Q4 2024 Sabra Health Care REIT Inc Earnings Call
Good day.
Aaron: My name is Aaron and I will be your conference operator for today.
Aaron: At this time, I would like to welcome everyone to the 2024 Sabra 4th Quarter Earnings Call.
Aaron: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star followed by the number one again.
Aaron: With that, I would like to now turn the call over to Lucas Hartwich, EVP Finance. Mr. Hartwich, please go ahead.
Thank you and good morning.
Aaron: 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 earnings guidance for 2025, and our expectations regarding our tenants and operators, and our expectations regarding our acquisition, disposition, and investment plans.
Aaron: 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.
Aaron: including the risks listed in our Form 10-K for the year ended December 31st, 2024, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished at the SEC yesterday.
Aaron: 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.
Aaron: In addition, references will be made during this call to non-GAAP financial results.
Aaron: 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 investor section of our website at SabraHealth.com
Aaron: Our Form 10-K, Earnings Release, and Supplement can also be accessed in the Investor section of our website.
Aaron: And with that, let me turn the call over to Rick Matros, CEO, President, and Chair of Sabra Healthcare REIT. Thanks, Lucas. I appreciate it. Thanks, everybody, for joining the call. We appreciate it. Let me start by sending out love and prayers to the Bibas family.
Their bodies will return to Israel today.
Aaron: May the memories of Kfir and Ariel and Shiri be a blessing.
Thanks for allowing me that.
So moving on to SACWR, first I want to
Aaron: Comment on the promotions that we announced this week for Cara, Lucas, and Anna. We're really blessed to have the three of them as part of our team. They're fantastic and they exemplify everything that's good and important about Sabra and also exemplifies the depth of our team and just really appreciate them and look forward to work with them in the years ahead.
Aaron: Moving on to the performance of the quarter. Sauber delivered what's been a succession of a number of great quarters in a row.
Aaron: Our senior housing and skilled portfolio continue to strengthen. Workforce availability does remain a challenge to the sector, but our tenants have been able to implement strategies to mitigate those challenges, and labor has stabilized.
Aaron: Our shop-same-store occupancy was up 80 basis points sequentially, with margins up 20 basis points. Our shop cash NOI was up 17.9% for the quarter.
Our senior housing triple net coverage stayed steady at 1.36.
Aaron: Our skilled occupancy was up 60 basis points sequentially, with skilled mix up 30 basis points. Our EBITDOM coverage hit an all-time high at 2.09. Our skilled margins are now higher than we've seen in years. Our top 10 had another strong quarter.
Yeah.
Aaron: For 2025, we'll continue to build upon the strategy we successfully executed in 2024 as evidenced by our 7% year-over-year normalized AFFO growth.
We would anticipate a higher volume of deals in 2025.
Aaron: The increased volume we started to see before year-end has accelerated since, with more opportunities than we've seen in quite a long time.
Aaron: The opportunities are primarily sharp, but we are seeing more skilled opportunities. The fact that we had nothing new to announce this particular quarter shouldn't reflect on what we think we'll get done this year. We fully anticipate to have a busy year and a year that will have higher volumes than we had last year.
Aaron: Let me move on to the regulatory and political environment. The political environment's potential impact on our business has been an overhang, but I'd like to make a couple of points. First, the threat of Medicaid cuts. We take that very seriously.
Aaron: Well, any actions that may be taken are unpredictable. There are natural guardrails in place, and I want to go through some of those guardrails. As it pertains specifically to Medicaid cuts, Congress has been historically protective of the elderly population, particularly those vulnerable institutionalized folks.
Aaron: The Medicaid budget, inclusive of matching funds, is critical to the governors of all states, both red and blue. And in fact, the red states have been the greater recipients of Medicaid access, the expansion of Medicaid access in recent years.
Aaron: So in addition to the bipartisan support that we've always had in Congress, the governors of the states, again, both red and blue will be united to protect the elderly in our facilities and the Medicaid budgets that are so critical to them. We have a robust lobbying effort that we expect will be successful. And a couple of other things I think to point out in terms of
Aaron: how much in the beginning of the process we're in, the house budget has 880 million of unspecified medic 880 billion of unspecified medicaid cuts.
The Senate version has no Medicaid cuts.
Aaron: and overturns the staffing mandate. So you've got opposite sides of the spectrum. You have no specificity on where those Medicaid cuts are. So a very, very long way to go.
Aaron: Finally, as I noted earlier, I think the final guardrail for us is the strength of our portfolio. Having margins, rent coverage, shop margins where they are.
