Q1 2025 Sabra Health Care REIT Inc Earnings Call
R.I.P.
Oh, she's a fireless weasel, out of danger Burn like a flame, oh darling, let the blood boil One killer, you're just a shot away, you're just a shot away One killer, you're just a shot away
Kate: Good day, everyone. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2025 Cellbro First Quarter Ernie's call. All lines have been placed on you to prevent any background noise.
Kate: After the speaker is remarked, there will be a question and answer session.
Kate: If you would like to ask a question during this time, simply press star if I will be the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Lukas Hartwich, EVP Finance. Please go ahead Mr. Hartwich. If you would like to withdraw your question, press star if I will be the number one on your telephone keypad.
Thank you and good morning!
Kate: 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.
Kate: including the risk listed in our form 10K for the year ended December 31st, 2024, as well as in our earnings press release included as Exhibit 99.1 to the 4MAK refers the SEC yesterday.
Kate: 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.
Kate: 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 explanation and reconciliation of these measures to the comparable GAAP results, included on the financials page of the Investor section of our website at sobrihealth.com
Kate: Our Form 10Q, earnings release and supplement can also be accessed in the Investor section of our website And with that, let me turn the call over to Rick Matros, CEO , President and Chair of Sabra Health Care REIT Thanks Lucas and thanks everybody for joining us today [inaudible] Thank you very much for joining us today
Kate: Our skilled nursing and triple net senior housing EBIT arm red coverage continued to set new highs at 2.19 and 1.41 respectively with behavioral hitting its highest levels since year end 2023 at 3.77 .
Kate: On average, coverage for our top 10 relationships is up sequentially, and while not all of them are up, there are none that we have concerns about [inaudible]
specifically as it relates to McGuire.
About a year ago they had a...
Kate: Pretty large, one-time Medicaid pickup due to some underpayments from the Michigan Medicaid system. In the absence of that, their coverage would not show a drop in the current period.
Kate: A contract labor continues to improve, while not quite down to pre-pandemic levels, it is lower than it's been in four and a half years [inaudible]
Kate: Labor still is difficult but certainly moderating at a much quicker place than we would have anticipated. Our skilled occupancy is up...
Kate: 80 basis points sequentially, with our skilled mix-up 10 basis points, our triple net senior housing, occupancy is at 50 basis points sequentially, Talya will discuss shop results in detail and we'll see you in the next video.
Kate: Our Deal Pipeline continues to be busier than in a very long time. Still primarily shop, but with enough opportunities that we're able to bid on newer vintage assets with attractive yields. [inaudible]
We have a mix of deals with existing operators and are also entering into new relationships with proven operators we've been cultivating relationships with [inaudible]
Kate: Well, we don't usually comment on awarded deals, given our experience in closing awarded deals, we wanted to provide a sense of the volume we hope to close on this quarter by noting the more than 200 million which have been awarded to us. That's more than we did in all of 2024 with more coming as we speak. Thank you very much.
Kate: There's nothing new to note as it pertains to Medicaid other than we're looking forward to this summer's Medicaid rate increases, and with that I'll turn the call over to Talya
Thank you, Rick!
Talya: Sober's managed senior housing portfolio held up well in the first quarter of 2025 Despite an expectation that seasonality would be back and we drive a dip in operating results
Talya: Revenue, cash and away, NNI and Margin were flat on a sequential basis for the total managed portfolio including non-stabilized communities and joint ventures at SHARE [inaudible]
Talya: starting just before and continuing during the pandemic. With a little new supply expected to be delivered in the next few years, we see continued opportunities for internal as well as external growth in senior housing.
Talya: Sabra's same-store-managing or housing portfolio, including joint ventures at share and excluding non-stabilized assets
Talya: First quarter occupancy in our same store portfolio was 85.4% compared to 82.6% in the first quarter of 2024
Talya: Notably, our domestic portfolio occupancy was 83% gaining 340 basis points of occupancy during that period, while our Canadian portfolio occupancy was 90.9% adding 140 basis points of occupancy in the same period, having ramped up occupancy ahead of our US portfolio.
