Q1 2021 Sabra Health Care REIT Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the Sabra Health care REIT first quarter 2021 earnings Conference call I would now like to turn the call over to Michael Costa EVP Finance and Chief Accounting Officer. Please go ahead Mr. Costa.
Thank you.
Before we begin I want to remind you that we will be making forward looking statements and our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including the expected impacts of the ongoing COVID-19 pandemic our expectations.
Regarding our tenants 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 including the risks listed in our form 10-K for.
For the year ended December 31 2020.
As well as in our earnings press release included as exhibit 99, one to the form 8-K, we furnished to the SEC yesterday the.
We undertake no obligation to update our forward looking statements to reflect subsequent events or circumstances and you should.
Should not assume later in the quarter. The the comments, we make today are still valid.
In addition references will be made on 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 included and the financials page of the investors 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 Rick nature of Chairman and CEO of Sabra Health care REIT.
Thanks, Mike and thanks for joining US everybody. Appreciate it just a quick note. This is the first reporting period, where we got for all four quarters of the pandemic included and are.
And the statistics and our financials.
Let me start with an update on and live events.
On the last call, which obviously was not long ago, we talked about that's something would be pending in terms of the decision and the near term.
And then the impact of the pandemic, particularly the latest surge.
The managed portfolio.
Both we and.
Importantly, TPG have decided that we will use the goods the portfolio of some time to recover.
And so there's not really a tie.
Timeframe on it but I would expect that.
At this point I, just wanted to see some recovery and some trajectory over the next few months.
At this point the.
Any offer that we will be able to make that news.
Really not much of an offer and why.
<unk>.
If we were to acquire the remaining 51% it would certainly be at levels well below the strike price under the old option.
But I'd like to do a little bit of little bit better. So we're still in the same position that we have been in the all along and that is if we can strike of price.
At the right price.
We'll have some nice runway to grow with the portfolio.
And if not and.
And we will have plenty of proceeds to put to use.
For other investments and how the minimal impact on the balance of our senior housing versus skilled nursing so either way we feel like we're in a good position, but you fully agreed that the.
It's just isn't the right time to put something like this on the market share.
That's it for and line, but on the move now to give you an update on COVID-19.
Impact on the business for the first time of our operators and speaking with the upbeat tone, which has been really fantastic to hear well over 90% of our facilities have no positive cases.
The first week of March the number of new.
Positive cases, and our facilities.
Range from zero to two facilities of weak and many more of and that being cleared.
Over 90% of our tenants have reported over 90% uptake for patients and residents and over 60% for staff, so 90% vaccinations for our patients and residents and over 60% for staff virtually all of our tenants of completed the three clinics Cds.
CDC has released national guidelines for cohort restrictions, so those restrictions and now being relaxed with more visitations and group of activities, increasing which does a number of things one it's become a leading indicator of census growth and.
And secondarily, but most of the very importantly, obviously as it helps to get our expenses back on the path to becoming normalized and back to pre pandemic levels, which will have obviously the direct impact on the margin.
I just want to point out, though that the CD key guidelines are.
Mandate and so.
There are different things happening in different markets and some markets are still more restrictive.
And then other markets so hopefully.
And people will sort of come to this kind of the same conclusions.
Also don't forget.
Forget to no debt.
And never fully expressed or appreciate with the staff patients and residents and endure but nonetheless, it will never be forgotten.
Not over obviously, but we just wanted to express our appreciation.
And as also continue and it's still not enough.
There is 24 and 5 billion of and the HHS on the left is another $8 5 billion.
For the role providers, we still think that number will grow as.
As.
Health care business, if you didn't need.
And the assistant start returning some of that money. We do believe that we will have access to.
Some level of monies and that fund.
Susan.
Yet the we expect that we will have access to some of that and the rural provider piece.
And senior housing is being included and that dialogue so.
So we feel much more optimistic that there'll be some tons available for senior living and senior housing as well.
Now, let me move on to reimbursement and it's been a lot of talk and the speculation is that the CMS proposal and the proposed rule. We now have data of the better understand the impact of the pandemic on Medicare revenues surprisingly only 15% of the industry skilled and place the surprisingly small number that reflects the fact of the industry.
And not take advantage of the 30 day waiver suspension.
It may help the industry is positioned at the waiver suspension should be extended for a prolonged period of time to better understand the implications of making that suspension permanent.
I would also note that for <unk>.
Sabra operators all of the operators did skill and place.
The one extent or in other words.
The wide borrowings, but everybody can scale in place true to some extent and a lot of that has to do with the fact that we have really no long term care providers and the high acuity operators.
Have a greater tendency to scale and place.
The other number that was a little bit surprising and such.
Some of the analysis is that the percent of COVID-19 patients was just under 9%.
I think thats misleading only because as.
And as everybody on the call knows we didn't have testing available for months. So.
Yes.
And the confidence that we have a lot more patients and residents that had COVID-19 and we're actually diagnosed with.
And with COVID-19, despite those two metrics acuity and the facilities rose dramatically driven by limited capacity and the hospitals, who are only able to admit the very sick patients and then those folks with and transfer terseness and this is clearly evident and the impact of skilled mix and our portfolio and.
The acuity has come down we've seen our skilled mix gradually come down from its high in December and get closer to pre pandemic levels of though it's still higher.
And pre pandemic levels.
