Sabra Health Care REIT Inc. Q1 2023 Earnings Call
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You are currently on hold for the Sabra Health care REIT first quarter 2023 earnings call. We are admitting additional participants and will be underway. Shortly thank you for your patience and please remain on the line.
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Good day, everyone. My name is Lisa and I will be your conference operator today.
This time I would like to welcome everyone to the Sabra health care REIT first quarter 'twenty twenty-three earnings call all lines have been placed on mute.
To prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question that is star one again.
I would now like to turn the call over to Lukas Hartwick SVP Finance. Please go ahead Mr. Hurwicz.
Thank you and good morning, 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 our expectations regarding our tenants and operators and our expectations regarding our acquisition.
Asian 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 the year ended December 31 2022.
As well as in our earnings press release included as exhibit 99, one to the form 8-K, we furnished to the SEC 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 that the comments, 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 included on the financials page of the investors section of our website at 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 Nato's CEO, President and chair of Sabra Health care REIT, Thanks, Luca and good day, everybody. Thanks for joining us.
We're continuing to see traction in operational recovery occupancy at our skilled nursing portfolio has now improved every month in the fourth quarter and continued through January occupancy October through January of our skilled skilled nursing portfolio improved 130 basis points, our skilled mix jumped up dramatically in the first quarter as well.
Labor trends are improving but its still tough.
B.
A bit of a slog, there I think for a while but we're certainly off.
Our highs in terms of inflationary increases and agency utilization. So we feel good about the progress is being made there as well.
<unk> coverage without Prs and Thats really the only way we think.
One should be looking at it at this point has improved sequentially on a trailing 12 months basis and even more so on a trailing three months basis.
I wanted to comment on a couple of specific operators I think everybody saw noted signature health.
Coverage declined signature health had a tough second half.
So 24 facilities close to and right size their corporate infrastructure to accommodate.
A leaner company and so that was quite distracting for them. However, there first quarter rebounded dramatically.
I went back over a year and a half to find the corridor that was as strong as the first quarter is for signature health and wasn't able to find one so we feel really good about where cig health is on a current basis. Similarly avid meter while their coverage was fine as reported they also had a strong first quarter as well.
Well.
Comment quickly on the transition from the old North American portfolio, that's going well for Avenir and it's going well for Ensign Ensign noted on their earnings call. They are ahead of schedule, even though there's still a lot of upside to be had there. So in terms of our three largest operators cig health in Avenir and ensign.
We feel like we're in a really good place with all three of those operators right now.
We're pleased with the proposed three 7% market basket and we do expect better than historical Medicaid rate increases.
Most of those rate increases for our portfolio will be effective on July one we will have some more clarity probably over the next several weeks and what those rates will be our expectation now is that some states will be extending COVID-19 rate add ons and some will update the cost report base year to reflect more current data and that's a reflection of the fact that many.
States do acknowledge the impact of Covid on the industry and the.
The lack of viability of some of the Medicaid rate increases in certain states. So as we saw last summer. We are seeing some of the same things. This summer as states are being more generous with their Medicaid rates.
Investment activity is light and will remain so in the near term competitive landscape has changed with lender loans and liquidity needs driving sales pricing uncertainty exists.
I'm sure you will talk more about that as well.
As noted in the press release, we have terminated our position in the JV. There is no impact on earnings or any other ramifications to the company.
Fact that there are.
Number of folks out there rating agencies and others, who still look at the debt carried by the JV and so that obviously has gone so from that perspective for those that looked at the JV did its a delevering event for US. We're now focused on transitioning the 11 wholly owned facilities to new operator, I would note on the <unk>.
<unk> wholly owned facilities they are different than the JV portfolio. The JV portfolio was part of the original ALC acquisition. The 11 facilities that we own came afterwards and these are larger facilities in larger markets that are primarily a combination of al and memory care patients.
And with that I will turn the call over to Tonya. Thank you Rick.
I'll first turn to the results of our of our managed senior housing portfolio and then provide a brief update on our investment activity and behavioral health.
Our wholly owned managed senior housing portfolio continued its recovery throughout 2022, but it was essentially flat in the first quarter of 2023, having work to manage and overcome labor and wage challenges for nearly two years operators are now focused on building occupancy by bringing in new residents in numbers that materially exceed the <unk>.