Talya: 2.8% year-over-year for the same period. In our Canadian portfolio, where occupancy has been in the low 90% for a few quarters, REMPOR grew 4.9% this quarter on a year-over-year basis, demonstrating the impact of scarcity value.
Talya: Importantly, as RevPoor and occupancy continue to rise, export declined 1.1% across the same store portfolio.
Talya: Cash and a wife with a quarter, grew 16.9% year-over-year in the same store portfolio Realtz
Talya: In our U.S. communities, Cash and O.I. grew 14.4% on a year-over-year basis while in our Canadian communities Cash and O.I. in the quarter increased 24.7% over the same period demonstrating the power of operating leverage. In our U.S. communities, Cash and O.I. in the quarter increased 24.7% over the same period demonstrating the power of operating
Talya: The trends that we have been seeing for the past year continue. Senior housing operators are tactically deploying the levers of occupancy and rate to maximize revenue and expenses as remain steady, causing NOI to grow and export to decline.
Speaker Change: Our net least stabilized senior housing portfolio continues to do well with continued solid red coverage, reflecting the underlying operational recovery. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.
Thanks, Talya [inaudible]
Speaker Change: For the first quarter of 2025, we recognized normalized FFO per share of 35 cents and normalized AFFO per share of 37 cents compared to 34 cents and 35 cents respectively for the first quarter of 2024 [inaudible]
Speaker Change: Normalized FFO and Normalized AFFO totalled $85.2 million in $88.2 million this quarter respectively, which represents a year-over-year increase of 7% and 9% for Normalized FFO and Normalized AFFO respectively.
Speaker Change: I would like to highlight a few key components of this quarter's earnings
Speaker Change: Cash rental income from our triple net portfolio totaled $90 million dollars for the quarter. Up from $89 million dollars in the first quarter of 2024, despite disposing of $115 million dollars of real estate from our triple net portfolio last year.
Speaker Change: Cash and a Y from our Managed Senior Housing portfolio totaled $24.1 million for the quarter, compared to $19.1 million in the first quarter of 2024 .
Speaker Change: This increase was driven primarily by strong occupancy, NOI, and margin gains in our same store portfolio, as well as the impact of our addition of eight properties to this portfolio in 2024 through acquisitions and transitions.
Speaker Change: Interest in other income was $10.1 million for the quarter compared to $8.9 million in the first quarter of 2024
Speaker Change: Cash Interest expense was $25.4 million in line with the first quarter of 2024 and our 2025 guidance run rate.
Speaker Change: Recurring Cast UNA with $10 million dollars this quarter, which matches our 2025 guidance run rate.
Speaker Change: As noted in our earnings release, we have reaffirmed our previously issued 2025 earnings guidance and the results for this quarter are in line with our assumptions underlying that guidance.
Now briefly turn to the balance sheet
Speaker Change: Our net set to adjust the EBITDA ratio was 5.19 times as a March 31, 2025, a decrease of 0.08 times from December 31, 2024, and a decrease of 0.36 times from March 31, 2024.
Speaker Change: This improvement or leverage is driven primarily by the continued NOI growth in our managed senior housing portfolio.
Speaker Change: The creative capital recycling, and prudent use of our ATM to fund growth [inaudible]
Speaker Change: We have been proactively using the Ford feature under our ATM to raise equity when our share price presents an attractive opportunity to lock in a creative cost of capital to fund the deal flow we see in our pipeline. [inaudible]
Speaker Change: We expect to use the proceeds to close on the investments we have been awarded and to do so on a leverage neutral basis. [inaudible]
Speaker Change: As of March 31, 2025, we are in compliance with all of our debt covenants and have ample liquidity of over $1 billion.