As it relates to the proposed rule and the 5% increase and Medicare revenues above budget neutrality. It seems clear that much of the increase was driven by this pandemic related phenomenon and.
And the prolonged spike and acuity.
<unk> will be taking comments on the proposed rule will look at all of the underlying data and insensitive to the industry recovery and the extent that some calibration is necessary I believe it will be phased into deferred and with different fiscal years to allow the industry to recover and that was pretty strong message I think that CNS delivered and was very conciliatory.
And they really do want to see the industry recover.
A couple of other notes relative to pandemic related assistance Phe was extended for another quarter.
And net funding was increase.
The net funding increase was extended through September 30 of 'twenty, one and sequestration suspend the system with suspension, which continued through the end.
'twenty, one as well.
Now moving onto investments and operations with 1 billion in the half and our investment pipeline being reviewed we believe we're on a path to once again grow the company. Most of the pipeline continues to be and senior housing with behavioral addiction and subs.
And this activity, although theres not much skilled activity at this point given the external assistance is provided for the operators to recover and for.
For those that want to sell their assets.
And to get closer to pre pandemic.
Pricing and terms of getting credit for that kind of NOI.
The top seven skilled operators, which now comprised 66% of the NOL.
And I hit their low point in the occupancy in late December and have increased occupancy of approximately 431 basis points and are leading the way for the portfolio. The rest of the sabra portfolio Hasnt.
And has an increase to that extent the.
Remaining operators outside of those top set and tend to be operators that we only have a few for a few facilities with and are impacted by local market conditions overall sales showing increases and sensus and <unk>.
To the extent of our top seven of our top seven with the exception of Genesis.
Do you happen to be our most progressive operators in terms of.
The.
The level of acuity and taken the variety of clinical programs that day.
Provide and they also comprise some of the.
The top operators relative to I think COVID-19 you mentioned, taking total of patients during the course of the pandemic.
I noted that skilled mix has been declining since at the same point in time and.
And.
Acuity.
Hi will.
Level out at closer to the pre pandemic levels. What we don't know is prior to the pandemic, we did see acuity, increasing and length of stay increasing because of the PDP and and obviously PDP and was interrupted pretty early after implementation. So we'll see how that goes going forward, but I would still.
We expect one of the impacts on PDP and we will be.
Positive impact on <unk>.
Length of something like that.
Good day.
Our senior housing bottomed out well after the snick portfolio, but it seems sort of its recovery as well of our lease portfolio of bottoming out in February and.
And the lease portfolio has now seen 365 basis points of occupancy increase.
Todd will discuss the managed portfolio.
I'd note that the remainder of our portfolio of our specialty hospitals, behavioral and addiction facilities and exceptionally well during the pandemic with occupancy increases of approximately 550 basis points over the course of the pandemic and.
And again, they werent impacted by the pandemic some of it wasn't a low point.
And rent coverage has increased over that period of time as well this portfolio of its most of you know comprises an important and growing 11% of our NOI and it's a strong focus for investments for us going forward and with that I'll turn it over the Italian.
Thank you Rick.
Sabra of senior housing managed portfolio continued to experience operating pressures and the first quarter of 2021 due to the global pandemic. However, when we look at the quarterly operating results and the more detailed basis as well as April results, we see an inflection point and occupancy we have stressed over the past quarters that the challenge facing senior housing.
Occupancy and that improving occupancy of the vectors that will drive the sectors economic recovery simultaneous trends of higher move ins fewer move outs and increasing interest and senior housing driving tours and leads underlie the start of the occupancy recovery with normalizing expenses further enhancing margin and we expected the successful.
Tribunal of the vaccine has been the linchpin for the turnaround and senior housing and the United States and <unk>.
The numbers on a quarter over quarter basis are as follows occupancy and the first quarter of 2021, excluding two non stabilized communities with 73, 1% compared to 76, 4% and the prior quarter. Rev. For also excluding two non stabilized communities declined sequentially by one.
7% to 3718 from 2783, but was slightly higher than in the first quarter of 2020.
Cash net operating income declined 33, 4% sequentially and margin declined by 6% compared to the prior quarter in part because of continued costs related to COVID-19 and lack of grant income and the first quarter of 2021.
The detailed indicate a more subtle story the rate of occupancy declines slowed over the course of the quarter and our total wholly owned portfolio and occupancy improved in April from December 2020 to January 2021.
The declined one 7% to 75, 9% from January 2021 to February 2021 occupancy declined <unk>, 9%. The 75, 1% from February 2021 to March 22021 occupancy was flat.
And at 75, 1% and for.
For March 2022 April 2021 occupancy increased five 6% to 75, 7% for.
The low in mid March until the latter part of April occupancy increased point of 9% to 75, 9%.
Similarly in our <unk> JV portfolio from December 2020 to January 2021 occupancy declined one 4% to 68, 9% of January 2021 to February 2021.
Occupancy declined one 2% to 67, 7% and.
And from February to March 2021.
Occupancy declined 3% the 67, 4% from March to April 2021 occupancy grew by one 5% to 68, 9%.
From the low and mid March until the end of April occupancy increased two 5% and 69, 7%.
While occupancy losses decelerated over the first quarter pandemic related expenses dropped sharply and our wholly owned portfolio from December 2020 to January 2021, COVID-19 cost declined 10, 1% to 396000 and from January February of 2021 COVID-19 costs declined.