Aaron: with organic growth still to come in all and both those segments I think puts us in a very good position to withstand anything that may happen going forward and with that I will turn the poll over to Talya. Thank you Rick
Aaron: Sabra's managed senior housing portfolio had another solid quarter. The total managed portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 3.5 percent.
Aaron: cash NOI growth of 5.4% with margin expansion of 50 basis points.
Aaron: These statistics demonstrate sequential improvement in operating results that reflect the continued recovery in Sabra's senior housing portfolio. In the fourth quarter, we added one property to Sabra's managed portfolio. We see opportunities for external growth setting up well alongside internal growth.
Aaron: Sabra's same-store managed senior housing portfolio, including joint venture assets at Share, continued its strong performance this quarter. The key numbers are
Aaron: Revenue for the quarter grew 7.4% year-over-year, with our Canadian communities growing revenue by 10.6% in the same period. Both of these results are consistent with the growth statistics we reported last quarter.
Aaron: Fourth quarter occupancy in our same store portfolio grew by 2.3% year over year, notably our domestic portfolio occupancy grew 2.8% during that period while our Canadian portfolio grew 1.2% in the same period.
Aaron: RevPoor in the fourth quarter of 2024 continued to rise with an increase of 4.5% year-over-year, while ExPoor rose a mere 0.6% for the same period.
Aaron: Insurance costs have the largest percentage increase among all expenses but represent less than 3% of total expenses. Labor cost
Aaron: which represent more than 50% of expenses grew 2.1% in a quarter on a year-over-year basis.
Aaron: Cash NOI for the quarter grew 17.9% year-over-year, just above last quarter's results.
Aaron: In our U.S. communities, cash NOI grew 15.2% on a year-over-year basis, while in our Canadian communities, cash NOI for the quarter increased 26.9% over the same period, benefiting from the continuous strong performance of our joint venture properties.
Aaron: Overall, we expect to see revenue growth continue to outpace expense growth as it has in recent quarters, resulting in ongoing growth in cash NOI.
Aaron: Cash NOI margins should continue to expand across the portfolio as the senior housing industry builds revenue by balancing occupancy and rate, and expenses, especially labor costs, remain stable. With this as a backdrop, we are seeing significant transaction volume in the senior housing space.
Aaron: Virtually all of the deals are structured to transact as managed rather than leased properties. Our cost of capital now allows us to pursue these opportunities, which can generally be described as newer, nearly stabilized, senior housing communities that offer care to residents.
Speaker Change: Our now re-stabilized senior housing portfolio also continues to do well with strong rent coverage reflecting the underlying operational recovery. And with that, I will turn the call over to Mike Costa, Sabra's Chief Financial Officer.
Mike Costa: Thanks, Talya. For the fourth quarter of 2024, we recognize normalized FFO per share of $0.35 and normalized ASFO per share of $0.36.
Mike Costa: Normalized AFFO totaled 86.9 million dollars this quarter, which is in line with the third quarter. I would like to highlight a few key components of this quarter's earnings.
Mike Costa: Cash rental income for our triple net portfolio totaled $90 million for the quarter which was down $1.8 million due to timing of cash basis tenant rents and the impact of asset sales.
Mike Costa: Cash NOI from our managed senior housing portfolio totaled $24.1 million for the quarter compared to $22.9 million last quarter.
Mike Costa: This increase was driven primarily by continued sequential same-store growth as well as the impact of a 92-unit property acquired at the beginning of the fourth quarter.
Mike Costa: Recurring cast GNA was $10.2 million this quarter and slightly better than the $10.4 million per quarter run rate we've provided on the last several calls.
Mike Costa: Normalized FFO per share and normalized AFO per share were $1.39 and $1.44 respectively for the full year which represents 7% year-over-year growth.
Mike Costa: This growth is the result of steady performance improvements in our managed senior housing portfolio, continued stability in our triple net portfolio, and disciplined capital allocation, three factors that we expect to contribute to further growth in 2025 as illustrated in our full year 2025 guidance.
Mike Costa: Our full year 2025 guidance on a diluted per share basis is as follows. Net income $0.67 to $0.70.
Mike Costa: FFO $1.42 to $1.45, Normalized FFO $1.43 to $1.46, AFFO $1.47 to $1.50, and Normalized AFFO $1.48 to $1.51
Mike Costa: At the midpoint, we expect both normalized FFO per share and normalized AFO per share to increase approximately 4% over 2024. It is important to note that our guidance does not assume any 2025 investment, disposition, or capital markets activity.
Mike Costa: There are a few other important assumptions in our guidance that I would like to point out.
Mike Costa: Cash NOI growth in our TripleNet portfolio is expected to be low single digit, in line with contractual escalators.
Mike Costa: Additionally, our guidance assumes no additional tenants are placed on cash basis for revenue recognition.