Speaker Change: consisting of unrestricted cash and cash equivalents of $22.7 million, available borrowings under a revolving credit facility of $917.3 million, and the $110.5 million outstanding under Ford Sales Agreements under our ATEM program.
Speaker Change: As of March 31st, 2025, we also had $297.7 million available under our ATM program.
Speaker Change: Finally, on May 5, 2025, Sober's Board of Directors declared a quarterly cash dividend of 30 cents per share of common stock. The dividend will be paid on May 30, 2025, to common stockholders of record as of the close of business on May 16, 2025. The dividend will be paid on May 25, 2025, to common stockholders of record as of the close of business on May 25, 2025.
Speaker Change: The dividend has adequately covered and represents a payout of 81% of our first quarter normalized AFFO per share, and with that we'll open up the lines for Q&A.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Nick Yoliko with Scotia Bank. Your line is open.
Speaker Change: Hi, this is Elmer Chang on with Nick. Thanks for the questions and congrats to Talya on the upcoming retirement. So my first question is on how you're thinking about dispositions.
Speaker Change: Throughout the year, I think you expected a $50 million skill nursing facility sale in the near term from last quarter's call, is that still on the table? And if so, when would you expect that to close and maybe how has delayed timing put pressure on the pricing for that sale? [inaudible]
Speaker Change: We still expect that to close. It's just in a state that there's a lot more regulatory hoops to jump through and there won't be any change on the proceeds that we're expecting. So it's going to just be one of those. It'll happen when it happens, but it's on course to happen. Beyond that, it's just ordinary course of business stuff for us, like it used to be, which...
Speaker Change: Could be 50-100 million a year, but we don't have much in the way that's targeted right now. [inaudible]
Ok, thank you [inaudible]
Speaker Change: And then some questions on CHOP. I'm just wondering how you're thinking about the directory of REIT 4 and expense growth throughout the year as the portfolio approaches at high 80% occupancy level. All right, let's get started.
Speaker Change: A given operator, some size throwing off him and see during the quarter and it sounded like it seems like the US business may have less pricing power. So how are you just thinking about how those two levels are trending? We'll trend throughout the year.
What we're seeing, what we expect. Thank you.
Subject Who
Whatever might happen in the political arena?
Speaker Change: All the spectrum of senior housing both in the U.S. and Canada.
Pricing is going to also get increased.
Speaker Change: Just because that's the lever that's going to be available to because the higher the occupancy, the higher the price you can actually start to demand, once you cross a certain threshold [inaudible]
Speaker Change: So, I think there are significant tailwinds on both occupancy and revport, and I think expenses right now I'd say hold, hold as they are subject to unknowns.
Ok, thanks so much [inaudible]
Faryal Granath: Your next question comes from the line of Farrell Granath with Bank of America, your line is open.
Speaker Change: Thank you so much for taking my question. My first one is about your guidance, reiterating guidance. I know you may commentary about deal-awarded, so I wanted to just touch on, is any of that being contemplated?
Speaker Change: And also on the shop guidance just given the execution this quarter, which is tends to be seasonally softer keeping the load mid teens cash in a wide growth for the year.
Speaker Change: Yeah, so in terms of the acquisitions that we announced that we're working on, those are not including our guidance. We'll include those in our guidance once they've closed so you could expect. Thank you.
Speaker Change: You know, when we get into our second quarter call once those deals and potentially other ones have closed [inaudible]
you know, we'll incorporate that into our thoughts around guidance.
Speaker Change: So, short answer is no, they're not incorporating to the guidance currently. On your second question, we reaffirmed guidance and all the assumptions underneath it. So, that same, that same sort of growth that we, the guidance that we gave of, you know, low to mid teens still stands. [inaudible]
Speaker Change: Look, we want to be, we want to be boggled here so we just want to give ourselves a little bit more time if we have a reason to revisit, come second quarter we'll do that.
Speaker Change: Ok, thank you. And also just generally in what you're seeing in the transaction market, especially with your ability to enter into a $200 million portfolio deal, what are you seeing as in terms of deal flow, are you seeing that increase and also the sellers and buyers entering into this space?