27, 7% for 286000 and from February to March 2021, COVID-19 cost declined 31, 9% to 195, SaaS and similarly and are alive and JV portfolio from December 2020 to January 2021, COVID-19 costs increased 26.
Percent to 764000 net from January to February 2021, COVID-19 price declined 14, 3%.
And from February 21 to March 2021, COVID-19 cost declined 36, 5% just to be at 416 and over.
Over the past few quarters, we have all speculated about the extent of pent up demand for senior housing now we have some statistics that suggest the immediate demand and deep.
And live and joint venture growth move ins during March were at the highest level in 18 months and close to the historical peak of $2 three move ins per facility per month at the same time move outs in March continue their significant decline from January and were at pre pandemic normalized levels.
In April net move ins significantly outpaced March results lead and tour volumes in March were up 35% compared to March 2019, and April 2021 tractor the similar pace to GAAP.
They're the statistics going to a backlog of interest and senior housing, which should support higher lease conversions and result in increased occupancy.
Matrix and our holiday independent living portfolio reflects and similar trends, but with the timing lag compared to our assisted living communities recall that in live and his group had completed 100% of its vaccine clinics by April but holiday as an independent living operator, not prioritized by the government and had to create it.
One vaccine program by the end of April holiday had already completed two clinics and each of each of our 18 of our 22 communities. While the pace of move out to started to decline sequentially. We expect move out rates to normalize the pre pandemic levels as the vaccine clinics are completed.
This move ins are starting to rise with March moving nearly 50% higher than February and move ins and occupancy at the end of April was 78, 8% to 6% higher than the low and mid March.
And leads has accelerated and every month.
Since December.
The other component driving revenue as rate as discussed earlier, we have seen revpar hold up across our managed portfolio over the course of the pandemic, but we recognize that certain operators feel an urgency to increase occupancy and may choose to use range as a tool while we haven't seen material discounting within our portfolio we are seeing.
Greater use of incentives, particularly in our lower acuity communities for lifestyle, rather than care drives the decision to move in and our higher community activities safety is now a key element and the sales pitch and with that I will turn the call over to Harold Andrews fabric Chief Financial Officer.
Thank you Tanya I'll give a quick overview of the numbers for Q1, and then provide additional color on our guidance for the second quarter of 2021. The first I want to note that we collected 99, 9% of our forecasted range from the start of the pandemic and February 2028.
The April 2021, I would like to point out that we have one operator, and New York State with the least three skilled nursing transitional care facilities from us and who have decided to exit the business.
These operations and generate approximately $3 $8 million of annual cash rents and we expect to utilize the deposits continue to pay the rent through June 2021.
We are and the process of transitioning the three facilities for one of our top operators with significant operations in the state of New York.
This transition to take some time duty and of the approval process and New York, which could result in the period of time, where we're collecting and low rates for these operations recovery for the impact of the pandemic will also take time, reducing the rents generated after the transition is completed for an unmet.
Loan period of time would you expect growth to return to the current levels and the future, but not likely to occur in 2021.
Given that this portfolio represents less than 1% of our total NOI.
The impact from the loss rent during this transition and stabilization period does not expect it to be material.
Now for the numbers for the quarter for the three months ended March 31, 2021, we recorded total revenues rental revenues and NOI of $152 4 million.
$113 $4 million and $121 $3 million, respectively, as compared to $152 $1 million of $110 $7 million and of $124 million for the fourth quarter of 2020 of the increase and total revenues and rental revenues.
$3 million and $2 7 million respectively.
Merely due to increases and collections related to leases accounted for on a cash basis.
Total revenues and NOI were also impacted by $2 $1 million reduction and revenues from our wholly owned senior housing managed portfolio and compared to the fourth quarter, including a $6 million reduction and the government grant income.
NOI was further impacted by the results of the life of joint venture, which were lower compared to the fourth quarter by $2 million, including.
The reduction and government grant income of <unk> 5 million.
We did not recognize any government grant income during the first quarter.
The COVID-19 related costs, and our senior housing and managed portfolio totaled $2 $7 million for the quarter.
$3 million decrease compared to the fourth quarter $1 8 million of this related to the life and joint venture while <unk> 9 billion was incurred in our wholly owned portfolio.
If a flow for the quarter was $82 $4 million non of normalized basis was $85 $5 million for <unk> 40 per share.
This compares to normalize the SFO of $88 4 million or 42 cents per share in the fourth quarter of 2020.
And at the high end of our guidance, we gave for the quarter and February.
<unk>, which excludes from the ethical and certain noncash revenues and expenses $82 8 million and on a normalized basis was $83 2 million or <unk> 39 per share.
The compares to normalize the <unk> $86 9 million or <unk> 41 per share in the fourth quarter of 2020 and at the <unk>.
Hi, and of our guidance, we gave for the quarter and February.
These declines and normalized <unk> and normalized and that though our primary relate.
The related to the reduction and NOI of $2 $7 million previously discussed.
For the quarter, we recorded net income attributable to common stockholders of $33 $4 million or <unk> 16 per share.
G&A costs for the quarter totaled $8 9 million compared.
Compared to $8 1 million for the fourth quarter of 2020.
G&A costs, including $2 $3 million of stock based compensation expense and both quarters.
