some stability, particularly since the lease portfolio occupancy as noted has held up relatively well all things considered leased senior housing portfolio is 340 basis points.
February average through October.
Todd who will provide details on the managed portfolio.
Through the end of October we had 304 communities that have been impacted by co that 200, and none of those have fully recovered.
Noted on the last call rarely do we see large outbreaks at this point and an increasing number of facilities with positive tests are now employees only two will have one or two employees that's positive immune issue.
Sure. Many of you are aware that the median age for those contracting cobiz has dropped dramatically into the thirtys. That's a lot of our workforce and even though these folks are screening before they come to work.
They're almost owns a symptomatic however.
However, still infectious until they come into the buildings.
Mills textbooks.
So.
That said.
Awkward, it's been such a good job with isolation and protocols and the traction control on the Healy to all those guidelines that even one in employees asymptomatic and pass code it.
And may.
Other residents or patients were still not seeing any big break outside of all of our buildings. We've had three outbreaks of.
Eight or nine or 10 or more.
Almost every other building its three or less so they've done a really good job with that and given the fact that we're seeing all these spikes over the country and we're still seeing those results we feel pretty good about.
Minimizing the disruption to the business as compared to what we saw in March and April when we were all trying to figure this out.
Let me move now to acquisitions, we've completed $154 million in investments at a blended yield of just under 8% with the exception of one of those acquisitions the preferred investment that all came through our development pipeline.
Our acquisition pipeline is active at approximately $600 million, it's primarily senior housing over we are seeing interesting skilled deals.
Still a disconnect between buyers and sellers in both asset classes.
We do anticipate some shift after year end as banks that have been forgiving.
Before because.
Basically actually and senior housing with the smaller operators we.
We believe based on what we've heard that after a year and they'll start exercising of legal remedies. So there may be some opportunities.
After the first of the year, so remains to be seen but that's the way things look right now and with that I'll turn it over to Mike cost Italia will follow Mike and then Harold will follow Taleo and that will go to culinary Mike.
Thanks, Rick.
I'll be giving an overview of the various federal government relief packages enacted in response to cope in 19 pandemic as well as providing details and recent developments for the major components of these really packages.
The federal relief packages generally fall into three categories.
Funding to providers temporary regulatory suspension suspensions and administrative waivers and lastly, lumps in deferrals.
Starting with the direct funding category. These are direct disbursement of funds to operators to help mitigate some of the financial impact of Coca 19, and includes the provider relief fund and a temporary increase to the states federal medical assistance percentages rough math.
The temporary regulatory suspensions and administrative waivers include the temporary suspension of the 2% Medicare sequestration cuts and the waiver of the three D. hospital stay requirement for Medicare coverage at a skilled nursing facility.
As the benefits from these two categories are utilized to offset increased costs and lost revenues related to the pandemic the negative impact to our operators earnings and coverage will be reduced benefit.
Benefits would also help our operators by providing important liquidity.
Loans in deferrals include the accelerated and advance Medicare payments employer payroll tax delayed and paycheck protection program or PPP loans.
With these loans and deferrals.
While these mostly deferrals excuse me provide liquidity to our operators. The first two must be repaid in full while the PPP loans must be repaid if the borrowers do not meet certain criteria.
Therefore, these loans and deferrals largely have no impact on the earnings and coverage of our operators.
A breakdown of how much our operators have received are qualified to receive from the various relief packages is included on page seven of our third quarter supplemental as well as in our third quarter earnings release.
The most significant the after mentioned really packages is the 175 billion dollar provider relief fund, which was funded by the enactment of the March 27, 2020 Cares Act law.
Provider relief fund has given support to our skilled nursing and hospital tenants throughout the pandemic and recently the support has been extended to certain operators in our senior housing portfolios.
On September Onest, HHS announced the eligible assisted living and memory care facility operators.
Apply for funding through the cares Act we've.
We view the inclusion of assisted living and memory care facilities under the cares Act as an important acknowledgment by the federal government of the sectors contribution to the delivery of health care in this country.
To date to general distributions to healthcare providers have occurred and a third general distribution has been announced.
But has not yet been distributed.
The total of these three general distribution is $98 billion.
Additionally, two targeted distribution, specifically to skilled nursing operators have been announced totaling $9.9 billion.
Let me break down the targeted sniff distributions made thus far as well as what is left to be distributed.
On May 20, Onest. The first targeted distribution of $4.9 billion was released to nursing homes, using a formula of $50000 per facility plus $2500 per bed, resulting in a distribution to our facilities of $97 million or about $330000 per facility.
On July 22nd HHS announced an additional $5 billion of $5 billion of targeted distribution, specifically related to nursing home infection control and quality.
Of which two and a half billion was released on August 27.
Formula $10000 per facility plus $1450 per bed. This resulted in a distribution to our facilities, a $50 million or about a $170000 per facility.
The payments were made to nursing homes to help with upfront COVID-19 related expenses for testing staffing and PPD needs.