Residents, who for the most part are not leaving by choice.
<unk> are continuing to moderate which is a positive and the continued evolution of an investment in customer acquisition strategies is now seen as foundational our operators first became attuned to this when the pandemic began and they were forced to pivot to virtual sales and they have embraced this change.
The numbers for the wholly owned managed portfolio on a same store basis, excluding non stabilized assets in government stimulus are as follows occupancy for the first quarter of 2023 was 87% a 140 basis point increase over first quarter of 2022, and a 100 basis point decrease over the prior.
Quarter Revpar in the first quarter of 2023 increased by seven 3% over the first quarter of 2022.
Given by nearly 10% annual rate increases achieved in our holiday and <unk> wholly owned and <unk> portfolios.
Revpar for the first quarter was $6484 in our assisted living portfolio flat to the prior quarter, and 2000 and $771 and our independent living portfolio 110 basis points higher than the prior quarter.
Including government stimulus, excluding government stimulus funds cash NOI for the quarter was slightly off the prior quarter, but nearly 33% higher than in the first quarter of 2022, driven by continued margin recovery, particularly in our fully owned and live in portfolio, demonstrating the benefits and challenges.
Of operating leverage.
We continue to see strong rate growth and continued those seasonal occupancy gains across our senior housing portfolio. Our net leased stabilized senior housing portfolio has seen consistent occupancy increases since the low in February of 2021.
As of February of 2023 occupancy it recovered to 88, 2%, which is equal to the occupancy level immediately before the pandemic and 11 five percentage points above the pandemic cloud our lease portfolio skews to assisted living and memory care, which have had a more robust.
Just occupancy recovery than independent living as they are needs based in addition, we have transitioned from poor performing leased communities to the managed portfolio, allowing us to participate in their financial recovery.
Move out rates, driven mostly by higher care needs and that seem to be stabilizing but at an elevated rate relative to pre pandemic averages. This may be a temporary phenomenon as we are seeing average length of stay reverting to pre pandemic levels. After spiking in early 2021, we speculate that <unk>.
Evidence that moved in during the first rounds of Covid vaccine clinics that communities. What we then characterized as pent up demand are driving higher move outs. Now 18 months later as mentioned in prior calls high yielding time efficient and cost effective customer acquisition strategies strategies have become <unk>.
Critical to filling community larger operators, who have the benefit of scale and capital are successfully using digital marketing to generate qualified leads that have a high rate of conversion to leases. Although the conversion rate from personal referral sources is higher the absolute number of move ins that are sourced two.
Operators digital presence far exceed those from other lead sources, we are still in the early stages of the evolution of customer acquisition in senior housing and expect to see further changes as the target customer also evolves.
Comparing the first quarter of 2023 result of our wholly owned managed portfolio by country. Excluding government stimulus, we see that our Canadian assets have slightly outperformed our U S communities compared with the prior quarter and Canada, we see a similar phenomenon as we described in the U S is higher move out rates offset.
Occupancy gains likely for the same reason the labor cost and availability in Canada that we noted in last quarter's earnings call also seems to be resolving as an example in the first quarter of 2023, our Canadian joint venture reduced agency costs by 85% compared to the prior quarter.
<unk>.
Turning briefly to our behavioral health portfolio at the end of the first quarter Sabra is investment in behavioral health included 17 properties and two mortgages with a total investment of $793 million at the end of the first quarter, which as expected the total $837 million once the balance of cap committed capital has dipped.
Lloyd we have identified additional properties within our owned portfolio as candidates for conversion and are in active discussions with potential operators regarding those locations and with that I will turn the call over to Michael Costa <unk> Chief Financial Officer.
Thanks Tanya.
For the first quarter of 2023, we recognize normalized <unk> per share of <unk> 33, and normalized <unk> per share of 34.
These results are consistent with the normalized <unk> and normalized <unk> run rate, we articulated on our fourth quarter earnings call and are in line with our expectations.
As of March 31, 2023, approximately 5% of our NOI was below one times EBITDAR coverage, which is consistent with previous quarters.
Also as of March 31, 2023, our annualized cash NOI was $451 4 million and our sniff exposure represented 56, 7% of our annualized cash NOI down 140 basis points from the fourth quarter of 2022, and down 500 basis points from a year ago. We.