Current cash G&A costs of $6 $6 million were five 4% of the Milwaukee and in line with our expectations.
During the quarter, we recorded a $2 million provision for loan losses, and the other reserves primarily related to the loan to the New York operator exiting the business moving previously.
Continued to have very strong liquidity position as of March 31, 2021 with over $1 billion of cash and availability on our line and are poised to take advantage of acquisition opportunities.
During the first quarter, we acquired one of addiction treatment center of.
Senior housing managed community on the aggregate purchase price of $28 $5 million with the weighted average cash yield of seven 7% and.
The addition, subsequent to quarter and we acquired one additional senior housing managed community for $32 $5 million.
Issued five 2 million shares of common stock under our ATM program during the quarter and an average price of $17 75 per share generating net proceeds of $90 2 million.
Additionally, we utilized the forward feature of the ATM program and PREPA.
<unk> the fund certain upcoming investments.
One 3 million shares the initial weighted average price of $17 90 for the other conditions remained outstanding under the forward sale agreements.
As of March 31, 2021, we have $139 $8 million available under the ATM program.
We were in compliance with all of our debt covenants as of March 31, 2021, and continue to have very strong credit metrics as follows our leverages. The 484 times $5 for a times, including our share of utilizing joint venture debt.
Interest coverage is at 523 times fixed charge coverage of five five times total debt to asset value stands at 33%.
The unencumbered asset value to unsecured debt 295%.
The secured debt to asset value of only 1%.
And May five 2021 of the company's board of directors declared a quarterly cash dividend of <unk> 30 per share.
And we will be paid on the 28, the common stockholders of record as of May 17 dividend.
The dividend represents a payout of approximately 77%.
Of that though and normalize the NAV per share.
Now a couple of comments on our Q2, 2020, one guidance youre limiting our guidance again for the second quarter of 2021 due to continued uncertainty around the timing of the recovery from the effects of COVID-19.
We expect the following the <unk> per diluted share for the quarter ending June 30 of 2021 net income 13 to 14.
The portfolio, 38% to 39 per share and the <unk> 37 to 38.
Per share.
Well the estimates are based on certain key assumptions spelled out in our supplemental which I will bring attention to just a couple.
Estimating the amount above do not include any anticipated funds from the provider relief fund for our senior housing managed communities.
And you'll begin to see signs of improvement and the early part of the second quarter. We expect our senior housing managed portfolio average quarterly occupancy fall within the following ranges.
The owned portfolio, 77% to 79% and consolidated joint venture portfolio, 68% to 70%.
Expected closed investments totaling $86 million with the weighted average initial cash yield of 9%.
We anticipate funding investments using the revolver with match funding the equity component of using the ATM program.
Finally, we expect to maintain leverage below five five times, including our unconsolidated joint venture debt and.
Based on expected annualized adjusted EBITDA between 470 and $472 million as of June 32021.
And with that I'll open it up to Q&A.
Thank you to ask the question you will need to press star one on your Touchtone telephone.
To withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of.
Juan Sanabria of beer.
<unk> capital markets. Your line is open.
Alright.
Good morning Edward.
And maybe just to start with the question for Harold and apologies if I missed this as you ran through the numbers.
Is there any one time numbers for the positives I heard you mentioned the provision for losses loan losses.
Debt.
The first quarter relative to the second quarter guide, given youre expecting shop to improve.
No. One there was nothing in there that was kind of one time out of the ordinary and Youre looking at the.
Pretty pure true operating results and the second quarter. So there was nothing that I would classify as one time and like I said.
And actually didn't even give any thought maybe we'd get some.
The government funds and the quarter about debt did not happen. So it was purely they're just their operations.
And Ron.
I take your point, let me just add something.
Obviously, we see the commentary and.
The fact that where we are really upbeat about the recovery and what we're seeing so far.
Although we also don't know how much is happening because of the pent up demand with the actual trajectory is going to be over a longer period of time.
And the.
But the commentary goes to where really the upbeat about some of the trends, we're seeing but our Q2 guidance is slightly down from Q1, actuals and and.
Really what it comes down to us.
Like everybody else, we've been really Scott the last year and.
We don't see any reason to.
Put out something that we.
Okay as optimistic or not even optimistic.
And we're just more comfortable with putting something out there that's conservative given how early the trends are.
So it's really as simple as that there's just no upside we don't go into putting ourselves out there any more than we did for Q2. So you alluded to that and your question. So.
Ahead and finish out the finish out what you were asking for.
Okay.
I think I get it but no kind of claw back of cash rent.
Rent paying tenants from previous periods and the first quarter of it.
Things that would get the way a falloff and the second quarter just to double check.
Yes.
Going to see some level of variability and cash collections from the cash basis operator so.
If you kind of go back to the prior few quarters Youll see the kind of a little up and down quarter over quarter.
So.
Nothing significant there that we're expecting and any clawback of the reduction.
Great and then I guess, maybe one for Rick on the sniff occupancy.
Take your point on the largest operators being the bulk.
Could you give the change year to date for the total sniff portfolio occupancy and.
And or what the change has been from the trough to today and occupancy.
Yes, we don't have the number for we don't have a number for the total of one.
Still being reconciled.
And we of operators that have different methodologies and things like that the.