Of the remaining two and a half a billion dollars or targeted distributions $2 billion will be distributed in five installments with the first four installments being paid out monthly as performance based incentives determined by the nursing homes relative infection and mortality rate and a final payment to be made in 2021 based on the same metrics over.
The cumulative timeframe.
The first of these five installments with meet over the last week before September performance.
Finally, the remaining $500 million of targeted distribution is expected to be used to address cobot hotspot and educational collaboratives.
In total roughly $145 billion at the $175 billion provided relief fund has been announced to date, leaving at an estimated $30 billion in the relief fund to be spent.
As of September Thirtyth 2020.
Our tenants have received or qualified to receive approximately $210 million in total distributions from the provider relief fund and our senior housing managed operators have qualified for approximately $4 million to the second general distribution from the provider will be fun.
Operators have taken varied approaches to recognizing these amounts of earnings ranging from some recognizing a 100% immediately to others not recognizing any until they are certain that the amounts won't be recouped.
This has resulted in only about $60 million of the after mentioned $210 million received by our tenants being reflected in their reported EBITDA arm for the trailing 12 month period ended June Thirtyth 2020.
Recently, the reporting requirements for the use of money is received from the provider really fun will revise and clarify and we expect this to result in most if not all of the roughly 150 million dollar balance of these funds to be recognized an EBITDARM as they are utilized to offset costs and lost revenues related to the pandemic.
Another important source of funds to our skilled nursing tenants is a temporary f. map increase on March 18th at 6.2% Fms increase was enacted to assist states with kobin related Medicaid costs.
There was no requirement that seats past any portion of this increase onset providers and in fact, some states chose not to pass any of it along.
In our portfolio 27 of the 37 states, where we own snus pass along some of the F. map increase.
Fitting 236 of our 287 sniffs or 82%.
These states all have very method of distributing these funds to Smith from targeted funding for Copel units in Kentucky to a temporary 10% Medicaid rate add on in California.
All in we estimate that our sniff tenants received approximately $30 million in additional funds through June thirtyth because of this f. map increase.
Recently, HHS has announced the extension of the public health Emergency Declaration for Copa 19 for another 90 days extending through January Twentyth 2021.
The extension of the decoration is critical as it extends the three day hospital stay waiver through January Twentyth 2021, and ensure the increased Fms funding provided to states will continue to the end of Q1 2021.
Lastly, operators, who receive advance and accelerate Medicare payments early this year, we seek some much needed breathing room on the repayment terms.
Repayment, which was originally scheduled to occur by the end of this year was delayed and a more gradual repayment terms were enacted.
Specifically no repayment is due for a year from when the monies were initially distributed and then gradual repayment begins with up to 25% of claims paid for the following 11 months up to.
50% of claims paid over the next six months and the remainder being repaid in a lump sum.
In total the repayment period has been extended to 29 months.
The past eight months of proving to be one of the more challenging times for the long term post acute care industry, both from a clinical and business perspective.
The 5% to say, that's a tremendous amount of financial support provided to the industry by federal state and local governments continue to provide our operators would not only a bridge to the other side of this pandemic, but also the resources to protect their employees and patients. We are grateful for the support and the implicit acknowledgment of the long term post acute care industry is important.
Yes.
With that let me turn the call over to Taleo, Nivo, Hacohen Cibers Chief investment Officer.
Thank you Mike.
This morning, I'll provide you with third quarter operating results of our managed portfolio. This is the second consecutive quarter operating results have been materially affected by the global pandemic and the first federal government funding to the cares Act and Mike. Just described has provided assisted living operators some relief.
I will also share some statistics for the month of October in order to provide additional visibility into operating trends.
Senior housing continues to find its way during these challenging times.
As of the end of the third quarter of Twentytwenty, approximately 15% of Sabra annualized cash net operating income was generated by our managed senior housing portfolio approximately 51% of that relates to communities that are managed by enlivened and 34% relates to our holiday managed community.
The balance includes our Canadian portfolio, and five assisted living and memory care communities in the United States.
Senior housing operators have now transitioned into a phase where operating during a pandemic is the new normal.
And operationalize protocols focused on infection control and prevention and creative ways to relax restrictions, which can be flexed as warranted by circumstances and location at the same time consumers have transition from pandemic fear to pandemic fatigue.
The result has been that while our senior housing operators have data and evidence that living in their communities safer than staying at home.
Active residents worry that they will never embraced their families again today.
Move in.
To start I will provide highlights the operating results of our managed portfolio on the same store quarter over quarter basis to illustrate the trends in the industry. These results will exclude two recent acquisitions and one transition community in our wholly owned portfolio consistent with the presentation in our supplemental information.
Okay.
Revenue increased 4.2% in the third quarter compared with the second quarter of Twentytwenty and included $4 million from the provider relief Fund phase two general distribution that was made available to eligible assisted living facilities in the third quarter to the carriers.
If we exclude this grant in same store revenues declined 1.5% and if we look at revenue for those facilities that were eligible for the grant and exclude the for those funds then same store revenues declined 1.4% on a quarter over quarter basis.