Mike Costa: Cash NOI growth for our same-store managed senior housing portfolio is expected to be in the low to mid-teens.
Mike Costa: As the portfolio gets closer to full recovery, this growth rate may decelerate and as a result, our guidance assumes the growth rate in the first half of the year will be higher than the growth rate in the second half of the year.
Mike Costa: General and Administrative Expenses is expected to be approximately $50 million and includes $11 million of stock-based compensation expense.
Mike Costa: The weighted average share count assumed in our guidance is approximately 240 million and 241 million shares for normalized FFO and normalized AFFO, respectively, and is in line with our fourth quarter weighted average share count after adjusting for the timing of ATM share issuances during the quarter.
Now briefly turn to the balance sheet.
Mike Costa: Our net debt-to-adjusted EBITDA ratio was 5.27 times as of December 31, 2024, a decrease of 0.03 times from September 30, 2024, and a decrease of nearly half a turn from December 31, 2023.
Mike Costa: This improvement in our leverage is driven primarily by the continued NOI growth in our managed senior housing portfolio, accretive capital recycling, and prudent use of our ATM to fund growth.
Mike Costa: As of December 31st, 2024, we are in compliance with all of our debt covenants and have ample liquidity of $980 million.
consisting of unrestricted cash and cash equivalents of $60.5 million.
Mike Costa: Available borrowings under our revolving credit facility of $893.4 million and $26.1 million related to shares outstanding under forward sales agreements under our ATM program.
Mike Costa: As of December 31st, 2024, we also had $382.8 million available under the ATM program.
Finally, on February 3rd, 2025,
Mike Costa: Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on February 28, 2025 to common stockholders of record as of the close of business on February 14, 2025. The dividend is adequately covered and represents a payout of 83% of our fourth quarter normalized AFFO per share. And with that, we'll open up the lines for QA.
Speaker Change: Thank you. Ladies and gentlemen, once again, if you would like to ask a question today, remember it's hitting star plus the number one on your telephone keypad.
Speaker Change: Our first question for today comes from the line of Farrell Granath with Bank of America. Your line is live.
Hi, thank you so much.
Speaker Change: My first question is in regards to the occupancy for your shop portfolio. Just looking ahead to 2025, what are your thoughts of the pacing of the occupancy, either in acceleration or deceleration, just generally in the senior housing space?
Speaker Change: You know, it's an interesting question, because what we're seeing is operators balancing out pushing rate versus occupancy.
Speaker Change: because they can't, not everyone can do both at the same time.
focus on revenue increases by driving REV4.
We're worth
Speaker Change: We're seeing very strong, we have seen very strong increases in our Canadian portfolio, which now seems to be stable, getting, you know, ramping down in terms of the rate of growth.
Speaker Change: but there's still plenty of room in our domestic portfolio and I think that certainly in IL it will continue to get pushed. On the occupancy side in AL I think there's definitely continued, there'll be continued push but a desire also to raise REVPOR at the same time.
Speaker Change: And Farrell, the only thing I would add is, so the way I would look at it is, it's not going to be a deceleration, it's just a function of how much it's going to accelerate, to Talya's point.
Speaker Change: Great, thank you for that. And also I know you made some comments on the opportunity set that you're seeing in 25 and increasing it both a mix of shop and the SNF.
Speaker Change: I was curious if, are you seeing any impacts in pricing when it's coming to SNF specifically due to the current environment?
Speaker Change: It's interesting you say that. We were just at the ECAP conference a week, ten days ago.
Speaker Change: I would say that the transaction market in skilled nursing is robust right now. There is a lot of money chasing deals and opportunities still.
Speaker Change: whether lenders and the healthcare REITs are able to continue to participate in that right now in an accretive fashion is, you know, is the big challenge of how to figure that out.
Speaker Change: So it's the strategic buyers that are chasing the money. That's what the, that's what the issue is from a competitive perspective. So they're valuing these assets, not just based on.
Speaker Change: the nursing facility, but on the revenue generates for all their ancillary businesses. So they're operating entities, so they're able to pay up. So as Talya said, it's been pretty frothy to those guys.
Okay, thank you so much.
Speaker Change: Thank you for your questions. Our next question comes from the line of John Kilichowski with Wells Fargo. Your line is live.
John Kilichowski: Thank you. Good afternoon. Maybe just to follow up that last question, Rick, just from your opening remarks, it sounds like you feel a lot more confident in the acquisition pipeline, you know, this year versus last year, at least you expect an acceleration.
Speaker Change: You know, I'm curious what you're seeing or what's changed quarter over quarter or from, you know, the past couple months till now that makes you feel confident in your ability to accelerate, you know, these deals given like you said, it's pretty frothy for some of your competition to bid up on deals.