Over the course of the pandemic, our managed portfolio and our top operators have got really good of giving us just really right on data that we required and we've we've ask more of the.
Because they have the infrastructure the smaller operators that we have we just haven't pushed them because they have a much more limited resources.
And have their hands for so.
And it's positive it's just not as positive as this but we don't have the actual number.
Great and just one last one for me and if anybody on the watch list.
We've had some hiccups and some of your triple net peers that have come to light you mentioned, the snip, operator, and New York and anything else to flag that you guys are watching or.
That we should know about.
I'll make one comment and then the Harold.
And jump and so one of the answer is no. We've had remarkable consistency and I'll watch list that was in place pre pandemic through the pandemic.
And I want to make about the one operator.
This has less to do with sort of their operational performance, but this particular operating the CEO, who I've known for a long time, it's been and the business for decades.
And certainly could have retired before this and the pandemic and.
Called me and just the kind of damages finish tomorrow.
Can't handle other anymore, the stress and just depressed you just can't deal with it and so that's what precipitated the move as opposed to sort of any.
Concerns about operation. So if you hadn't made that phone call and im not sure of this would be happening so.
And so thats about apparel and as anything else.
I don't have any of the ads as you said, Rick the watch us has been very stable and.
There is not material concerns and we have with our operators still I think.
As you said very soon.
Thanks, guys.
Yep.
Thank you. Our next question comes from the line of Rich Anderson of SMB CLEC. Please go ahead.
Hey, Rick.
I appreciate the comments on the front end of this on the CMS and.
And whenever you want to call the claw back on the 5% upside of the revenue, but what are you gauge as being the Russia I don't understand.
And quite understand it's hard enough to pinpoint things under normal times.
With all the noise both on the revenue side and on the expense side and how.
Are they able to really kind of come up with and informed conclusion and also.
Do you expect there to be some sort of concrete sort of law.
By October 1st of this year or do you think of get pushed a year out because of all of the kind of the confusion out there.
And so to your original point I think some of the sort.
Reacted the same way.
Why not just let the sheer path and then start looking at the data.
The 5% quarter and by surprise, maybe maybe that was the case.
But we all saw acuity rising almost from day. One so we knew that that number was going to continue to grow over the course of the pandemic, but if you actually read the full text of the proposed rule.
Yeah pretty tempered and their comments I know some of the headline top of them, but they're pretty tempered in their comments and very conservatory.
The more conciliatory the proposed rule and I've ever seen and my career so.
Is it possible something happens this October.
Maybe I don't think it's going to be.
<unk>.
They really have the reported indicating that they don't want to do anything to disrupt the.
The recovery of the industry. So so.
Yes, so I was surprised.
But their approach I think is quite shepherd's so.
Okay.
You mentioned the.
The number of the top seven.
Operators, making up the chunk of the business.
You also mentioned you have a bunch of that are owners of one or two of our operators and one or two facilities.
Is there a is there.
And opportunity to sell more and kind of consolidate your your portfolio of little bit and maybe not be having is having some of those one off situations and perhaps as a way to finance it and live and if that does sort of come to fruition.
Well one from a timing perspective, so I'll take the second part for us from a timing perspective.
I don't think debt.
And I'm thinking of <unk> all of that far off right. So I don't think we would get much debt insurance of sales to two rig much money, but the other.
<unk>.
More importantly, the part of the answer I think is that we'd like our operators and we havent had surprises for the operators through the pandemic.
And when we identified.
Back for years.
When we did CCP and it's hard to believe it's that long, we identified who we wanted to do certain things with seller of restructure or whatever.
Yeah.
And then will be done and it's been stable ever since so.
I think some of what we see out there. So there was about 32 of those operators rich with 16 of them showing.
Occupancy increases and the other 16 flat or maybe slightly down but those are very market specific and a lot of that has to do with local health department of health officials, where they have and eased restrictions yet because as I said in my opening comments easing of cohort restrictions of leading indicators of the census increase.
So it's sort of.
It's not like there's something inherently wrong for troubling about those operators the stuff will pass and those and those.
The environments will normalize and.
And they'll probably start spiking once those restrictions are lifted just as we've seen some spiking with our larger operators with pent up demand. Okay. Last quick question. You mentioned group activities are you seeing.
Any amount of concurrent therapy is starting to take shape and your facilities.
We are seeing some.
And it's really all over the place as you would expect with reached restriction easing kind of all over the place and it is happening and so that's going to be.
Obviously, the super helpful with labor costs and.
And just overall expenses within the facility.
I think.
And so I think we're hopeful that.
Some of the states and.
And municipalities that have and ease restrictions ease and the ones that have.
Having suffered of any way by doing so that the <unk>.
<unk> guidelines will become more uniform and.
And then what we may have some trajectory that we could actually.
Quantify and.
Do something with.
We just don't have now and.
And I would also say to that point.
And to my opening comment about so is that still have COVID-19, it's really heartening that.
And if you think about you've still got a pretty decent percentage of the workforce that isn't vaccinated and so you have to assume that there is some exposure of the community spread and we're seeing and we're seeing spot, obviously, Michigan that spike and spectrum, Washington, and the parts of Oregon, and other places around the country, but it's not impacting sales.
And so it really goes to the efficacy of <unk>.
Of the vaccine.
Here you have facilities with 90 year olds that has an awful lot of issues.
Really for al individuals.