Revenue per occupied room revenue for excluding the non stabilized assets and the carriers apps Grant rose 1.7%.
Well occupancy also excluding non stabilized assets declined 270 basis points to 79.3% from 82% in the second quarter.
Cash net operating income increased by 20.6% to $19.7 million from $16.3 million.
Without the federal Grant cash net operating income would have declined by 4.1%. If we look at the cash net operating income.
For for eligible.
Facilities.
And exclude those funds than same store cash net operating income without government funding would have declined 2.2% on a quarter over quarter basis.
Cash and a wide margin increased to 26.8% from 23.1% in the preceding quarter again, excluding the government grant cash NOI would have been 22.5%.
While Revpar has remained robust occupancy is can can you to decline during the third quarter.
As the pandemic has continued to affect our hemisphere on varying degrees, we have seen changes in behavior residents and their families pandemic fatigue of both residents and their families is contributing to higher discretionary move outs and deferral of movement. In contrast to that rates continued to be strong in our portfolio, indicating that residents.
I appreciate the value operators of delivering to them.
Senior housing is a high operating leverage businesses.
Operators had scrutinize their cost structure, but there is a limit to expense cutting given the fixed cost inherent in the business model for this reason a decline in revenue attributable to lower occupancy or an increase in revenue from cares Act funds have a disproportionate impact on cash net operating income and cash NOI.
Margin.
The alive and joint venture portfolio of which Sabra sniped at 49% posted stronger third quarter results bolstered by the receipt of approximately $3 million in cares Act funds.
Average occupancy for the quarter was 75.8%, reflecting a 3.1% decline on a same store quarter over quarter basis on a 5.6% decline on the same store year over year basis.
Revpar, Excluding cares act funding was 4411, compared with 4302 or 2.5% higher on a same store quarter over quarter basis, and 2.4% higher on a same store year over year basis.
Revenue was 7% higher on the same store quarter over quarter basis, and 3.6% higher on the same store year over year basis, driven by the federal grant receipt, excluding those phone revenue decreased by 1.6% on a same store quarter over quarter basis, and 4.7% on the same store year over year.
Your basis.
Same store cash net operating income was $9.1 million, a 37.3% increase on a sequential basis driven by carriers axon without those funds same store cash NOI would have declined.
8.7%.
Same store cash NOI margin was 24% compared with 18.7% for the prior quarter or 5.3% higher on the same store quarter over quarter basis again, excluding the federal grants cash NOI margin would have been 17.4% and more in line with the prior.
Quarter's result.
Subsequent to the end of the quarter October occupancy was 72.8% 890 basis points lower than February occupancy before the impact of COVID-19.
Rate increases occurred on October 1st for eligible residents rather than increase rates by 5% as has been done in the past and live and chose to increase rates by 4%.
As a side note enlivened was not allowed to increase rates in the state of Washington, because of the Governors order, we had 12 and live and communities in Washington, and the impact of this temporary rate freeze on the portfolio is negligible.
Since the pandemic began until start of this week 98.
Our enlivened JV communities have had a resident or staff member test positive for COVID-19 as of the beginning of this week 33 communities had a resin or staff member with a positive test and of those 20 are located in Texas, Ohio, Indiana, and Wisconsin to put these now.
Presenter contacts and live and just had approximately 2% of its residents test positive COVID-19 since the start of the pandemic. This compares to an industry average of between five and 7% in assisted living and memory care communities.
Third quarter operating results for Sovran wholly owned portfolio of 11 communities had similar theme and its performance.
Third quarter occupancy was 81.2%, 2.1% decline compared to the prior quarter any 7.6% decline on a year over year basis.
Revpar in the third quarter, excluding cares act funding of $797000 was 5761, essentially flat to the prior quarter and 4.2% higher than the prior year.
Revenue was 6% higher on a quarter over quarter basis, and 3.9% higher on a year over year basis, excluding the federal grant revenue declined 2.7% on a quarter over quarter basis, and 4.7% on a year over year basis.
Cash net operating income was $2.8 million, a 42.4% increase on a sequential basis driven by cares Act funds without those funds same store cash NOI would have increased 2.1% for the same period.
Cash net operating income margin was 29.2%, 7.5% higher on a quarter over quarter basis, excluding the federal grant cash NOI margin would have been 22.8%, 1.1% higher than the prior quarter.
More recently October occupancy was 78.9% 710 basis points below February pre pandemic occupancy level.
As in the joint venture rate increases occurred on October 1st for eligible residents at 4%.
Seven of our wholly owned and live in communities have had a resident or staff members have positive for corporate banking and as of earlier. This week only two communities had not yet recovered.
And liven has made this strategic decision to maintain a six to nine month inventory of personal protective equipment, such as gas masks and gloves in order to avoid potential shortages in the months ahead. This is given them some latitude and timing of purchases in order to achieve better pricing.
Occupancy is the key to improving financial results enlivened has been focused on lead generation and moving and new residents lead.
Lead generation has rebounded since April and is in line with prior year lead moving volume while recovering since April is about 74%.