We expect this percentage to continue moving lower throughout 2023 as a result of further earnings recovery in our senior housing managed portfolio and through any future sniff dispositions.
G&A costs for the quarter totaled $10 5 million compared to $10 9 million in the fourth quarter of 2022.
Excluding stock based compensation expense cash G&A for the quarter was $8 3 million compared.
Compared to $8 8 million for the fourth quarter of 2022.
Now turning to the balance sheet.
Our balance sheet continues to be a source of strength for sabra, allowing us to confidently withstand the market headwinds are tightening credit and high interest rates.
As of March 31, 2023, we are in compliance with all of our debt covenants and have ample liquidity of nearly $1 billion consisting.
Consisting of unrestricted cash and cash equivalents of $34 million and available borrowings of $920 million under our revolving credit facility.
We have no material near term debt maturities. Our next material debt maturity is in 2026 and our weighted average debt maturity is currently at six three years.
Our net debt to adjusted EBITDA ratio was 552 times as of March 31, 2023, and in line with our expectations, we expect our leverage to decrease in future periods as our portfolio continues its operational recovery and through proceeds from any future disposition activity.
Excluding our revolving credit facility, which makes up just three 3% of our total debt we have no floating rate debt exposure and our cost of permanent debt is 393% as of March 31 2023.
The combination of a low leverage fixed rate balance sheet with meaningful liquidity and no near term maturities affords us the luxury of not needing to access the capital markets in the foreseeable future.
On May three 2023, our board of directors declared a quarterly cash dividend of <unk> 30 per share of common stock. The dividend will be paid on May 31, 2023 to common stockholders of record as of the close of business on May 16th 2023.
The dividend represents a payout of 88% of our normalized <unk> per share.
Lastly, we did not issue earnings guidance this quarter, but we are hopeful to be in that position to do so sometime in 2023.
Until then we still believe that the 33 to 34 cent quarterly run rate of normalized <unk> per share and normalized <unk> per share that we provided on our fourth quarter call is still appropriate.
And with that we'll open up the lines for Q&A.
Thank you at this time I would like to remind everyone in order to ask a question to please press the number one on your telephone keypad again that is star one.
For just a moment to compile the Q&A roster.
Your first question comes from the line of Michael Griffin with Citi. Please go ahead.
Alright. Thanks, maybe we can go back to the fundamentals around snaps and Rick I'm curious in your assumptions for the rest of the year. I mean, how are you thinking about expectations kind of get at a high level of agency and labor costs kind of decreasing but if we were to quantify that let's say at the beginning of the year and maybe youre thinking flat agency utilization or something where might that be.
At the end of the year and has your.
Thoughts around it changed.
So no my thoughts haven't changed around that I think occupancy we still think 3400 basis 40 basis point improvement month is doable, we'd like to see more obviously, but we think that that's doable, so still hampered by by labor.
Issues, but.
We've seen so.
Signature health for example, in the first quarter sequentially had a drop of 5% in our labor costs.
So.
I don't want to suggest that it's going to continue with that rate, but that was a relatively nice drop with occupancy improving pretty dramatically in that portfolio occupancy was up.
Almost 300 basis points in sequential quarters.
So.
So I just think it's going to still be sort of a slow kind of improvement.
I think there'll be there'll be a greater shift.
<unk> greatest shift from agency to in House staff with increased wages, but the rate of inflation on those wages has also slowed down and I would expect that to continue as well.
Last year, especially the second half of the year there were significant wage increases that were passed on to staff in the facilities.
To the extent that there needs to be more of that.
There is nothing but good news on the reimbursement front, both in terms of Medicaid This summer and the Medicare market basket. So that's going to help that's going to help with margins, obviously, but it's also going to help provide more cash for people to use incentives to hire staff as well.
And then just one clarification on the coverage I think you said ex Prs, which is probably the right way to think about it. It was about 155 this quarter versus one four last quarter. If we go back to December of 'twenty. One like you have laid out in your in your deck, you would that number be lower than the one 5%. This quarter should we be thinking about it on a year over year.
On that basis.
We have to dig that went up.
That will have that at my fingertips, but certainly it's higher on a year.
Year over year basis, but we'd have to go back and look at that quarter, specifically, if we can find it while we're still on the call, we'll let everybody know.
Great.
That's it for me I appreciate the time.
Got it.