And and at the holding up so.
That's what we feel really good about and for those facilities that have been able to inch restrictions more so than others. The same thing Theres no.
And I think positive COVID-19 cases.
And nothing happening that is negative.
Okay. Good thanks very much.
Good morning.
Thank you. Our next question comes from Nick Joseph of Citi. Your question. Please.
Thank you I appreciate the updated comments on live and.
Are there any contractual timing considerations for the JV.
No.
You can you can both wait and see on the recovery before making the decision.
Alright.
The next and then.
And I actually I don't know.
Anticipate that they're going ahead and this is a very this is the vintage fund so I don't expect the bigger.
Going to wait until this is totally recovered.
I think I wanted to see some recovery and maybe some trajectory sort of as the case to be made whether it's to us as the buyer or someone else that there is.
Evaluation here that at least gives them something.
Okay, and then at least for some flexibility there.
And then just on I guess the positive commentary overall, just wondering if you can kind of marry that with what the leverage thoughts and.
Issuing ATM equity.
And keep leverage levels, where they are versus letting it drift a little higher and the near term.
Sure Harold and I take that.
Sure.
So I think and kind of goes back to what some of the disconnect. The people might see also positive tone and the fact that our earnings of basically flat quarter over quarter of.
A lot of that's just driven by the share count share is that we've issued and the first quarter shares that we will issue and the second quarter to fund acquisitions and maintain leverage and so there is as we start to see clarity on recovery.
Managed portfolio and we can begin to look at leverage on a little bit longer term basis and start to see that equity issuance needed to manage the moderate I think we're already starting to feel like it will start to moderate now that we've got as Rick pointed out early on the <unk>.
<unk> is in there for the full 12 months, which is how we calculate EBITDA for leverage but remember we still saw EBITDA decline as the pandemic progressed, and so were still fighting debt, a little bit and our equity issuance and I think as we started to see it recover and start to see performance improve and we can really evaluate.
Where we're at as well as the when we started thinking about how the joint venture will play out that will give us another opportunity to look at how the.
The thing that may occur or exiting would naturally delever and have an impact on our equity issuance. So.
Leverage is still an important aspect for us to maintain it below the.
Waiting agency levels, and we've issued equity and the path to do that.
And we'll continue to do that if it's necessary, but I think we're starting to see as we come out of the pandemic the debt should start to abate and we'll be able to.
The start.
And just get back to where we are only funding acquisitions through.
Great.
And Nick I would just add to that.
We're not sort of loosening up if you will as soon as some folks might like us to really since since the pandemic started we determined at that point and time that we were going to take and extremely extremely bit of conservative stance on everything to do with our balance sheet with liquidity will be the first one share cut the dividend.
And so everything was being for us was being.
Being a good and conservative steward of our capital.
So that we would be actually and the stronger position of things ease off to start growing the company again, and we're going to be and a really good position.
For Harold clients as EBITDA continues to grow with the recovery.
And our leverage will naturally drop even more we're going to be in the position too.
Have a lot more to play with there on the leverage side, whether we decide.
And to keep it where it is or it will be lower than it is now as EBITDA grows to one of the keep it lower we're just going to we're going to have some real optionality and.
There's nothing historically the ni for more.
And having the optionality.
Makes sense. Thank you.
Thank you. Our next question comes from Steven Valiquette of.
The Barclays. Your line is open.
Hello, everyone and thanks for taking the question.
Just to come back quickly on that question of the <unk> 21, and <unk> guidance being down a little of it sequentially from the first quarter.
You mentioned that you have taken a bit more of a conservative stance just due to the pandemic, but.
And I guess I'm, just curious whether the concern is more on the risk of rent collections and the triple net portfolio or is it more perhaps revpar or pricing on the shop assets at.
It seems like from an occupancy standpoint, there's pretty good visibility for sabra and really the entire industry.
For occupancy to improve sequentially. So im just guessing the cautiousness is more tied to.
Right at the end of our collections just wanted to confirm that thanks.
I'll take the.
It's just cautiousness overall.
I would say that we don't have.
Any concerns over rent collections and our material, but at the same time, we do have managed portfolio I'm sorry of cash basis tenants. The pay as they are able to so you do see volatility that we want to be careful with and our expectations there and.
And as I alluded.
The two a little bit earlier part of what Youre seeing and the dynamic is just a function of additional shares being issued additional shares of outstanding today that worries you.
And the first quarter and expectation of some additional shares next quarter. So for the factor within the Penny.
On an absolute dollar basis.
And so.
Much closer to flat and.
Rick and as Richard said, Thats being cautious on our expectations across the board, but there aren't any specific triple net.
Operators do we have significant concerns with.
And it's just a matter of the cash basis might have some timing differences as well.
And just you of a few comments I'd make on that is we don't have concerns about the.
For that has held up pretty well, maybe it will be some discounting, but we don't have the kind of operators that sort of <unk>.
Given the way that like some do so that's not a concern but the other thing relative to the managed portfolio. We're really we're just weeks away from hitting a bottom so.
Not that much time for something Thats been this.
Damaging to the business.
Yes, Okay got it okay, and just helps the hit of the confirmation around that and your thought patterns and I appreciate it. Thanks.
Thank you.
Thank you. Our next question comes from Lucas Heartbreak of.
The Green Street your line is open.