Pandemic results given by potential residents and families concern over possible restrictions on visitation quarantine et cetera.
Regulations on indoor visitation vary by state and maybe tied to Kathy infection rates in local regulations. These limitations currently impacting half of the states in which we live and operate tend to damp in move ins and accelerate and move outs.
And live in just trying to mitigate these concerns including offering testing for new Rad residents. So that they can avoid 14 day isolation and incentivize move in and testing employees to prevent the infection from entering the building to mitigate pandemics fatigue.
Holiday retirement operates 22 independent living communities for Sabra, one of which was transition to holiday in the fourth quarter of 2019 since healthcare services are not provided in these independent living communities. These properties were not eligible to receive cares act funds allocated to assisted living providers.
All of the following operating results.
Are presented on a same store basis and exclude the transition property.
Holiday portfolio occupancy was 82.5% in the quarter, 2.5% lower on a sequential basis and 6.1% lower on a year over year basis.
Revpar was 2519 slightly higher than both 2499 on sequential basis in 2483 on a year over year based.
On a quarter over quarter basis, the holiday portfolio experienced a 2.2% decline in revenue and a 5.6 decline on a year over year basis cash net operating income was $5.9 million, a 7.4% decline on a sequential basis and eight.
2.6% decline on a year over year basis.
Cash net operating income margin was 33.2% compared with 35.1% in the prior quarter and 38.5 in the third quarter of 2019 nearly the entire difference in margin is a result of lost revenue due to occupancy decline with the balance being an increase in expenses associated.
With the pandemic.
Subsequent to the end of the quarter.
Excluding the one transitioned community October occupancy was 80.6% compared to 86.8% in February a 620 basis point decline of the 22 properties at holiday manages for Sabra 18 have had a resident staff member a private home health aide test positive for club banking.
And 12 communities have recovered.
16 properties are now in various states stages of lifting restrictions such as dining room use at reduced capacity limited visitors and reopening of the beauty Salon.
Holiday has been focused on ensuring that its residents are kept safe, which has made easier because of the lower acuity in independent living and fewer staff testing and implementing safety profit protocols have been the cornerstone at these efforts holiday residents it hadn't infection rate of less than 1%, which is 64% below the infection rate.
Among 75 plus year olds in the U.S. made all the more impressive because more than one third of residents and staff cobot cases have been asymptomatic.
After having fewer move outs in the second quarter holiday saw an increase in voluntary move out starting in July move outs are trending down since quarter end the excess move outs those above normal levels are result of kovac related restrictions at the same time, the number of move ins per community rose to near.
Pre pandemic levels in July and August.
Or trending down at September due to concerns over a COVID-19 surge and and resident concerns about restrictions after moving.
Holiday continues to be proactive and maintaining its reputation for said communities and in anticipation of the regular flu season holiday partnered with Cvs health to arrange for flu vaccine clinics on site with more than 10000 vaccinations deliver to residents and staff.
CNS senior living manages eight retirement homes in Ontario, and British Columbia for Sabra in the third quarter of 2028 properties managed by Sienna achieved 79.5% occupancy, 3.2% lower on a sequential basis and 10.3% lower on a year over year basis.
Revpar was $2495 flat to the prior quarter and 1.1% higher on a year over year basis.
Third quarter revenue was $4.5 million, 4% lower than the prior quarter and 10.4% lower on a year over year basis, driven by occupancy declines.
In the third quarter cash net operating income was just over $1 million, a 17% decline on a sequential basis and 46.7% decline on a year over year basis I've been holidays case, nearly the entire difference in cash net operating income as a result of occupancy loss.
Cash net operating income margin was 23.8% lower than both 27.5% in the prior quarter and 39.9% in the third quarter of 2000 and keep more.
More recently October occupancy was 80.2% 400 basis points below February occupancy there.
There have been no confirmed cases of COVID-19, NRC Anna portfolio. The number of cases is very low in the interior British Columbia were four of our retirement homes are located with a total in the province.
777 cases, and there are fewer than 80000 cases, and the entire province of Antares.
While the more populated provinces in Canada had managed to flatten the curve a surge in public case is triggered by.
Canadian Thanksgiving is causing the government to tighten restrictions.
Seattle has seen similar dynamics and move ins and move outs of holiday and enliven seniors have been interested in moving into fearing the imposition of restrictions are waiting on the sidelines and see what happens in the second quarter move outs in Ontario had slowed down because there were no available long term care beds, which are paid for by the potential health system by the way.
One beds became available there was a catch up and move outs from the Sienna portfolio, which now seem to be reverting to normal levels.
Between February and October of this year, our total senior having managed portfolio inclusive of non stabilized assets lost 687 basis points in occupancy that change in occupancy is the key variable driving the operating results of our senior having managed portfolio and.
Panic related operating cost to become more routine as operators have acquired PB inventory operation lies in infection prevention protocols and managed delivery of services to residents. Our operators are reporting reduced agencies hero pays decreased significantly since the summer and then.
Alive and has even seen an increase in employee retention over the last few months.