Speaker Change: I'll make a couple of comments and turn it over to Talya. First, we're not doing the kinds of deals that some of our competitors are doing. There's been a lot of loan volume, and we're just, as we've talked about in quarters past, and I think you know, John, we're just not interested in pursuing that unless there's a very specific reason that's tied to one of our operators.
Speaker Change: So if you take all that volume away, it changes the picture for everybody. But just to remind everyone, last year there were a couple of things.
Speaker Change: Acquisition opportunities were just starting to pick up over the course of the year, particularly on the shop side, and our cost of capital was improving over the course of the year. So this year, we enter into it in a much different place where there's much higher deal volume and our cost of capital allows us to do the deals that we would like to do. Talya? Sure.
There's there's a few sources for them.
for the most part.
Speaker Change: similar to other kinds of investors there are P funds that have just decided it's the price is good enough now let's just get out so we're seeing quite a bit of that because there's been enough of a recovery to recoup and just exit
We're also starting to see
Speaker Change: Three months ago, you recall, four months ago, everyone expected interest rates to be declining. And actually, what's happened is that has reversed and interest rates have gone up in the 10 years at about four and a half now.
Speaker Change: So there's opportunities to refinance and not do much on the cash-in refinance.
Speaker Change: to refinance out banks that have loans, that sort of disappeared. And now we're seeing more refis looking for press equity, mezzanine debt, et cetera. So there's sort of a new stream of opportunities coming in.
Speaker Change: But there's the recovery, but sort of you really pull back, zoom out here for a sec.
Speaker Change: There's been enough of a recovery that people that have wanted to exit can finally hit a number that feels okay And they can exit as opposed to continue to carry and they're really willing to do that And that's that's really the break point that we've hit over the last few months
Speaker Change: Okay, got it. I appreciate the detailed answer. And then just one more from me on the shop guide.
Speaker Change: Earlier in the opening remarks, there was a comment made about, you know, the back half maybe experiencing some modest deceleration in that growth.
Speaker Change: just given it gets harder, you know, the comp year over year.
Speaker Change: How do we pair that with the fact that, you know, in this business, you know, there should be greater operating leverage?
Speaker Change: as you hit those sort of higher occupancy marks and you know I think you're at 85.8 and kind of once you reach those higher 80 marks we've always heard in this business you know you really start to see the operating leverage of the business shine that maybe should allow for more growth so could you help us sort of pair those two comments together?
Yeah, I think.
Speaker Change: you know, it's us trying to be a little bit conservative in those assumptions. I think that's a big component of it. I'm not going to hide that fact. But also, I mean, last year, we saw quite a bit of occupancy growth, you know, year over year. You know, we're sitting at about 85 and a half,
Speaker Change: as of the fourth quarter. You know, if you think that this thing stabilizes in the upper 80s, you know, low 90s, you know, you're starting to get to a point where those occupancy gains aren't going to be as easy to come by versus where they were a year or two ago, right? So, it's just us trying to be conservative on those assumptions and that growth. Still acknowledging the fact, as you pointed out, and as Talya pointed out, that the operating leverage kicking in is something that not only are we seeing right now, but we expect to see even more so as occupancy continues to get
Speaker Change: that, you know, call it 90% level. So that's effectively it. I mean, I don't think there's much more to look into it besides that. Your point is correct, John.
John Kilichowski: Yeah, that's why I noted that export has increased 0.6%, which is essentially, it's essentially flat, which goes to operating leverage.
Okay, great. Thank you.
Thank you for your questions.
Speaker Change: Our next question is from the line of Nick Joseph with Citi Research. Your line is live.
Speaker Change: Hey there, it's Michael Griffin here with Nick. Rick, I think in your opening remarks you talked a little bit about
Speaker Change: some strategies that your operators have implemented to effectively mitigate costs. Can you maybe expand on that a bit? What some of these initiatives could be and is there the opportunity within operators in your portfolio to share best practices just given cost mitigation is going to remain to be a focus?
Speaker Change: I think it's a couple of things. One, in terms of recruiting, they've embraced digital marketing for recruiting in very many cases, which has been really helpful getting just more people into the door to be considered. The other is, I think there's been a complete revamping of the onboarding processes.
Speaker Change: with all of our operators. So the onboarding process has been lengthened. There typically are mentors that are assigned.
Speaker Change: to new employees. And I think that's really helped get some traction with longevity. So I think those are the two main things, obviously, we saw in 2022, a rebasing of wages.
Speaker Change: And so that's kind of normalized since then. So, you know, we've always competed with the service sector, but I think the rebasing of the wages.