Speaker Change: Happy to take that. And by the way, the $200 million that we've been awarded are actually not a single portfolio but there are multiple transactions in there.
Speaker Change: Ok, just to be, just to be just for clarity sake. We're seeing…
Speaker Change: A very robust pipeline of deals come to us. It's heavily biased to senior housing which we're largely viewing at or entirely viewing as shopped.
with Rare Exceptions. [inaudible]
The assets we're seeing are primarily...
Thank you. Bye.
Speaker Change: Either single assets or a few assets that can be bought bundled or not.
We have started to see some large portfolios [inaudible]
Speaker Change: kind of outliers, oftentimes there are things we've seen, there are portfolios we've seen before, there are less interest to us at the moment because we're seeing the best opportunities for us for multiple reasons to be in these onesy-2z situations. What's interesting about what we're seeing is that the sellers are...
Are Frequently Sway,
Speaker Change: Private Equity Farms, that I provided development capital or bought assets, or early stage.
and they're at fund life and want to sell.
Speaker Change: The assets were covered enough from COVID that they can exit at an OK multiple
Speaker Change: But they need to get capital back to their LPs so that they can launch their next fund. And that's really the recycling of capital issue that's driving quite a bit of sales.
Speaker Change: There are occasionally situations where we're seeing some sellers who are unsuccessful, come back to the market again And it's right now it's a timing, it's been a timing issue of getting good execution or decent execution Sometimes it's just sufficient execution for these sellers [inaudible]
Speaker Change: But assets now in the senior housing arena have recovered and asked even though cap rates have risen for people to get out without having to oftentimes put additional cash in to pay off debt. [inaudible]
And, has that increased competition that you've seen as well? [inaudible]
Speaker Change: The private equity buyers are all actually out as buyers. They're a few that are...
Speaker Change: They're tiptoeing around. We see one that's been more active. We are seeing the public REITs be active as you have seen that as well. Sometimes we actually overlap with groups that we...
Speaker Change: Haven't typically overlapped within the past, but pricing has remained pretty tight from our perspective on deals where we've bid.
Great, I really appreciate it, thanks.
Austin Wurstmith: Your next question comes from the line of Austin Wurschmidt with key bank capital markets. Your line is open.
Austin Wurstmith: Thanks, and good morning, everybody. On the 200 million senior housing acquisitions, are these all, you know, deals in the US, and can you just give us a sense of kind of the operating metrics where they sit today and what sort of, you know, that may imply for kind of the future growth profile?
Austin Wurstmith: I'm going to be cautious here in terms of giving you hard numbers because these are deals that we've been awarded and we haven't closed on them quite yet.
Um...
So, first of all, they're all domestic.
Austin Wurstmith: They're biased towards the eastern half of the United States, as that gives you an addition, and you like good color. They all have growth embedded in them because while they are decently occupied, there are still room for growth and there are still room for rev poor increases. Thank you very much.
Austin Wurstmith: They're also a little, they're more heavily weighted towards AL memory care than IL.
and Matt Alton.
Did you want to add something Talia? [inaudible]
No, I'm good [inaudible]
Speaker Change: Ok, and then just following up Rick, you kind of reference she haven't historically disclosed deals until they've closed. I guess what led you to break that practice with this 200 million and should we expect you'll continue to announce deals that have been awarded or under L.O.I.
Speaker Change: We did it because one are track record when we get deals award this week is that we get them close and
Speaker Change: We felt like we've got so much great activity now that we didn't want another quarter to go by would have make sure that you all were up to speed on what we expect to see happen because we had been saying even earlier in the year that we expected to do quite a bit more than we did last year and that was certainly our target. [inaudible] we're going to do a little bit more,
So it was really specifically for that reason. [inaudible]
Speaker Change: And we may not do, we may not do it going forward because we'll have closed deals to announce that the rate things are going [inaudible]
Understood. Helpful.