These expenses are not driving the ongoing pressure on net operating income is the decline in revenue from the erosion in occupancy.
In order to be a desirable alternative to home senior housing has always needed to offer a multi faceted value proposition to residents and their families senior housing as needed to provide a pleasingly living arrangement tasty food engaging activities, social life and delivery of care.
Oh, Good 19 has added significant new facet infection protection. The challenge has been to do this without infringing on residence lives.
Our managed communities located mostly in secondary and tertiary markets targeting a middle market price point, we're somewhat shielded from COVID-19 outbreaks. During the early months of the pandemic now after seven months coverage is spread across all markets infecting people and nearly identical rates per capita from urban to rural markets and every.
Thing in between the advantage of Sava Senior housing portfolio market location has now become a time advantage.
Operators in our managed portfolio had more time to prepare they are able to be more tactical in our approach and implement infection control the stockpile PPI and other inventory developed testing protocols and address staffing concern. This has allowed them to maintain low infection rates by limiting community spread from entering the building.
Potential residents, making a decision about whether to move into a senior housing community today are faced with the difficult choice and naturally is increasingly being skewed by need rather than one but.
The pent up demand that we talk about are those people fill in the watch category, who will move into the need to category and that timeframe is measured in months not years. Unlike.
Enlivens as already noted that they are seeing higher acuity residents moving in.
Higher care May result in higher revenue, but it may also result in a shortened average length of stay which will drive greater turnover in the near term.
Until an effective vaccine is available and administered to residents and staff senior housing operators are walking a fine line of keeping residents say lucky keeping them engaged and fulfilled that is why our operators are so intently focused on creating testing programs that are effective at stopping potentially infected individuals.
From entering the building.
Listen to their symptoms or lack thereof, the better operators can insulate residents from community spread the frear, our op. Our residents can be within the building. This gives our operators the opportunity to sway the people who want to move in that now is the time.
In prior earnings calls, we have spoken about the importance of our senior housing operators in the healthcare continuum, we saw that recognized by the federal government. In September. We also believe that pen down that will be seen as a period, where operators reputations will be barnish pickup because they kept their residents and their staffs say ended.
So with care.
I will now turn the call over to Harold Andrews, Savoured, Chief Financial Officer.
Thank you, telling us where we.
Again to the numbers a couple of quick updates first no code is 19 related really has been provided to any of our tenants to date second we collected all of our forecasted rents without the use of any deposits or other credit enhancements through the end of October and have seen a normal level of collections for the first few days of November.
We have concluded that our leases with subsidiaries of Genesis and signature will no longer be accounted for on an accrual basis, resulting in a write off of straight line rent receivables and above market leases tangibles totaling $14.3 million.
Others for these two tenants concluded that absent additional government stimulus increased occupancy and reduced operating expenses.
Business in signature would likely have sufficient liquidity to meet their operating needs over the next 12 months.
Tim It's our current on all rental obligations to us and we even have requested during this pandemic.
After moving to tends to have cash basis of accounting and assuming we collect all contractual rents.
Our FFO will not be impacted.
FFO will increase by $3.2 million over the next four quarters.
Now for the numbers for the quarter for the three months ended September Thirtyth 2020, we recorded total revenues rental revenues and NOI of $143.3 million $100.6 million and $119.3 million respectively.
The amounts represent.
Creases from the second quarter of 2000, 22.6 million $12.1 million and 7.6 million respectively.
Decreases in rental revenues was primarily due to the $14.3 million Genesis signature write offs noted earlier offset by $2.2 million increase in collections related to leases accounted for on a cash basis.
In addition, we recognize the total of $4.2 million of carriers that government grants during the quarter related to our senior housing managed portfolio.
$1.4 million decrease cope with 19 related expenses compared to the second quarter positively impacting our Hawaii during the quarter.
Before $2.2 million of carriers government grants received.
$1.2 million went to our whole yield portfolio and recorded revenues, while $3 million related to the lives of joint venture and recorded as part of income from unconsolidated joint venture.
FFO for the quarter was $84 million and on a normalized basis was $98.8 million or 40 cents per share.
Primary normalizing item being the $14.5 million write offs related to Genesis signature.
AFFO, which excludes from ACA FFO merger and acquisition costs and certain non cash revenues and expenses was $94.8 million and on a normalized basis was $95.1 million.
46 cents per share.
This quarter, we revised our policy on normalizing items the longer normalize out impact, okay, demographically that expenses lower grant income.
Applying this normalization policy to the second quarter results, our third quarter normalized FFO and normalized FFO increased from the second quarter by $9.4 million and $7.5 million respectively.
Four cents per share for both normalized FFO and normalized AFFO.
For the quarter, we recorded net income attributable to common stockholders of $36.5 million or 18 cents per share.
Unit costs for the quarter totaled $7.2 million compared to $8.7 million in the second quarter of 2020.
Jamie costs included $2.9 million and stock based compensation expense for the quarter compared to $2.4 million in the second quarter of 2020.
This decrease is due to a change in performance based vesting assumptions on managements equity compensation.
