Sabra Health Care REIT, Inc.

Good day, ladies and gentlemen, and welcome to the Sabra Healthcare REIT first quarter 2021 earnings conference call. I would now like to turn the call over to Michael Costa, EVP, finance, and chief accounting officer. Please go ahead, Mr. Costa.

Thank you. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including the expected impacts of the ongoing COVID-19 pandemic, our expectations regarding our tenants and operators, and our expectations regarding our acquisition, disposition, and investment plans. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2020, as well as in our earnings press release included as Exhibit 99.1 to the Form 8K 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 on this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results, included in the financials page of the investor section of our website at www.sobrahealth.com. 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, Chairman and CEO of Sabra Healthcare REIT.

Thanks, Mike, and thanks for joining us, everybody. Appreciate it. Just a quick note that this is the first reporting period where we've got all four quarters of the pandemic included in our statistics and our financials. Let me start with an update on live ends. On the last call, which obviously was not long ago, we talked about that something would be pending in terms of a decision in the near term. Given the impact of the pandemic, particularly the latest surge on the managed portfolio, both we and importantly TPG have decided that we really need to give the portfolio some time to recover. And so there's not really a timeframe on it, but I would expect that at this point they just want to see some recovery and some trajectory over the next few months. At this point, any offer that we would be able to make them is really not much of an offer. And while if we were to acquire the remaining 51%, it would certainly be at levels well below the strike price under the old option. they'd like to do a little bit better. So we're still in the same position that we've been in all along, and that is if we can strike a price at the right price, then we'll have some nice runway to grow with the portfolio. And if not, then we'll have plenty of proceeds to put to use for other investments, and it'll have a minimal impact on the balance of our senior housing versus our skilled nursing. So either way, we feel like we're in a good position, but do fully agree that this just isn't the right time to put something like this on the market. That's it for Enliven. I'm going to move now to give you an update on COVID and the impact on the business. For the first time, our operators are speaking with an upbeat tone, which has been really fantastic to hear. Well over 90% of our facilities have no positive cases. Since the first week of March, the number of new positive cases in our facilities has ranged from zero to two facilities a week and many more than that being cleared. Over 90% of our tenants have reported over 90% uptake for patients and residents and over 60% for staff. So 90% vaccinations for our patients and residents and over 60% for staff. Virtually all of our tenants have completed the three clinics. CDC has released national guidelines for cohort restrictions. So those restrictions are now being relaxed with more visitations and group activities increasing, which does a number of things. One, it's become a leading indicator of census growth. And secondarily, but also very importantly, obviously, is it helps to get our expenses back on the path to becoming normalized and back to pre-pandemic levels, which will have obviously a direct impact on the margin and on NOI. I just want to point out, though, that the CDC guidelines aren't a mandate, and so there are different things happening in different markets, and some markets are still more restrictive than other markets. So hopefully people will sort of come to the same conclusions. Also, don't want to forget to note that you can never fully express or appreciate what the staff, patients, and residents have endured, but nonetheless, it will never be forgotten. Still not over, obviously, but we just want to express our appreciation. And as often as we do it, it's still not enough. There's $24.5 billion in the HHS fund left. There's another $8.5 billion. For rural providers, we still think that number will grow as healthcare businesses who didn't need the assistance start returning some of that money. We do believe that we will have access to some level of monies in that fund. The decisions haven't been made yet, but we expect that we will have access In the rural provider piece, senior housing is being included in that dialogue. So we feel much more optimistic that there will be some funds available for senior living and senior housing as well. Now let me move on to reimbursement. There's been a lot of talk and speculation about the CMS proposal and the proposed rule. We now have data to better understand the impact of the pandemic on Medicare revenue. Surprisingly, only 15% of the industry is still in place, a surprisingly small number that reflects the fact the industry did not take advantage of the three-day waiver suspension. This may help the industry's position that the waiver suspension should be extended for a prolonged period of time to better understand the implications of making that suspension permanent. I would also note that for Sabra's operators, all the operators did skill in place to one extent or another. There was a wide variance, but everybody did skill in place to some extent, and a lot of that has to do with the fact that we have really no long-term care providers. We have high-acuity operators that have a greater tendency to skill in place. The other number that was a little bit surprising in some of the analysis is that the percent of COVID patients was just under 9%. I think that's misleading only because, as everybody on the call knows, we didn't have testing available for months, so we're pretty confident that we had a lot more patients and residents that had COVID that were actually diagnosed with COVID. Despite those two metrics, acuity in these facilities rose dramatically, driven by limited capacity in the hospitals who were only able to admit the very sickest patients, and then those folks would then transfer to SNFs. This is clearly evident in the impact on skilled mix in our portfolio, and as acuity has come down, we've seen our skilled mix gradually come down from its high in December and get closer to pre-pandemic levels, although it's still higher than pre-pandemic levels. As it relates to the proposed rule and the 5% increase in Medicare revenues above budget neutrality, it seems clear that much of the increase was driven by this pandemic-related phenomena and the prolonged spike in acuity. CMS will be taking comments on the proposed rule, will look at all the underlying data, and is sensitive to industry recovery. To the extent that some calibration is necessary, I believe it will be phased in and deferred over different fiscal years to allow the industry to recover. And that was a pretty strong message, I think, that CMS delivered. It was very conciliatory, and they really do want to see the industry recover. A couple of other notes relative to pandemic-related assistance. PHE was extended for another quarter. FNAP funding was increased. The FNAP funding increase was extended through September 30th, 21, and sequestration suspension was continued through the end of 21 as well. Now moving on to investments and operations. With a billion and a half in our investment pipeline being reviewed, we believe we're on a path to once again grow the company. Most of the pipeline continues to be senior housing with behavioral addiction and some SNF activity, although there's not much skilled activity at this point given that federal assistance has provided time for the operators to recover. And for those that want to sell their assets, I'm sure they want to get closer to pre-pandemic pricing in terms of getting credit for that kind of NOI. Our top seven skilled operators, which now comprise 66% of the NOI, hit their low point in occupancy in late December and have increased occupancy approximately 431 basis points and are leading the way for the portfolio. The rest of the cyber portfolio hasn't increased to that extent. The remaining operators outside of those top seven tend to be operators that we only have a few facilities with and are impacted by local market conditions. Overall, still showing increases in census, but not to the extent our top seven are. Our top seven, with the exception of Genesis, do happen to be our most progressive operators in terms of the level of acuity that they take in the variety of clinical programs that they provide. And they also comprise some of our top operators relative to having COVID units and taking COVID patients during the course of the pandemic. I noted that skill mix has been declining since that same point in time and acuity will always high, will level out at closer to pre-pandemic levels. What we don't know is Prior to the pandemic, we did see acuity increasing and length of stay increasing because of PDPM, and obviously PDPM was interrupted pretty early after implementation, so we'll see how that goes going forward, but I would still expect one of the impacts from PDPM will be a positive impact on length of stay. Our senior housing bottomed out well after the SNF portfolio, but it's started its recovery as well with our lease portfolio bottoming out in February. And the lease portfolio has now seen 365 basis points of occupancy increase since. Talia will discuss the managed portfolio. I'd note that the remainder of our portfolio, our specialty hospitals, behavioral and addiction facilities, fared exceptionally well during the pandemic with occupancy increases of approximately 550 basis points over the course of the pandemic. And again, they weren't impacted by the pandemic, so there wasn't a low point to hit. And rent coverage has increased over that period of time as well. This portfolio, as most of you know, comprises an important and growing 11% of our NOI, and it's a strong focus for investments for us going forward. And with that, I'll turn it over to Talia.