Speaker Change: during COVID has made our operators a more attractive destination as opposed to other service kinds of positions. So it's really those things.
John Kilichowski: Yeah, that's some helpful context there. Appreciate it. And then maybe just going back to the acquisition pipeline, Talya, you talked a bit about.
Speaker Change: looking at more stabilized product that had a care component. Should we read into that, that the pipeline is tilted maybe more toward AL relative to IL within the managed portfolio? And what kind of yields or IRRs are you underwriting to for prospective transactions?
Um, so I'd say that we're seeing, I think.
I think the...
Speaker Change: that assets with care components are, by definition, doing better now. The recovery has really affected them now because they're able to charge rate.
Speaker Change: That's part of, as opposed to necessarily drive to maximum occupancy. Of course, they have a higher cost structure, but there's been a lot of those built. Oftentimes they're IL-AL memory care, by the way. So that is, in fact, what we're seeing mostly. We are seeing some standalone IL, but not that much.
Thank you very much.
Speaker Change: And I'm sorry, what was your second part of the question? Oh, what you're underwriting to? Just from, you know, yields or IRR is what you're underwriting to.
Speaker Change: We're still seeing deals that so that going in might be is seven to seven and a half but stabilize it above that and that's that's that's still happening.
Speaker Change: And I would also just reiterate really strategically, we are focused on increasing our shop exposure, but within our shop exposure, to your point in your question, you should see over time our AL increase and our IL decrease.
which should help our growth numbers as well.
Great. That's it for me. Thanks for the time.
Thank you. Thank you.
Speaker Change: Our next question is from the line of Alan Werschmidt with KeyBank Capital Markets. Your line is live.
Speaker Change: Hey everybody, it's Austin Werschmidt here. Just going back to your comment about kind of full recovery in the shop portfolio, my sense was that was an occupancy comment. I guess, can you kind of share where margins and NOI stack up relative to occupancy and what kind of the full recovery and future upside entails for those metrics as well?
Speaker Change: I think I went through where we are today in my comments. I think there's visibility on getting somewhere close to where we were pre-pandemic here now in senior housing.
Speaker Change: Particularly in those assets where you can really drive rate, which is based on location, etc.
Vintage, things like that.
Speaker Change: I mean are there any regions or operators specifically that have already surpassed I guess the full recovery point and it would give you even more confidence about you know the balance of the portfolio being able to grow you know again beyond you know what you're deeming to be kind of full recovery
Speaker Change: Yeah, I think we definitely have operators both in our senior housing and our skilled portfolio that have surpassed where they were pre-pandemic.
Speaker Change: and so we look to do more deals with them. But our portfolio has gotten so strong in a lot of that.
Speaker Change: happened with some of the steps that we took during the pandemic, that all of our operators are on that path. Some are just further ahead than others.
Speaker Change: But we're at the point right now where we don't have...
Speaker Change: stragglers that we had pre-pandemic. And it's also why we've been as selective as we've been in terms of the deals that we've done both
Speaker Change: in terms of market, operator, and the age of the assets that we're buying.
Speaker Change: So, we think with everything that we did last year, and actually we had a lot of volume actually in 2022 as well, we've really enhanced the quality of the portfolio from a market asset and operator perspective.
Speaker Change: And then just last one, you know, Rick, you mentioned kind of you expect to do more investments this year relative to last year. I mean, how significant of a year-over-year increase could we see given all the reasons that Talya highlighted around, you know, what's going on in private equity and with, you know, higher interest rates today?
Speaker Change: Let's speak before before the pandemic if you exclude some of the really big moves that we made
Rick Matros: We typically did several hundred million a year, and we'd like to get, I'm not going to predict that we'll exactly be there this year, but that's certainly a goal for us, is to get back to the level of investments that we did on a routine basis prior to the pandemic.
That's all for Maine. Very helpful. Thank you.
Thank you for your questions.
Speaker Change: Our next question comes from the line of Vikram Malhotra with Mizuho.
Your line is live.
Speaker Change: Hey, this is Giorgi on from Vikram. Just on the external growth pipeline, can you just talk about what does the competition look like for stabilized assets in the senior housing?
Thank you for your question
Speaker Change: Mostly the health care REITs for the nicer assets, the institutional quality assets I'd say.
Speaker Change: below that kind of quality level, I think you've probably got some high net worth. We're not seeing private equity in the States right now, although
Speaker Change: There are starting there's there starting to be rumblings of they're coming back. It's hard to be a levered buyer right now there's just not enough spread between cost of debt and and cap rate
Speaker Change: That's half. I just have one more on the shop portfolio. Can you just provide more color on what January rent buffs were compared to last year?