Current cash unit cost totaled $6.3 million five.
5.3% of the NOI for the quarter in line with our expectations.
Our interest expense for the quarter totaled $24.9 million compared to $25.3 million in the second quarter of 2012.
Our cost of permanent debt increased two basis points in the second quarter to the end of this quarter to 3.53%, while our revolver borrowing cost declined one basis point.
Second quarter to be ended the quarter to 1.25%.
Interest expense includes $2.1 million of non cash interest for the quarter compared to $2.2 million for the second quarter 2020.
The income from consolidated joint venture of $2.8 million, including one time $3.1 million net adjustment to our basis difference in the joint venture as a result of the completion of the joint venture strategic program to dispose of 14 senior housing communities, partially offset by loss on sale.
$5 million.
Strategic disposition of one facility.
This year income from unconsolidated joint venture includes the $3 million and government Grant income recognized under the cares Act as previously noted.
During the quarter.
We made $27.5 million of investments, including a $20 million preferred equity investments and 186 unit senior housing community because initial cash yield of 10%.
We're able to match fund most of this investment issuance of equity under our ATM program are.
Our year to date investment activity totaled $154 million at a blended initial yield of 7.8% with a $112.6 million coming from our proprietary development pipeline.
During the quarter. We also completed the sale of one skilled nursing transitional care facility, which was leased to Genesis for an aggregate sales proceeds of $18.4 million inclusive of the assumption by the buyer of an aggregate $17.6 million of HUD insured mortgage debt encumbering the personally and resulted in an aggregate too.
$7 million net gain on sale.
This sale marks the completion of our strategic program to reduce our exposure to Genesis sales emphasis.
We'll be transition.
Subsequent to quarter end, we completed the sale of an additional skilled nursing transitional care facility for gross sales proceeds of $9 million.
We issued 1.4 million shares of common stock under the ATM program during the quarter at an average price of $15.70 per share.
Hurting gross proceeds of $21.4 million.
$4.3 million of commissions.
Our levers move slightly to 4.91 times.
Five times, excluding the JV debt and.
5.4 times from 5.54 times, including our share of new license joint venture debt.
We have $350 million available under the ATM program and we'll continue to monitor the equity markets and utilized ATM to match fund investment activity.
Leverage as opportunities present.
We're in compliance with all of our debt covenants as of September 32020, and continue to have very strong and improving credit metrics compared to the prior quarter as follows interest coverage 5.1 times up from 5.36 times fixed charge coverage of 5.22 times up from 5.1.
Seven times.
Total debt to asset value is 35% down from 36% and then our unencumbered asset value to unsecured debt.
275%.
Secured debt to asset value just 1%.
On November five 2020, the company's board of directors declared a quarterly cash dividend of 30 cents per share dividend will be paid on November thirtyth to common stockholders of record as of November 16.
Dividend represents a payout of approximately 65% of our FFO normalized FFO per share. We are very pleased with a high dividend coverage ratio.
Tim to evaluate the dividend payout going forward with a targeted in the range of 80% of the AFFO. Once we are past the impact of the Cobas nights and pandemic.
We continue to have a very strong liquidity position as of September 32020.
Over $975 million of cash availability on our line Princeton.
Principal payments obligations dividend of 2021 total only $18.3 million can be.
Significant cushion in our debt covenants quarterly continue to be very positive about our current financial position and our ability to appropriately addressed the challenges they face.
With operators going forward.
That.
Opened up the Q and a.
Certainly ladies and gentlemen, exactly question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue. Please press the pound. Our first question comes from the line of Nick Yulico from Scotiabank. Your question. Please.
Thanks. This is Josh Brolin, Nick could you just talk about where you're hearing from your operators about why we really havent seen occupancy starts to increase given elective surgeries are picking up.
Well elective surgeries of picking up in some areas more than others, we are 100 basis points higher.
Occupancy that we work our low point.
So we have seen increases, but you see the numbers, we're having spikes and covert all over the country.
So there is a direct relationship there we have 95 facilities currently that still have some level of code was positive.
They've been restricted in what they can do most of the rest of the facilities are admitted.
So the majority of it so these are admitting.
Because of all the spikes uncoated around the country hospitals and keeping that open the covert patients.
Cases, we've got we've already.
Or exceeding capacity so there's just a direct relationship there.
So it's not as if we're not seeing the occupancy increases on the skilled side, we are but it's definitely mitigated by.
The impact of our inability to yes.
Control the virus.
I don't know if that answers.
Answered. Your question are you seeing something different in numbers out there on covance.
And then just you mentioned in your prepared remarks that condemn expertise in a kind of pickup in discretionary move out there is how much of an impact is that having on your operator occupancy.
Hello.
It's quite significant.
It gives you heard what the occupancy.
Hence our across the portfolio irrespective of assisted living and memory care.
Independent living assisted living.
And memory care I guess.
You are.
Being dressed ashish.
A longer tail to getting residents to move in and it really is a function I think of getting people at higher acuity when they have to move in as opposed to.
When it.
More of a choice.