Our next question comes from Tayo Okusanya with credit Suisse.
Hi, yes.
Good morning over there to two questions from me.
First of all senior housing.
On the on the East side again, EBITDAR coverage of 114 I believe.
That kind of suggest EBITDA is still probably less than one so just kind of wondering how do we kind of think about that portfolio again, what's happening fundamentally that suggests coverage ultimately improves over time is there some.
Some risk of <unk>.
Tenants within that pool, possibly meeting some assistance going forward.
Tayo I can give you some color there so first of all.
Really what so first of all this is kind of a stale number rights trailing 12.
So we kind of know that you still have the impact.
The.
Agency costs and labor issues in that number.
And we're expecting that that's going to roll off we have also seen occupancy increases.
As I mentioned in my remarks in that portfolio.
Even into the into this past.
Even into this coming quarter so.
We're optimistic that coverage is going to turn.
Specially ones as though as diverse as the labor issues that are embedded in that number and that expense part of that number in the EBITDAR.
Are going to start to roll off.
Gotcha, Okay. That's helpful.
And then also we also.
At Tyler.
That's correct.
All of our asset classes almost all of our inflation is in the labor category, we're not seeing much inflation in our labor category. So that actually helps quite a bit as the operators get better on recruiting and retaining staff.
We're not worried about other sort of inflationary levers.
Gotcha, Okay. That's helpful and then from the alignment perspective.
Okay withdrawn from this thing you guys have no economic interest and no impact nothing at all going forward, but could you just help us understand what exactly a withdrawal until that does that mean, you'll just kind of give up your ownership in the JV.
For free or you didn't get any.
Any economic.
Benefit from from giving it up just kind of if you just kind of give us like details of just exactly what this entails to be able to kind of walk away from this clean in Cleveland fan.
There is a provision in the JV documents as JV agreement, rather that allows either side to give notice and just walk so theres no compensation. It felt like a management agreement or anything like that.
We're on track to claim a term fee or something like that and just sort of walk in look the lenders have the assets, they're transitioning assets to other operators. There is theres nothing there anyway.
Loans are nonrecourse anyhow, so there was no obligations.
No recourse to sabra.
Yes. Unfortunately.
The downturn in the debt markets really took away all of the obvious potential buyers for the portfolio. So you sort of had the double whammy of the pandemic impact on the business.
And the debt markets turned down.
And so you sort of wiped out a whole potential audience of buyers.
I appreciate the color. Thank you.
Okay.
We will take our next question from Josh <unk> with Bank of America.
Yeah, Hey, guys. Thanks for the time.
Just wanted to follow up on the <unk> JV.
I get that you can walk away from it but I would have thought you would get a benefit because there was debt on the portfolio and now that won't be flowing through your income statement.
Is that a is that a correct assumption.
Yeah, Hey, Josh it's Mike Yeah. So it's not a correct assumption here is why it's so.
That joint venture was accounted for under the equity method.
And when we wrote that thing down to zero last quarter as you recall.
We no longer recognize any revenues and the expenses in <unk> from that joint venture.
It's zero not that it was much before we did that but going forward because of.
The way the accounting rules work is zero, so theres nothing flowing through our financials as a result of our.
Writing it down to zero, if theres nothing flowing through our financials as a result of us.
Exiting that joint venture the debt.
Since it was an unconsolidated joint venture was not appearing on our balance sheet anyways.
So literally there is no impact to our financial statements as a result of this.
Okay. So the impact was there already in the <unk> results and there was nothing on the go forward. Okay. There was nothing in the <unk> results. There were zero <unk> zero earnings zero, everything zero balance sheet value.
So there is nothing in our first quarter results for their life in joint venture.
Okay. Okay that makes sense I appreciate you clarifying that.
And then Rick in your opening remarks, you mentioned, you expect better or you expect Medicare Medicaid increases to come in kind of on the on the better side I guess, what are you seeing or hearing that kind of gives you confidence that the Bruce.
It would be on the better side.
Well, it's the actual dialogue that's happening with the trade associations in the various states and the state legislatures and the folks that are in charge of the budgets there. So.
That's really where it's coming so look it's all going to be all 50 states.
Last year, we had more clarity.
Those states that will give me outsize rate increases you know, we published that I think that was our second quarter 'twenty two.
Earnings release, so we.