Speaker Change: I don't have the exact numbers for the portfolio with me, but it's sort of in the 4-5% range is what we're seeing in our larger operators.
and they're achieving those.
Speaker Change: Yeah, and the other thing to point out too is that rent bumps aren't all done on January.
Speaker Change: Right. It varies operator by operator, right? Some do them on an anniversary date of the lease. Some do them in January. It varies. Mike's right.
Great. Thank you.
Thank you for your questions.
Speaker Change: Our next question comes from the line of Juan Sanabria with BMO Capital Markets, your line is live.
Juan Sanabria: Hi, thanks for the time. Just hoping you could talk a little bit about the infrastructure, the platform. Guidance seems to call for kind of flat GNA, so just curious.
Speaker Change: How you guys are investing in the systems, it seems to be a strength of the REITs to have the platforms and the capital to invest behind.
Juan Sanabria: the business so presumably that the moat will get wider as that happens over time and I'm just curious on your latest initiatives around being a leader in shop.
Juan Sanabria: Yeah, I mean, look, we've been in shop for a while now, and we established the infrastructure several years ago, and we started our foray into that.
Juan Sanabria: So, from a systems perspective, from a technology perspective, from a personnel perspective, those are pretty well established to the point where adding additional scale in there, you know, the any additional costs are going to be really incremental, it's not anything major to take on, you know,
Juan Sanabria: larger portfolios or more operators, whatever it may be. And that's where probably the biggest
Juan Sanabria: impact LSA from a GNA perspective would be on the shop side. To the extent there's any triple net, you know, we could absorb that without adding any headcount, you know, realistically.
Does that answer your question Juan?
Juan Sanabria: And I would just add, Juan, that from a systems perspective, we're continually upgrading and improving our system so that the technology that we have in place continues to get better, allows us to provide different levels of support to our operators to interact differently, to have more visibility, to have more predictability.
as we start building artificial intelligence capabilities into our systems.
Speaker Change: You said the key word there. Just curious, on the 25s, you talked about acquisitions ramping up. But curious if there's any dispositions. You had some sales in the fourth quarter, which we didn't necessarily model. So just curious.
Juan Sanabria: how we should be thinking about sales and dispositions for 25.
Juan Sanabria: The dispositions that we had in the quarter, a sort of ordinary course of business.
Juan Sanabria: about the last several quarters that we had one portfolio that's still in the process of being sold. That's about 50 million. Other than that, what we've said is that everything else is ordinary corporate business. An ordinary course of business for us historically has been sort of 50 to 100 million.
Juan Sanabria: plus a year in disposition. So there was nothing kind of unusual about it. And you can tell by the number of facilities and what was a relatively small proceed number that they weren't producing very much.
Thank you.
Thank you for your questions.
Speaker Change: Our next question is from the line of Richard Anderson with Wedbush. Your line is live.
Thank you. Thank you.
So, on the pipeline, I want to talk about
you look at your
Speaker Change: trading at around 12x forward AFFO. That's like an 8-ish type of AFFO yield. I don't know if you think about it that way, but would you say you're break-even in the first year of investment and grow from there? Or I'm just curious how you think about that from an accretive dilution standpoint.
Speaker Change: Yeah, I mean, based on where our stock is at right now, as well as where we could issue debt at or, you know, use any kind of leverage.
Speaker Change: somewhere in the you know low to mid sevens on a going in yield is break even or slightly accretive.
Speaker Change: You know, we also look at, like, climate change. You mean a blend?
Speaker Change: You mean a blended low to mid-70s? Yeah, yeah, yeah, a blend of equity at today's prices plus, you know, debt, right? We think we could go in with initial yield to somewhere, you know...
Speaker Change: low to mid 7's and B break even a slightly accretive.
Speaker Change: But like Talya mentioned earlier, there's also opportunities that we're looking at where it's around that level, but there is also some growth baked into it. So it's not only just looking at that initial yield, but looking at the long-term growth profile and how that compares to...
You know, the expectations built into our cost of capital.
Speaker Change: Okay, so Michael, if you're due $500 million this coming year, would it be safe to say half of that is funded with equity, more or less?
Speaker Change: You know, the numbers I've been thrown out usually is like 60-40 equity debt just to kind of keep our leverage where it's at, or around five times.
Okay.
Rick Matros: And then, Rick, back to you. Big picture, you mentioned, you know, the spread between the house...
Rick Matros: is actually in that line of thinking from the House perspective. But if it's so wide like that, I mean, isn't there at least a concern that at least there'll be some of it? I mean, to find a middle ground between those two governing bodies? I'm just I'm just curious how we get through this and avoid, you know, any kind of disruption at all.