Thanks.
And you could just talk a little bit more about the opportunity set for behavioral health hospital acquisitions.
Is there much deal flow and that segment.
I'll take that.
And the answer is that we're seeing more deal flow than we've seen in prior years.
The.
The certainly in addiction treatment and Theres a lot of interest and.
And by a lot of capital sources and into.
It's a sector that is evolving quite rapidly and and opportunity for a lot of roll ups of operators, because it's been relatively small scale and very localized and yet.
Its approach and the operating model there has really evolved very rapidly even over the course of the last five years. So there's a lot of interest there there are opportunities there and we are seeing more transactions and that sector than we've ever seen before.
Sales for the timing yes.
That's helpful and then on the acquisition and the Alaska I'm just curious what the challenges are with asset managing I think thats, the only property and.
And Alaska, So it's pretty far away and maybe you can just talk about the challenges of asset managing that property and then maybe.
Assuming you made that acquisition with the hope to add more properties and that states and maybe touch on that as well.
Sure.
So there is an opportunity there may be and opportunity to expand that property and add.
And some additional units.
Specifically IL units and that's something that we'll see over time, whether that makes sense, which gives us a bit of of campus share, which would be nice and frankly, we are asset managers have towards the building part of clothing.
And.
And they don't seem to be hesitant at all about making the trip up to Alaska, given all of that we have and the Pacific northwest.
And it's further but it is not that much further if you're already up and Washington and Oregon.
And thank you Lucas if you havent better for <unk> and how the fishing is really phenomenal.
Okay.
Thank you.
Thank you. Our next question comes from Todd Stender with Wells Fargo. Please go ahead.
Hi, Thanks and.
Totally recognize its a little premature to get too enthusiastic about the positive move in trends, but when you look at holiday they too.
Two good months March and April.
What are you hearing from holiday right now.
And how are they ramping their marketing efforts, just you've got seasonal demand potentially coming and it sounds like could get a little bit of upside just just any color you can provide.
And I can take that and so one of the things Thats really interesting about and.
The last year is.
That large operators and I include and <unk> and very much so holiday and this and this basket.
<unk> shifted a lot of efforts to digital sales for one of the outreach and.
Became different during the pandemic, because you werent talking to people face to face.
But they really move to owning and sort of the whole optimization on their website and and.
And focusing on outreach through their website as opposed to referral agencies that were much more and.
Most of whom they were much more of the holding in the past.
So.
It's it's hard for me to say sitting here today and given the trends that we described how all of that is going to play out as people start to open their doors, and then start to come out and really look.
How the referral sources may share.
<unk> or continue to move and the direction that they have been over the last year.
And and how that impacts.
Moves and what.
What we do know is that move outs as a result of debt frankly have declined and we expect that to move to a normalized level for sure. The other PC equation is that.
To the extent debt.
Residents stayed in buildings and.
Because there was of fear of moving to higher level of care for example, because they were safe where they work for and they didn't want to change their may there may be some pent up move out as a result of <unk>.
And even higher level of care.
Understood that's helpful.
Just switching gears when I look at the.
The cash yields on your senior housing facilities one the one that you bought in Q1, and then you've already bought one and Q2 are pretty high and the high Sevens, but then it sounds like the include earn outs do you have more of a year one kind of initial.
Going in yield.
And so far we've just concluded what we think is the stabilized number.
Inc, which includes an earn out okay and that would be more once that gets stabilized and the year.
Gosh after a period of months, yes sort of.
For the 12 to 18 month window for for the both of those assets got it okay. Thank you.
Yes.
Thank you our next question.
It comes from Joshua generally.
Bank of America. The question please.
Hi, everyone.
Greg last quarter, you kind of.
Provided your thoughts on when you thought Smith and senior housing occupancy of returning to pre pandemic levels.
Any updated thoughts on that front you could share.
Actually still feel the same way with the caveat being that my guess is as good as anybody's and we don't have enough time, yet to really have a trajectory that we can project over a number of months, so but I still believe.
On the skilled side.
Sometime in the first quarter 'twenty, two we will be.
Either back to pre COVID-19 occupancy levels of pretty close for.
And for senior housing.
Likewise, I still think it's going to be the latter half of <unk>.
Of 22.
And when I say pretty close.
Either asset class.
I mean close enough that the market is going to feel Ikea and we're going to get there.
Okay, Okay, and do you think.
Do you think it will be choppy or do you think it's kind of steady and.
Sure.
Salaries and over the summer or any kind of color there.
And so thats the tough part because you've got some different factors one how much is pent up demand.
The impact when you look at.
A pretty significant increase with our top operators.
It feels like there is some pent up demand and there right.
The other piece of it is.
As acute as of Q.
Take some time for acuity and sort of normalize because we're still getting people that are somewhat sicker than they used to be that may impact length of stay and shortened and little bit. So.
The pent up demand, which is helping and when you got potential pressure on length of stay all of which to say is yes, I think it's going to be a little choppy.
And would expect that and.
And the summer on the skilled side.
As you know.
Normally have a dip in occupancy, but given where we are and given all the delays of surgeries and things like that and im not sure within the Q that same hip so by my hope is that sometime in the summer months there'll be kind of steady growth.
Debt, you can really sort of projecting off of.
Okay.
On the <unk> side.
And.
How are you thinking about.