We will do the same we'll do a business update if we know as soon as later on that as well, but it's coming from direct discussions.
Yes, I think the biggest question Mark.
On the states that we're in is Texas. So I think everybody has got a comfort level now that Texas legislature will make permanent the 1962 that was part of the map.
Add on some additional amount above that.
The issue is with THC going away May 11.
States in this case, Texas has the option of extending that $19 62 until the full rate increase goes into effect in September but we just don't know yet if theyre going to do that so I think worst case scenario for Texas as you have a four months kind of hold where they lose the SMA.
Add on does get it back in September , but theyre going to have that four month period, where there isn't anything so.
That's what we know about Texas, but again.
All the other states our assumptions are based on.
Actual dialogues and things being put in budgets and stuff like that.
Thank you.
The other thing I should point out to some of this is just organic so cost report process itself starts to capture inflation. There is a lag time.
Between when states.
Save cost reports are filed and when reimbursement rates actually occur.
But those core supports do capture inflation. It's one of the reasons that we expect next summers. So 2020 for next summer's Medicaid rate increases to be even better because they will really be capturing a lot of the worst period of inflation that we had during COVID-19. So the fact that there may be a couple of states that are willing to.
To accelerate the base period for the core support now and not wait another year is a positive for those particular states.
Yes.
Alright, and we will take our next question from Austin, <unk> with Keybanc capital markets.
Sure.
Great Good morning.
Quick question on the 33% to 30 <unk> run rate when you layer in sort of the 25 transition assets you guys highlighted last year I think they were generally generating cash ran around the $5 million to $6 million range on an annualized basis with upwards of $15 million upon that ultimately commencing.
How much of that has commenced and is captured in that run rate and then also does the 33% 34 assume any acceleration in NOI from the senior housing managed portfolio.
So the run rate is based on what we reported this quarter or even based on a reported in Q4.
So it doesn't assume any acceleration in the senior housing managed so that would be incremental to that number.
Obviously, we didn't want to bake that into the run rate because I don't have a crystal ball, but.
Yes. So if there is improved performance there, which we expect there to be then I would expect that number to improve as well in terms of the transition those are ongoing as we've talked about for the last several quarters.
We expect those to be fully transitioned and NOI pickup that you alluded to to be realized by the end of 2024.
Again, it's going to vary by situation is going to vary by project in terms of.
Of when those things roll in but they're incrementally getting picked up in our earnings and we expect it to still be fully in there by the end of 'twenty four.
Do you have.
The current run rate.
I'm sorry.
Nothing was impactful in our current run rate.
Understood do you have a sense, what those 25 assets generated in the first quarter on an annualized basis relative to the five to six in the second quarter of last year.
It's higher than that five to six was less than the 15 I mean, it's again like I said before if there's 25 projects is probably 20 different stories. There. So it is hard to pin down exactly what that run rate is going to be on an overall basis, it's going to be dependent on timing and a whole other whole lot of other factors.
It has increased since that $5 million, we disclosed back in Q2.
Got it understood and then just as far as the 11 assets wholly owned assets leased to and live and.
Were those kept in the same store pool. This quarter just curious how they performed and then can you shed some light on the timing of the transition whether you have any operators lined up or sort of a short list.
The detail around that would be helpful. Thanks.
So they are in the same store pool.
And they actually are have been one of the drivers of performance of the assisted living component of the pool, because they've had a.
A strong recovery over the last 12 months.
For our call they were.
Call it breakeven a year ago or so so the FDA actually has.
They have a real margin now.
Between our recovery on occupancy and and strong revpar growth.
In terms of the transition.
Well, we're just try to work cooperatively with and live and TPG on that so should happen in the coming months, but I can't give a specific timeframe.
We know of a number of operators that have initiatives in the portfolio. So.
Identifying the right operator in and of itself is not going to be a concern or an issue for us.
Great I appreciate all the detail. Thank you.
Yes.
Our next question comes from Steven Valiquette with Barclays.
Alright. Thanks.
A couple of really more just kind of housekeeping questions around the supplement.
I guess on pages, four five and six.
I guess first on page five normally I think that pages normally delayed delineated as like the same store data, but this quarter. It was not I don't know if that is still saying same store data on page five as far as the EBITDAR coverage ratios that are there now.
Occupancy or exactly which properties are included.