And so to the challenges you move outs are happening as they always have theres theres move out. So you always have is whether it's higher acuity or people pass or whatever that might be but then you're also having people move out theres a whole bunch of people that are moving out because after.
Living a community that is at various times had to maintain social distancing, sometimes there's been through delivery to the runs because they'd wanted people not to socialize.
Because it's just it's just a concern and that's the regulations in that location.
We'll feel limited and so they're reluctant to move from their home, let say too.
You have the community where they.
They may be in the 14 day quarantine and maybe then they are not going be able to be out of their room much anyhow and so the whole aspect of socialization, which is the watch part of the equation for moving in.
Really.
Really limited.
Let me, let me clarify the fatigue.
In terms of staff.
Are you referring to that.
Yes, we all cities and it's been very stressful.
That.
Impacting the admissions everybody's work within the facilities everybody's working just as hard to admit as they always have you just got those are the factors that collier articulated that create some issues in terms of acuity, we've been saying pretty consistently.
We are seeing a too because folks have been staying at home longer whether it was delays on the skilled side all the reasons that taleo articulate on the senior housing side.
Our coming in second now, but I just want to make sure that it's clear that.
Stress and fatigue is not impacting the desire or execution.
As a part of facility management or staff to it.
Got it okay. Thanks.
Thank you. Our next question comes from the line of Nick Joseph from Citi. Your question. Please.
Thanks, you talked about the fact that our.
External growth pipeline, I think you mentioned $600 million.
It would be a good assumption for our hit rate on that.
Well most of that's already come in I think we've got about.
Only about 80 million left to 2021 coming in and then a small amount in 2022. So if you look at the schedules that we've always publish most of that we exercise those options have brought that is this is this has been the last sort of big year.
Of the 600 and then it starts declining.
Okay, and then how do you think about the ability to backfill that pipeline them.
Paul if you want to talk about that it's pretty tough right now short so it's it's actually a really interesting question because.
There there are some dynamics, obviously in the marketplace. So.
Well our operators are not unique in the pressure on occupancy.
And there are there's quite a bit in new construction you may have heard that's been going on it's been underway for the last.
Three years or so and senior housing you may have heard about it and my guess is.
In fact, I can say with certainty that those properties are also having pressure on their occupancy and they are in lease up mode. So we think that there's going to be some interesting opportunities within that within that segment. So assets that as as Rick mentioned earlier have not had pressure from their lenders but.
But probably will eventually if they are not really not getting on back on track. If you will to hit their numbers under their covenants. So.
We think that there are assets out there that are going to be.
Come to market.
At an odd time right during a pandemic, but where our liquidity is our recapitalization is really important. So we think that that's an that's an interesting opportunity.
Thank you.
Thank you. Our next question comes from the line of Rich Anderson from MBC Group. Your question. Please.
Thanks, So how will you mentioned that you're not going to normalize out stimulus.
Income going forward I think I heard that right and do you have an assumption.
About how we should assume.
Assume going forward, what kind of stimulus money will be in the numbers or is it still sort of a choppy thing yet you're still not going to still not going to normalize it out.
Well I think the numbers that are coming in from the revenue side.
Our managed portfolio, we've got the 2% so it's going to require incremental stimulus coming in June or is there incremental revenues coming in and we're hopeful that that will happen, but it's impossible to predict.
I mean with the scale of that and I would just say on the operating cost side things are.
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Come down this quarter compared to last quarter as they built up inventories and we've seen.
These become more operationalize and so as as we start moving through the pandemic, obviously, we'll see we expect to see labor cost.
That are impacted to covert to normalize as well, but again, that's very difficult to predict the timing. So I think we'll see what we saw this quarter.
I'm not going to predict because it's hard to think it's kind of dipping above the level of.
Cost that we're going to see for a while as the pandemic is ongoing and we should start to moderate.
As we get closer to vaccines and starts.
The less cases in the building.
Okay, and then Rick.
This environment inform you more about the choice between right David Triple net is it sort of like maybe.
It exposed vulnerabilities that you want to go more triple net or is it like an opportunity in the future.
With all the fundamental shifts that may happen positively after a covert that you might want to spend more time think about an operating model Im just curious so.
Thanks, Rich appreciate it so it doesn't really affect our thinking part of the answer to that is that just practical.
There's hardly anybody out there when they do a deal that what's the do triple net anymore.
So you've got sort of that practical consideration. If you were to if you want to stay in the space and grow in the space you are going to do you can do manage deals.
I think there's I think there's lessons to be learned.
And I've said this before we've all been complicit.
Yes.
The coverage that we put in place when we do acquisitions in the senior housing side are pretty soon certainly extremely fit all the odd.
Living side, because they are not viewed as really healthcare facilities.
And so when you hit any sort of headwinds are hard times, we're prepared to mimic the supply demand equation, creating issues as we've seen that really really.
Presses pneumatic breathing room, those folks have on coverage, which led to not just more managed deals being done with the conversion of existing triple net deals.
Which deals.
So.
We think.
We do as long as we continue to partner with good operators.
