Sabra Health Care REIT, Inc.

Thank you for standing by, and welcome to the Sabra Healthcare third quarter 2021 earnings call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Michael Costa, Executive Vice President, Finance, and Chief Accounting Officer. Please go ahead, sir.

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, turning our expectations regarding our future financial position and results of operations, including the expected impact 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 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the financials page of the investor section of our website at www.sobrahealth.com. Our Form 10-Q, 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, Chair and CEO of Sabra Healthcare REIT.

Thanks, Mike, and thanks, everybody, for joining us. I'd like to start today actually with a quote that Talia shared with me. It's the dedication in General McChrystal's new book, which is called Risk, A User's Guide. To the healthcare and other essential workers who, when faced with risk that is often difficult to effectively assess and impossible to completely mitigate, respond with quiet courage and too often sacrifice themselves for others. So, once again, I want to thank all of our workforce out there for everything they're doing on a day-to-day basis. Let me move on to labor now because that's, I think, foremost, obviously, on everybody's minds. First, I'll start by saying labor pressures are really different by market. So, there's not sort of a simple answer or something I can say in the average in terms of trends. So, for example, in California, the northeast states and Texas, the labor shortage just hasn't been as bad as in other markets. It's also better in states that have kept up with wage increases. Florida and the southern states, for example, are far behind on wage equity, and so our operators in those states are having more difficulty with labor than in other states. So it really is all over the place. We also see a difference in labor pressure in the culture of our operators. So that does make some difference as well, and that part's actually quite good because the fact that culture can affect retention and recruitment is helpful and we're trying to share best practices with our tenants as it pertains to that. Our operators do have some level of optimism that those who have not come back into the workforce will do so as they start spending off for the holidays and have a less stressed environment with COVID receiving and the vaccination uptake improving and creating a safer work environment. Currently 40% of our operators have mandated and I don't know if everybody's seen the news today, but the new mandate with CDC and OSHA is effective on January 4th. So by January 4th, all healthcare workers as well as others will have to be vaccinated and there's not going to be any allowance for testing in the absence of being vaccinated. In terms of the workforce amongst our operators, Just under 80% of the workforce is now vaccinated. So that's really a nice improvement since the last quarter. It's above industry average and certainly above the national average in general. So we feel pretty good about that. I would say that for those that haven't mandated, there still is a fear that they're going to lose too many employees if they mandate. But the data just really hasn't supported that. All the operators that we're aware of that have mandated have simply haven't lost that many employees, and they've actually been able to use that as a recruiting tool because they do have a safer environment. So, but nevertheless, you know, we understand the concerns that operators have, but now they're just going to have to mandate whether they like it or not, and we think that's a good thing. And these labor issues are the primary impediment in the pace of the recovery. That said, our tenants have operated for incurring additional labor costs, such as temporary agency in order to continue to push occupancy increases as much as possible. So in other words, we don't have tenants that are saying we're just not going to admit because we have labor shortages. They'd rather spend more on labor and get the revenue in and keep those relationships . Again, that's something that we favor because the demand is clearly there. In terms of funding, COVID-19 Public Health Emergency Act has been extended again for another 90 days. with Medicare sequestration effective through year end, and we have optimism that that will be extended again. FMAP funding increase is extended through the end of first quarter 22. I'll move on to investments now. Our investment pipeline continues to be very active. We have approximately 2 billion in the pipeline, still not much skilled nursing. Seventy-five percent of that 2 billion are potential investments that are in excess of 100 million. To date, we've closed approximately 400 million. with a weighted average cash yield of 7.55%. And I want to note, we did announce the closing of the first tranche on the RCA loan, and that's a deal that we feel really good about. We felt it was important to be a good capital partner. There aren't that many strong operators yet in the addiction space, so we want to be there for those who are. And that commitment to RCA was also a commitment to the sector relative to our intent going forward. So a quick comment on the balance sheet. I know Harold will talk more about that. But the two offerings that we did, both the debt and the equity offering, both served to strengthen the balance sheet and put us in really good shape on a go-forward basis with a level of optionality when it comes to funding acquisitions that we haven't had historically. Moving on to operations. Excluding PRF, skilled rent coverage is down sequentially on a trailing 12-month basis, primarily due to the second quarter of 2020 being replaced with the second quarter of 2021. And on a quarterly standalone basis, the sequential drop, which wasn't significant, but nevertheless, the sequential drop was due specifically to higher labor costs. Our skilled occupancy, which lost momentum late summer, is now showing some improvement recently. The biggest turnaround has been Avamir. Avamir had actually fallen 300 basis points lower than their December low. But since opening the COVID unit, they've increased their occupancy 400 basis points in the span of the last two weeks. And even though those COVID units won't be around forever, that should certainly buy them a lot of time as they work on getting occupancy up on a longer-term basis for us. Yes, they have a portfolio. And with that, I will turn it over to Talia, and then she'll turn it over to Harold, and we'll go to Q&A. Talia?