Data so that was kind of a housekeeping question number one.
And then number two I guess sorry go ahead.
I'll go ahead and <unk>, Yeah, Yeah I'll answer it is as we go through so the answer to your.
Question is that is not same store.
That is for our entire stabilized portfolio and the majority of our portfolio is included in it stabilized pool, we took out the same store triple net information this quarter as you as you've noted just periodically we review our disclosures we review our peers disclosures, we've taken evaluation of what is helpful disclosure.
For the market and for investors and we noticed that not many people present triple net same store.
Information, So we're kind of an outlier in that regard and we thought the overall portfolio was more indicative of it and more useful for investors and we did seek out.
Feedback from investors about that as we typically do when we shipped before we change disclosures.
Okay. That's helpful and then.
Just to triangulate that then like the footnotes on pages five and six are the same around the sort of stabilized portfolio. It looks at the property count in the stabilized portfolio it might be that 356 number.
Page six then on page four you show.
396 total properties in.
Consolidated so are there basically roughly 40 properties give or take that are not in the stabilized set of properties in Manhattan by doing that math right and if we didn't do it offline a follow up offline happy to do it to you if it's kind of hard to do this on the fly, but hopefully that question makes sense.
Yes.
Let's follow up offline on that one so I can do that math thoughtfully.
Alright fair enough okay. Thanks.
Our next question comes from Vikram Malhotra with Mizuho.
Thanks, so much for taking the question. So I just wanted to follow up on the.
<unk> announced the Fad run rate you talked about the transitions in 'twenty two benefiting through the year and 'twenty four but then you also alluded to.
Additional transitions.
Potentially I think in Canada, you said or maybe there was also some.
Additional senior housing conversions can you just walk us through that again are there is there an additional bucket of assets that you will start to transition <unk> and Mylan to site.
That sort of me impact the fad going into the end of 'twenty three 'twenty four.
I mean, I would say that.
We're no different than any other company, we're always looking at our portfolio and evaluating the best outcomes for our portfolio we did that.
Significant degree last year, which led us to our conversations around dispositions and transitions, but that doesn't mean it stopped.
We're still looking at our portfolio and there may be opportunities to transition assets to new operators, maybe opportunities to underperforming assets to new operators, there maybe opportunities to transition or convert properties to behavioral health that is always going to be something that's in our portfolio and quite frankly anybody else's portfolio. The material stuff that is impacting our portfolio or that will impact our ports.
Palio is what we've talked about since Q2 of last year, so incrementally nothing material.
Okay. So it sounds like.
Similar size bucket as last year, so much much smaller bucket that you would look to tackle.
Through the <unk> over and above environment Okay.
And then just looking at sort of investment opportunities.
I know Rick you mentioned things are slow and evolving but can you sort of walk through maybe the broader capital structure in terms of.
Assets, but also potentially additional preferred.
QWERTY investments or additional loans that you made.
<unk> to make his investments given all the while.
While that's going on in the debt markets around skilled nursing, but even broadly senior housing.
Sure I'll try to answer that.
We are seeing reasonable.
<unk> of assets and opportunities coming to us few of them are interesting.
We look at our cost of capital and we think about ways to invest and that leads us to focus more on.
More on preferred equity or higher yield our mezzanine debt or something that it has higher yield.
Our our greater opportunity in in.
In the longer term.
Yeah.
Right now what we are seeing.
Our remained.
It remains to be underperforming assets that launch.
One to full pricing it is unclear.
What exactly is full pricing today.
I think that's a bit of a bit of challenge and why we are continuing to look at things because we are interested in price discovery.
With that being at the levels.
In terms of interest rate and a significantly reduced proceeds level of in terms of availability.
There is.
We are seeing in both our liquidity as well as a credit issue.
For our borrowers developers et cetera.
And.
That.
We would hope would create opportunities for us.
So far.
D.
We haven't found them, but we continue to look.
And we continue to try to be creative there.
There are a lot of assets that are recovering at this point, particularly in senior housing that are covering well, but their cost structure and our capital stack is sell upside down and frankly values are probably not where they used to be.
So there's a lot of readjustment, that's going on and a lot of recalculating of capital.
Capital and.
And the outcome of those the tensions between borrowers lenders.
And other investors is is going to play out over the next period of time.