The managed deals are fine and we're happy to buy the upside the initial diligence and analysis is critical to term that there is upside because as we all know with the managed you buying both upside and downside and so you don't want to do any transaction, we were buying that particular, operator at a peak level.
Now it's possible that over.
Over the next couple of years as the demographic really starts.
I think its way into the occupancy of senior housing facilities.
That folks might be interested in doing triple nets again and.
If that's the case hopefully everybodys learned their lesson and set of underwriting 1.2 times for assisted living or 1.1 times for independent living you're going to go in there with a higher level toward pour through whatever it happens to be so that.
That when there are inevitable headwinds and headwinds are okay.
Evitable support for whatever reason.
That's you've got cushion there so it's possible that the triple that could come back, but I think that that's a function.
Demographic really impacting occupancy and sort of the state of the dynamic between supply and demand.
Well that's interconnected.
Great. Thanks, very much appreciate it.
Thank you. Our next question comes from the line of Lukas Hartwich from Green Street. Your question. Please.
Hi, This is John Dion for Lucas. Thank you for your time and congrats on the quarter just.
Just a quick one for me.
Was just hoping to get some insight into as you look to take advantage of the deals that are kind of manifest over 2021. If you look over your old portfolio. There are areas, where you can see yourself selling into the strong bid out there for senior housing assets that you have to recycle capital to take advantage of the deal in the future.
Tom you want to take that.
Sure.
Potentially yes.
Well there's always.
Some something at the bottom of the barrel that we're looking to sell that's inevitable everyone does that.
It's funny you asked the question because we probably got.
Almost weekly.
I'll call from somebody who who wants to buy an asset.
It's looking to buy an asset they are not even asking about specific assets. They just want to buy and can they buy something from us.
Oftentimes, it's multifamily guys looking at senior housing, particularly independent living that but its that is it.
It's really quite channels. So there's a lot of capital there.
Looking to find a home and we frankly haven't tested the market to see whether.
Something that we bought at a seven we can sell it up five and a half and then you'd have to make a judgment as to whether.
Long term that makes sense, because we'd have to measure what we how we redeploy that capital and how we think about the long term improvement in the sturdiness of the returns that we can get over time.
Okay. Thank you.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one.
And our next question comes from the line of Steven Valiquette from Barclays. Your question. Please.
Great. Thanks, Hello, everyone. Thanks for taking the question.
So I'm, just hoping to get a little more color regarding the genesis in signature going through an opinion.
Cyber press release from December 25th said that you guys have not received any rent relief requests from either operator as of that date.
Sure if that was still the case today.
I'm not sure if you even talk about this but what do you expect to be the likely scenarios from here.
This might play out or is this more just really an accounting profit I just want to give more flavor for kind of this whole situation. Thanks.
Let me make a couple of comments and then turn it over to Harold I think that.
Well, we have not gotten any any requests and.
When you when you make when you when you are forecasting.
And if you exclude.
Paul assisted.
And include it.
Relatively high level of.
Supply expenses related to the pandemic with really no relief in sight, if you apply that kind of analysis too.
Operator.
May come to the same conclusion so.
We think it was as much about that is there anything else as everything else, but let me just kick it over to Harold.
Yes, Thanks, Rick I don't we don't have any.
Detailed insights into more than that from their auditors, we have conversations obviously with the operators and obviously genesis will be having their call here at some point for.
For this quarter and there clearly under pressure they've told US that this is not an imminent issue for them as far as having problems, but they.
They've got to see relief continued to come in and they've got to see.
Occupancy is improve overtime.
It would be a problem for them. So we just kind of in a wait and see mode. Genesis signature signatures been one that weve restructured that leaves a while back we've been very pleased with the progress that they've made and what they've done but as Rick said that their conclusion was.
Could that provide.
Hey.
A forecast did show things being able to be funded absolute increase occupancy were more relief given the occupancy levels. We're at today.
Similarly, given all the relief that has been received by signature go like their cash flow position in the short term is fine. So we're basically in a wait and see mode.
I think there's not a whole lot more I can say about it than that.
Okay. That's helpful. I appreciate the color. Thanks.
No I want to just real quick we do that we have got Genesis down to such a small percentage too.
Those would go.
It's about $10 million of recurring rent and the $2 million a year for the next couple of years. So whatever happens there, it's not going to be a significant impact for us if something negative happens hopefully that won't be the case, but the precise.
The fact that we've gotten down so dramatically.
This is really obviously as it seems.
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Occasion that was the right for us to do.
We've also internal conversations that if it came to that we've had internal conversations relative to who we can move those facilities to zero in one region.
So it would be not difficult move and that's going to state that we really like.
Sure.
Okay I appreciate the color. Thanks.
Thank you and this does conclude the question and answer session of today's program I'd like to hand, the program back to Rick metrics for any further remarks.
Thanks for joining us today.
Well both you all have any follow up questions were have additional conversations.
For a lot of you we won't be talking to for a while so I hope you find ways in this environment to enjoy the holidays and we stick out there take care.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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