Rick Matros: So, fair question. So, and this is probably not going to sound great because the numbers are so enormous. Anything over a trillion?
would be some cause for worry.
Speaker Change: Welcome to your life There's no turning back Even while we sleep We will find you acting on your best behavior Turn your back on mother nature Everybody wants to rule
Speaker Change: Ladies and gentlemen, we really appreciate your patience here. Richard, I know you were in the middle of your question here. We'll bring you back up on to the stage. Go ahead.
Speaker Change: You're talking about really big numbers here. If the number is over a trillion.
Speaker Change: It creates a lot of concern, regardless of how the Medicaid cuts are divvied out. So it gets better, as big as the $880 billion sounds.
Speaker Change: But since you're starting it with zero at the Senate and 880...
Speaker Change: at the House, that number is going to come down. Hopefully, it goes away, particularly when the governors start getting involved in the fight, but it's going to come down. So...
Speaker Change: Given how strong the portfolio's performance is, you know, with rent coverage and the margins and it's continuing to improve and it's still got room to grow ahead of it, I think that we'll be okay, even if there's some kind of a hit.
Speaker Change: different forces at work, but just curious. Yeah, it's different forces at work. I think, look, everything's being tested right now at the courts.
Speaker Change: They can't just do this if they want to do it. They may try to, but they can't just do it. There's statutory issues and Congress has to be involved. So...
I actually think that I have less concerns about Medicare.
than I do about some kind of hit on Medicaid.
Speaker Change: even though I'm more optimistic than pessimistic about Medicaid or certainly the overall impact of it.
Speaker Change: Okay, and much respect to you for your comments. I mean, you know as well as I do, you're all over this kind of stuff politically, like I am. I mean, we're living in a time that's completely...
Speaker Change: Unpredictable, right? So, so, you know, I just tend to fall back on.
Speaker Change: the bipartisan support, the lobbying efforts, the fact that this stuff, this statutory, you've got states involved as well as both chambers of Congress. It's just not gonna be that simple to hurt people who are most dependent upon government aid.
Speaker Change: Fair enough and just wanted to say much respect to your opening comments on this call by the way. Thanks everybody. Thanks. Thank you. Thank you.
Speaker Change: Our next question is from the line of Alec Fajan with Baird Equity Research. Your line is live.
Alec Fajan: Hello and thanks for taking my question. I'll echo what Rich said, you know, respect to those opening comments and to your point, the world's unpredictable in so many different facets.
Alec Fajan: But, you know, my question is, do you expect specialty and behavior coverage to improve as the year progresses?
Speaker Change: I think it's just going to kind of meander around where it is. A lot of the fluctuations are the behavioral hospitals we have, which it's just a really dynamic business. The coverage is fantastic. So there's no sort of concerning trends. But yeah, I think it's just going to kind of meander around where it is. I don't think it's going to be consequential.
Speaker Change: Got it. And kind of changing tack, but what is the current size of the cash basis tenant base? And then did the dispositions in the quarter include tenants on cash basis?
So, in terms of the cash basis, tenant base,
Speaker Change: I like to quantify that in, I put it in two buckets.
Speaker Change: There's really, the ones that we're really focused on are the ones that are not paying us full rent.
Speaker Change: and paying us random amounts, you know, month-to-month, quarter-to-quarter, and that component of the cash basis tenant pool is, you know, a couple percentage points, you know, I don't know, it's less than 5% of our NOI.
and many more. Thank you. Thank you.
Speaker Change: And regarding your question on some of the sales that we had in the quarter, yes, that was related to some of our cash basis tenants.
All right. Thank you.
Thank you.
Speaker Change: Our next question is from the line of Michael Stroyak with Green Street. Your line is live.
Thanks and good morning. Maybe one on the transaction market.
Speaker Change: Is there any recurring theme on potential deals that the company has looked at and then ultimately passed on, particularly within shop? Is it also just a function of price, like what you're seeing with NIF transactions, or maybe something else that leads to not closing on these deals?
Speaker Change: Those are critical factors. The shop, what we're seeing now, generally, is high-quality assets.
Speaker Change: And it's an opportunity, as Rick described earlier, to improve our portfolio over time, to add really high-quality assets.
Speaker Change: I guess on the on those high quality assets that that you're bidding on is it just a function of you know different cap rates that you're ascribing versus where the deals ultimately trade at?
Speaker Change: I think the band of cap rates is fairly narrow. Oftentimes the seller or the operator have an ability to
Speaker Change: to sway where, who the buyer will be. And so relationships come to bear here. We're also seeing off-market deals where relationships are definitely part of the discussion.