And like skilled mix going forward like do you think we see more Medicare patients come back first.
Because they're being discharged from hospitals and maybe before they work for or is there some other kind of crossover and going on.
Okay. So first of all and this I don't want to get too technical the all Medicare patients when they come in we have very few operators, okay and Medicaid on the patients.
So the dual eligible for Medicare and Medicaid they come in and they come in under the Medicare patient and with changes over time, Inc.
And let's say if the Medicare rehab patients.
And they May go home after 20 days okay.
But if the Medicare if a patient that's come in.
On the Medicare initially that has a lot of complex nursing issues, which is with PDP M was set up for service.
And then once they stabilize and you still have too many other health issues to get moving.
Of the skilled nursing facility youre going to be there for the long term and they will convert at that point for Medicare and Medicaid and there'll be and the facility for.
Part of the walls of the facility. So that's kind of how that works.
Okay.
Thanks, Thanks for.
Thank you. Our next question comes from the line of almost Tayo Okusanya of Mizuho. Your line is open.
And everyone.
I wanted to talk about the five five kind of leverage.
So the target that you guys have set up for that though is that something thats five set in stone by the.
Credit rating agencies in order for each of them and getting the investment grade rating is there some flexibility around that like I understand EBITDA going up of things improve that gives you a little bit more flexibility, but the number of the target itself that Firefly of limited like where does that come from and what are you kind of.
It yourself that way.
I will take the total.
And it is not a hard limit by all of the rating agencies, but it is it is what Fitch has identified for US is there a target leverage below out of below that level for us to maintain our current credit ratings and so if we were the move into the area, where we had sustained leverage above that level.
<unk>.
And they would downgrade sabra absent other factors, but kind of with our with our profile today.
And when above that and was sustained at that level and they were downgrades of youll recall, they put us on a negative outlook and then negative outlook was specifically because of our leverages the above that level.
And so they were telegraphing that if we didn't get it down within the next 12 to 18 month day, we're going to downgrade of our credit rating and that's why we get so focused on in 2019 and guide of down below that level just before the pandemic.
And so when the pandemic hit and we started seeing.
Issues with our performance and the managed portfolio. We knew we had to manage at that level and frankly had no expectation.
<unk> would do anything with our ratings outlook until after the pandemic was behind us, but because we took so to the aggressive stance on that they actually removed the negative outlook, because we demonstrated to them of our commitment to maintaining the below that level. So.
And the near term, it's going to be where we keep our leverage below I will add.
They look at debt debt level.
Exclusive of the joint venture and other words were actually a fair amount below that today, but until we determine the course of action around that joint venture.
And we're going to maintain including the joint venture the level of below that but let's say, we got out of the joint ventures, and our leverage would drop pretty significantly immediately and.
And we would obviously then have more flexibility in funding the acquisitions on the flip side. If we go ahead and are able to buy that.
Portfolio.
We'll be some need to further delever, because we will take on.
51% of that portfolio of it.
It is more highly levered, even excluding the pandemic impact.
So we're just maintaining it today.
The current structure with the current ownership and the joint venture to give us the obviously the.
Net sales from the rating agency of of our commitment to do that and then and as we've said over and over the last several quarters. If we determined to exit and we're going to have a lot of flexibility and part of the decision to make that investment and.
And take the ownership of the JV up to a 100% is going to be the.
And there's a clear path to strong growth and earnings, including maintaining leverage where it needs to be so go ahead and.
And the other comment I would make is one of the keywords and Harold use would sustain so.
But they are realistic.
And some ups and downs as you do the acquisitions once you really and growth mode of all of that and Thats not an issue. They just don't want to see it.
At a higher level on a sustained basis and and what we've demonstrated to them in the.
And consistency.
And not doing that so it's not as it's not as this.
If you pop up for us.
The quarter, because you've had a lot of activity and then youre going to do some other things and get it back down and its going to be problematic sustain is really cute.
A key word.
Gotcha, Okay, and then I apologize if I missed this earlier on but Rick.
And regards to just state and local and non local government kind of stepping up in regards to providing.
Government support of local government support for for the skilled nursing industry could you talk a little bit about just what you're hearing out there whether it's kind of still too early for states to make any major moves.
And given the sense that the federal government is probably going to be moving away from this over time.
Yes. So one it is too early however, the dialogue and tone of change I think there've been a couple of reasons for that one and state budgets just didn't take the kind of hit and have the kind of deficits.
And that we projected at the beginning of the pandemic.
And so well.
When they get all of it is Medicaid and for the federal governments, even though it may not be targeted for skilled nursing.
It really provides and even additional relief, which gives them more room to do things for us and I.
I think if.
And you look at the number of states that did the F map increases I think it's about half the states might be off of a little bit.
We felt really good about that that day.
They looked at their states and chose to do that so there does seem to be and awareness.
The new but it seems to be that dedicated has been and.
Historically underfunded and most states so sorry can tone and dialogue has changed but it's definitely too early to anticipate what might happen.
Great. Thank you.
Yes.
Thank you at this time I would like to turn the call back over to CEO, Rick Metros for closing remarks, Sir.
Thank you and thank you all for joining us I appreciate your time today and your support and as always we're available for follow up and.
Hope everybody has a good weekend and continue to stay safe out there. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
And so the way.
Okay.
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The.
And for those questions.
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