Okay. That's helpful. And then just in this one thing I wanted to clarify I remember maybe it was last quarter you had alluded to the fact that.
There's a lot of talk in the healthcare space about <unk> and I believe you had.
2018 or 19.
C. One yourselves and correct me if I'm wrong I'm, just wondering what the what the goal or objective.
Obtaining that DLR was.
Yes. So we did it we did receive that we were the first in our space to get that as we discussed last quarter.
And the reason why we.
Got that <unk> was to enable us to have independent living facilities in a non lease structure.
That was it.
Absent that <unk>, we could not have the only way we could own independent living.
Living facilities was through a triple net lease.
And as you are aware, we have a holiday portfolio, which is all independent living and it is not under lease structure. So that was the whole reason and the rationale behind your map DLR. It also provides optionality for us which is.
It's something that we always strive to maintain as many aspects of the company as possible. So that if at some point in time, we choose to approach things differently from an operational perspective, we have the ability to do that it's not our intent at this point in time.
Because of.
The quality of the operators that we have in our independent living facilities at this time.
Yes.
Great. Thank you.
Awesome.
Our next question comes from Michael <unk> with Green Street.
Good morning.
One follow up on the wholly owned and licensed portfolio and the operator transition I know you mentioned they are performing well, but could you take us through just a reasonable base case in terms of potential degradation, we could see the NOI.
<unk> of the transition.
Yes, I'll take that so.
We are we don't have a degradation base case, there may be some frictional costs as there always are with new transition to a new operator, but given the distractions. The understandable distractions that the <unk> management team has had with the sale process working with lenders transitioning an entire portfolio of facilities to a variety.
We have different operators.
Bringing in an operator that is that has none of those distractions that is known to us.
We think any frictional cost will be temporary we actually think that there is upside.
In the operational results of that portfolio.
Okay that makes sense and then one one quick one on shop expense growth.
I know you called out it's been moderating over the past few quarters, how much of that is agency labor just coming back to earth with versus a normalization in other expense line items.
It's largely exactly what you said is largely labor agency costs.
As I noted a little bit earlier on the call. We're just not seeing.
Significant inflation in the non labor categories. So as the operators get a better handle on their labor costs.
Then then the topline improvements will just flow through better without anything else getting in the way.
Yes.
Great. Thank you I appreciate the time.
Yes.
We'll take our next question from Michael Griffin with Citi.
Great I appreciate the follow up I, just wanted to touch on bridge to HUD and terms like external gross stuff I don't think it has been mentioned so far but if we think back to the low interest rate regime may be that permanent financing was then called the mid threes. It's probably moved up since then do you have a sense Tal you, maybe when youre underwriting transactions, where that might be that sort of longer term.
Permanent financing thank you.
Yes, I don't have it posted a fed rate hike yesterday so.
Figure, it's probably in the sevens.
Okay.
I will.
We are seeing other debt <unk> non HUD non bridge to HUD, but just.
Construction debt and stuff being quoted as a floor of seven and a quarter currently about eight and a half.
That's at around 50% loan to cost just to give you scale.
That's great I appreciate the color.
Hey, Michael just a follow up to your question earlier on where.
Coverage was ex Prs a year ago. It was basically flat to where it was today so one exact.
Exactly flat 155 times on a trailing 12 month basis.
And when you consider what happened in that intervening time frame with labor expenses Spiking you have annual annual rent increases in Hawaii. The fact that it has stayed flat as increasing is pretty encouraging.
Okay. Thanks.
Thanks, Mike.
Yes.
As a reminder, everyone to ask a question that is star one on your telephone we will take our next question from Juan Sanabria with BMO capital markets.
Alright, thanks for the time.
A couple of questions I guess on the coverage talked about how it's improving and you'll be able to get the tier three coverage ex POF for those.
Seniors housing portfolio.
We'll say one is that because yes, we did not disclose it is higher than our trailing 12 month number.
Would that be the case for signature and <unk> as well.
In the case of as Amir.
It might be slightly up or have that at my fingertips in the case of signature they had a tough second and third quarter. So once they got all those sales and closures behind them and got corporate right sized.
So the leaner company that they are today.
Really refocused and bounce back super dramatically in the first quarter.
I'm talking about current first quarter and on a quarter in arrears.
Okay.
Anthony.
Yes.