Speaker Change: Got it, okay. And then maybe one just on SNF coverage levels. The magnitude of the SNF coverage increase during the quarter seemed fairly outsized relative to the actual occupancy gains we saw. Can you just help us understand what drove such a healthy step up in coverages?
Speaker Change: Yeah, I think it's where occupancy kicked in. It was a big jump in terms of the impact on operating leverage.
Speaker Change: really kind of as simple as that. Lucas, can you help? Medicaid too? Yeah, that's the Medicaid increases that have kicked in and then the market basket
Lucas: The market basket as well. Oh, no, not the market, but I'm sorry, but the Medicaid increases that kicked in in July and August really had the biggest impact. So it's this next quarter since we report a quarter is that you also see impact from the Medicare market basket.
Got it. That's helpful. Thank you.
Thank you.
Hey guys. Your line is live. Thank you.
Speaker Change: Thank you. I was just looking at your loan book. It looks like it's around $400 million.
Speaker Change: sounded like that's not an area you want to be focused on and the maturity date ranges are pretty wide. Is there anything coming up soon in terms of maturities and do you expect those to convert to ownership or do you just recycle out of those as they come due?
So, there's nothing imminent in that loan pool.
Speaker Change: I think individually there are some that we'd like to refine, redeploy the capital, and others where we have an opportunity to buy, in which case we'll consider that when that window opens. There's nothing really actionable there at this moment.
Speaker Change: Okay yeah I was really looking at the three mortgage loans and it looks like the first maturity dates in 26 and that's the big bucket. Is there a big maturity in 26 or is that more back-end weighted?
There is a maturity at the end of 26.
Speaker Change: So it's essentially two years away, just under two years away. Any scope of size on that?
Speaker Change: It's the majority, yeah, it's about 300 million. It's the majority of that bucket. CRCA, well, okay.
Speaker Change: Okay, so that discussion is going to be that they want to take us out, which would be fine, or they want to have a conversation about flipping it into a triple net, you know, we might have that conversation as well, so that one just remains to be seen. We're happy with how things are going there, the loan's performing, so we'll just sort of play it as it goes along.
Thanks, Rick. Appreciate that.
Yeah.
Speaker Change: Thank you for your question. Ladies and gentlemen, if you do have a question, remember it's star followed by the number one on your touchtone keypad.
Speaker Change: We have our next question from the line of Omotayo Yokusanya.
with Deutsche Bank.
Your line is live.
Speaker Change: Yes, good afternoon, everyone. Great comments at the beginning of the call for sure, Rick. Still speaking on this topic of Medicare and Medicaid,
Speaker Change: What are your thoughts around, you know, if they are eventually to get cut?
Speaker Change: at a kind of more incapacitated CHIP program versus kind of classic Medicare, Medicaid or on the skilled nursing side. Does that all kind of still depend on this trillion dollar number you're talking about? Or how do we kind of think about that probability?
Speaker Change: Say it one more time, Talya, you're breaking up a little bit.
Speaker Change: Sure, so I was talking about, again, the potential Medicare and Medicaid.
Speaker Change: that we've been discussing on the call. And just thinking through that, in terms of the potential amount, is it possible in any way?
Speaker Change: That all the cuts just kind of boiled down more towards like the CHIP program or, you know, than anything else versus, you know, cuts to Medicaid, Medicaid that would impact skilled nursing. Like, how do we kind of handicap the probability of something like that happening?
So I think it's a fair question. And.
Speaker Change: I think the answer is yes there are other programs out there like CHIPS Medicaid expansion generally that probably get targeted first.
Speaker Change: Some of the home base and community programs get targeted first as well. So, yeah, I think that's a fair statement, which goes to...
Speaker Change: with the final numbers and what sectors get hit. You may see sectors kind of uniting together in their lobbying efforts.
There may be some common cause here as well.
I'm not even sure that you'll see.
Speaker Change: lobbying efforts that are completely independent of each other. So, folks in the sectors, from organizations like AARP, there's going to be a lot of activity.
Speaker Change: here around any potential cuts that affect the indigent and the elderly.
Speaker Change: That's helpful. One other one. I know it's still pretty early, but any thoughts at this point about how Robert Kennedy may want to run CMS and what the implications are for the industry?
I have zero idea.
How to predict anything about this, dude?
Speaker Change: But ask Elon, maybe he's got more insight than I do.
I appreciate it.
Rick Matros: Thank you for your questions. We have no further questions at this time so I'd like to turn the call back over to Mr. Matros.
and many more. Thank you. Thank you.
Speaker Change: Thank you and thank you and ladies and gentlemen that will end Sabra's 2024 fourth quarter earnings call. Have a great rest of your day. Take care.