Speaker Change: Your next question comes from the line of who wants an area with BMO capital markets, your line is open.
Good morning, Talya, congratulations, first question, just... [inaudible]
Speaker Change: No problem. First question is just on Genesis, I know you guys were super proactive trying to reduce exposure.
Speaker Change: over the years, but if you could just remind us on how much an NOI you're getting from Genesis, I know it's out of your top 10 list, and kind of the structure that's in place in the credit behind that lease, and obviously if you've been your pay rent to date through, I guess, May.
Speaker Change: Yeah, so we sold all but eight of the original 86 last year because we want to do
Speaker Change: We have more security going forward. We decided to sublease those eight assets to a trusted operator.
There, there, it was...
Speaker Change: It's slightly less than Genesis, but because of the Genesis guarantee, Genesis makes up the stuff [inaudible]
It's not material, so…
Speaker Change: That's been going really well for us. No mispayments. They will be our operator going forward after the lease expires. The operations have improved materially since they started, but with really that many facilities. The lease expires.
Speaker Change: pretty negligible impact on our NOI but yeah so we're we're good there
Wait, good to hear. And secondly, just on shop.
Speaker Change: Could you just remind this kind of the deferred or kind of revenue generating catbacks that we should be thinking about this year for the in place portfolio?
Speaker Change: and if we should be thinking about incremental kind of cat-backs spend on the pipeline over and above traditional maintenance cat-backs.
Speaker Change: Well, Mike's point that if I would say that because of the vintage of the assets that we've...
Speaker Change: that we acquired last year and that we're currently in process of acquiring their new assets, their less than ten years old
Speaker Change: Most of them are 5, 6, 7 years old, so they're the Catholics requirements for the stuff that we're buying [inaudible]
Speaker Change: is a material and when we were asked earlier about competition we've got so much in the pipeline that we've really been able to be extremely selective about the assets. [inaudible]
Speaker Change: that we want to buy, so that regardless what happens will competition in any of the geographic areas any of the markets that we're buying in. We've got really new good looking assets to compete with anybody. Thank you very much.
Speaker Change: Yeah, in terms of the dollars, Juan, so in terms of like regular maintenance catbecks, we've been spending on you know, an average somewhere between call it a million and a half. [inaudible]
Speaker Change: to $2 million a quarter on our Consolidated Portfolio. On larger projects, you know, it's going to be very community-specific. We spent a lot last year, as we've talked about in the past. There's some deferred projects that got delayed because of the pandemic. Thank you very much.
Speaker Change: That number was over $30 million that we spent across our entire portfolio, but we expect that number to be quite a bit lower in
Speaker Change: 2025 because of the fact that we caught up last year, as well as what Rick pointed out with the newer vintage assets that we've been adding to our portfolio just naturally required less capex. . .
Thank you [inaudible]
Seth Berge: Your next question comes from the line of Seth Berger with City Group. Please go ahead.
Speaker Change: Hi, thanks for taking my question. I guess just going back to the pipeline, you know, as you have been breathing out like for a shot, sounds like there may be a little bit more competition out there for deals. Has it been any change to your underwriting criteria in terms of type of assets you're looking at geographies or kind of your return expectations?
So, I actually think that they're the Austin...
Speaker Change: The competition has just shifted to being actually a smaller pool of buyers for the most part on the assets that we see in general. And then as Rick said, we're being very deliberate and picky about what we're pursuing for all the reasons that we're outlined. [inaudible]
Speaker Change: In terms of underwriting, really nothing has changed, we're really focused on our cost of capital and looking at making sure that how we underwrite leads us to get a deal
Speaker Change: that are accretive. The other element that is relevant to us when we're looking at transactions, and believe we're looking at a lot, I probably clear 10 Confia agreements a week just to give you a sense of scale.
So that's a lot of deals.