Trailing three months numbers, we're talking about again, our trailing three months ended December 31, there's been four months since then and as Rick alluded to earlier the preliminary numbers, we've seen come in for the actual first quarter of calendar year 'twenty three are encouraging and headed in the right direction.
Okay, and then on the dispositions you guys completed curious if you could share the yields or cap rates or the NOI that was booked from a modeling purposes in the first quarter.
Just to help us on a run rate basis, yes, so in terms of the the dispositions.
We disclosed our dispute the vast majority of our disposition activity for the quarter, we disclosed like in February .
And as we said back then the yield on that was call it mid single digits.
So whatever incremental sales we have between that point end of the quarter, one where small and to really didn't change that overall metric. So I think that's still a good number to go with.
Okay. Thanks, and then make the investments you did make in the quarter were eight.
That 8% is that kind of a new.
<unk> do you think for where assets are trading today are those deals one of them was from the development pipeline.
Is that indicative of today's pricing or those are unique situations and not necessarily.
And those are unique situations. One is you just said the bulk of it was.
From a development pipeline.
And the other one so that was a pre negotiated.
Yield.
If you will a cap rate and then the other one was a small property that.
Is allowing us to create a campus with an operator of ours.
Cruise in a substantially larger building on Europe .
Across the way so yes it.
It was.
It was an unusual piece.
They werent.
It didn't have a lot of folks rushing to buy a small buildings on the campuses another building.
Okay, and one last one if you don't mind that the loan book anything that.
We should be aware of in terms of potential risks.
Some news in the broader healthcare REIT space of some loans.
Paresh, if just curious how you feel about your current loan book.
I don't think theres any change or in the bulk of it is not really is not at risk.
It's not a.
It's not a large part.
Nothing like the Ventas loan that debt.
They had to foreclose, yes. These arent they are not <unk>.
Those loans that we have won.
Thank you.
Okay.
We will take our next question from Austin, <unk> with Keybanc capital markets.
Yes, just one quick follow up for me can you guys remind us what percent of your operators are on a cash basis and what the plan is for those tenants over time, whether youre, maybe looking to sell some of those assets are enter into long term contractual leases with either.
Current operator or potentially a new operator.
Yes, so in terms of our cash basis tenant pool like I've said in the previous quarters. The part that we really focus on are the portion of our cash basis tenant pool that pays us various amounts.
They'll pay us a different amount this month versus next month, right and that that pause has come down. It was used it was before like 56% to some of the sales in some of the transitions. We've done it's now somewhere call it 3% of our NOI.
<unk>.
So it is coming down and like we've talked about before the.
The activities, we're doing on the portfolio, whether it be sales or transitions, that's going to address a large component of that.
Great. Thanks, Michael.
Oh.
Yeah.
Okay.
And there are no further questions at this time I would like to turn the call back over to Rick Metros.
Thanks, everybody for joining us feels.
Feels good to at least believe that we've got in the worst behind us and really do feel pretty good about things going forward. So thanks for the support and thanks for joining us today and have a.
Great day.
And this concludes today's conference you may now disconnect.
Jude.
No I have not.
Good.
Okay.
I've seen the lag.
Yes.
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Yes.
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Yes.
Okay.
Yes.
Okay.
Judith.
Goodbye.
Okay.
All right.
And then <unk>.
Thank you.
Okay.
Alan again.
Sure.
Yes.
Okay.
Sure.
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Yes.
Sure.
Sure.
Thank you for your time.
Okay.
Got it.
Yes, you did.
Hum.
Yes.
Do you want to have a good.
Ladies and gentlemen.
Yes.
Good morning.
Good luck.
Okay.
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Accumulation com.
Thank you.
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Adam.
Yes.
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Adam.
Okay.
Scott.
In Q1.
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Yes.
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Yeah.
Okay.
Todd.
Uh huh.
Okay.
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Yes.
Jim.
Gotcha.
Sure.
Good.
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Yes.
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Goodbye.
Okay.
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And then <unk>.
Thank you.
Okay.
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Sure.
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Thanks.
Okay.
Thank you for your time.
Yes.
John .
Yes, you did.
Okay.
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Yes.
Good morning.
Okay.
Yes.
Okay.
Yes.
Mark.
Accumulation corn.
Okay.
Im out of control.
<unk>.
Sure.
Yes.
Okay.
Yes.