Speaker Change: We look at situations where we have an opportunity to buy it maybe not the highest price because either we have a relationship and history with an operator who's involved in the deal and have an ability to...
To Effect Effect
Our Impact
Speaker Change: How the sale happens. And we're also looking at working with operators that have pipeline of assets that are expected to come to market in some fashion and potentially even develop an opportunity someday in the future when that might make sense. We're not counting on development today. Trust me.
Speaker Change: But the assets themselves matter, but there are strategic reasons also for these specific investments in terms of the relationships and the future of our organization and opportunity to buy.
and Invest Invest.
Speaker Change: Great, that's helpful. And then I guess just for the second one, you know, your coverage levels continue to improve, but are there any changes to your watch? Let's, let's respect the operators. Thank you very much.
No, none.
Great, thank you [inaudible]
Speaker Change: Your next question comes from the line of Georgia Denko with Mizuhu Securities, your line is open.
Speaker Change: Hey, this is Georgian from Vikram. Just in the press release, you mentioned that you're not seeing many attractive sniff opportunities. Can you just provide more color on what makes a sniff acquisition unattractive? Like, is it a location operator, anything else that you can share? Thank you. Thank you very much.
Baam
Speaker Change: Losing a lot of money is a good starting point and we see a fair amount of those because often times what we're seeing is a non-profit since divesting because they're bleeding cash [inaudible]
on the asset, so that's that's tough because. [inaudible]
It's really tough to structure a lease.
Speaker Change: around an asset that doesn't have the ability to pay rent.
Speaker Change: because it's going to take time, even if you get the most fantastic operator in there and the assidus fundamentally well-situated and all that, we're going to be a while before they're able to turn the facility around so that they can pay rent. So that's...
Speaker Change: That's the challenge of the math around least. We're not doing managed assets in the sniff space.
Speaker Change: We're really not seeing anybody else get much done too. Hopefully there's a Medicaid overhang obviously on the space. So I think we're hopeful that as there's clarity on Medicaid that more assets will come into the market. We're really not seeing anybody else get much done.
Speaker Change: I mean, people can go ahead and do deals and assume nothing's going to happen, but we prefer to be a little bit cautious about how we underwrote a SNP deal, not knowing what's going to happen with their Medicaid revenue stream.
Speaker Change: That's helpful. Thank you. And just a second question on the shop portfolio. Can you just provide more cover on what you expect in terms of occupancy cadence throughout the year and what are the trends that they're using so far in the second quarter?
Speaker Change: We're a month into the second quarter, so I hesitate to extrapolate too much. I think the first quarter was flat sequentially as I said.
Speaker Change: which is the new seasonality, at least for this year, I expect things will pick up. [inaudible]
Speaker Change: If you think about where assets are located, let's just say, let's talk about our Canadian assets. It's unlike who people are less likely to move in during January , February and March when there are snowstorms and it's negative 20 degrees outside, right? [inaudible]
So...
I think...
Speaker Change: We were at Vancouver last week. The skies were sunny and bright, nicer than Southern California, Toronto was getting better as well. I think the mood increases and move-ins will increase even just in our Canadian portfolio for those reasons. And of course, any of our assets that are in the northern part of the US have the same issue with winter. It's just hard to be in Minnesota and think you're going to move
Move in January and February and March. [inaudible]
Great, thank you for taking my questions.
Speaker Change: Your next question comes from the line of Richard Anderson with Red Bush, your line is open.
Thanks, and congratulations, Talya [inaudible]
Richard Anderson: Thank you. I guess we'll see you around for a few more quarters though. So, on the topic of not...
Speaker Change: Firehoo is drinking situation again, I'm just curious what's motivating the lack of interest in large portfolios as you see it today.
Speaker Change: Yeah, it's really, it's really that commitment as, as you know very well because you've covered us for so long.
Speaker Change: We did a lot of things that we felt we had to do at the time that created a lot of noise but it effectively repositioned us to be strong going forward nevertheless it takes some time. [inaudible]
to get past that in people's minds.
Speaker Change: and being an organization that is dependable and people can sort of...
Speaker Change: predict more where things are going to be going and so we articulated that in 23 coming out of the pandemic and we've stuck to it. So...
Speaker Change: There's so much activity out there for us to take advantage of. We don't need any big swings. When we reposition the company with the merger and really exiting Genesis,
Speaker Change: We didn't need to do it again and we still don't need to do it, we've got a really strong portfolio, we had less...
Speaker Change: Sniff Operator Issues, then I think pretty much everybody during the pandemic and so we just want to be predictable and keep it simple and we can do hundreds of millions of dollars of deals and do them with deal zero.
under a hundred million dollars.
Speaker Change: So, and another deal is in this sort of basket of 200 plus are close to 100 million. So, that's our commitment to you all and a commitment to ourselves are going to be...
Speaker Change: Barry Lee's are focused on it, you know. Will we be willing to do something larger next year or whatever? Yeah of course we might be willing to do that but we're right now we're able to. Thank you.
Have a better balance in our portfolio between... [inaudible]
Speaker Change: We still want to do skilled deals, we love the space, and obviously it will increase our average way to deal, but we want to have that balance in the portfolio. We want to have a component of our asset base that the strong driver of earnings, stronger driver of earnings than the 2.25 to 2.5%, you know, bumps you get on a triple net. So, um...
Speaker Change: We're here and some of your peers are doing some shop conversions. Is that a part of your strategy at all within the portfolio or is it going to be mostly looking for stuff externally? [inaudible]
We've already, we did a bunch of that and then...
Speaker Change: Some of it during the pandemic, there's not much left for us to do there. I mean coverage is great, we've got some legacy assets in there that are doing really well and operatives are happy. So there might be a little bit here and there but it's not going to be anything significant we got. Thank you.
Speaker Change: I think we reduced our triple net senior housing portfolio over the last several years by a third or something like that So there's not much left there and obviously as we continue to grow shop you'll see the triple net senior housing portfolio drop is a percentage of a percentage.
Speaker Change: of our exposure and then behavioral obviously will drop as well because we're going to be allocating our capital to the two spaces that have the talents in your housing and skill nursing. Thank you.
Ok, and last for me, [inaudible]
You know, the Medicare... Um...
Speaker Change: The CMS suggestion or whatever, 2.8% for fiscal year 26 is...
Speaker Change: Fine, I guess, you know, it's obviously down from last year, obviously not to be unexpected, given inflation, subsiding, and then you have Medicaid
questions that you can't answer yet, no one can.
Speaker Change: And you layer that on top of what you've witnessed is improving coverage. I mean, is the day we pass sort of, is a thrill gone, I guess, on coverage?
Speaker Change: Do we start to get sort of more of a sideways movement because the reimbursement sources are likely to slow down now kind of a year over your basis and so coverage has had a nice run, but maybe it's kind of in the rearview mirror now.
What do you think of that?
Speaker Change: Yeah, and no, it's a good question. I don't think we're going to be sideways for a while for a couple of reasons. One...
Speaker Change: And we talked about this in the past. This was the year we expected to see Medicare rate and Medicaid rate increases come down just formulaically. They're in promising periods of time where inflation started coming down. So, and the two point A is still. All right.
Speaker Change: about a full point or so higher than it was historically what we saw historically every year. And while we expect Medicaid, certainly not to be at the 7 plus percent we saw last year, we still think it's going to be outside so I think given.
Speaker Change: given Occupancy Continuing to Grow, given the moderation and labor and given another set of outsides based on historical. [inaudible]
Assize Medicaid rate increases.
This summer, about 70% of our buildings.
Speaker Change: Get their Medicaid rate increases in July and August . We still should see improved covers for a while. Now something should happen with provider taxes.
That could mitigate that.
somewhat, so that remains to be seen.
But I think...
You know, it'll it'll have [inaudible]
Speaker Change: a relatively negligible impact for us because there's going to be a cost offset as well if the ceiling comes down. And then you'll see it start picking up again once Medicaid rate increases get baked in. So I think we still have some room to grow there over the course of this year, Rich.
Ok, sounds good, thanks very much [inaudible]
Speaker Change: Your next question comes from the line of Alec Fagan with Baird, Equity Research. Your line is open.
Alright, thank you for taking my question. And so,
Speaker Change: And Talya, you kind of talked about maybe the strategic relationship angle, but maybe any more details with are these operators that you'd like to grow or the new operators into the portfolio and kind of what do you expect that shadow pipeline to kind of be after these deals close?
Speaker Change: The answer to question number one is yes, yes, yes, yes, all of the above. The answer to the number two is tougher to assess and I think we'd rather close the deals and then be able to report further detail on the additional opportunities that we're looking at.
Speaker Change: All right, fair enough. And then secondly, he provides some details in the maybe kind of steady decline in occupancy and the behavioral health and specialty hospitals and other segment. And of what are the prospects for releasing those spaces if they do go dark and at what rents? [inaudible]
Speaker Change: It's a very different business than senior housing and skilled nursing obviously. The break-even point is at a pretty low level of occupancy, like under 60%. The coverage went up pretty nicely, actually, because revenue, revenue for patient day went up. But it's a very, very dynamic business.
It instilled in senior housing [inaudible]
Speaker Change: Your occupancy is pretty predictable for the most part. It doesn't change dramatically. That's not the same with the behavioral space. [inaudible]
Speaker Change: So, we've got very short length of stays, it's a very dynamic business [inaudible]
Omotayo
the holidays and shortly right after the holidays. [inaudible]
Speaker Change: You always see pretty significant drops because no one's coming in for rehab, typically during the holidays that carries a little bit over into the early part of the year. So there may be some recovery on that so it's just something the coverage is so strong it's just. It's just a little bit over into the early part of the year that carries a little bit over into the early part of the year.
Speaker Change: 3.77, it's just not something that we're concerned about, it's just a different kind of business. And so for us, we're used to kind of seeing these ups and downs. Let's go.
Paul Wright, thank you for that [inaudible]
Speaker Change: Again, if you would like to ask a question, press R then the number one on your telephone keypad. Your next question comes from Delante Omotayo Okusanya with Deutsche Bank. Your line is open.
Speaker Change: Yeah, hey guys, this is Sam Onfurtayo. I was just wondering if you guys could give some updated thoughts on how Medicare reimbursement for skilled nursing could impact the, to be impacted by the current attempts by the US government to establish a new federal budget.
Speaker Change: Well, what we're hearing on the Hill is that they're not going to touch you Medicare Thank you.
Speaker Change: In the President has said the same thing about Medicaid, but as we've talked about...
Speaker Change: I think the last couple of quarters, we think there is some exposure to our provider taxes [inaudible]
Speaker Change: But we're not seeing or hearing anything in any of the discussions that are obvious or having on the Hill relative to Medicare. And I'm not sure that the proposed rule would have come out the way it is. If that was an issue.
Speaker Change: The comment period once the post rule came out, everything's happening like it normally happens there, and we're not hearing anything from inside CNS.
Speaker Change: along those lines, either. So, look, you know, we're in an environment where things change every hour, apparently. So, but that said, so I'm not making light of anything because we have our antenna up on the Medicaid stuff, but we feel pretty comfortable with Medicare. [inaudible]
Speaker Change: Got it, that's how I'm very helpful, and that's all I have on my end thanks guys for the time.
Speaker Change: There are no further questions at this time, I turn the call back over to Rake Matros.
Speaker Change: Thanks everybody for joining us. We're available as always if you want to reach out and have additional discussions and otherwise we'll see a bunch of folks at Navy look forward to it. Thanks everyone.
This concludes today's conference call. You may now disconnect.