Sabra Health Care REIT, Inc.

Good day, ladies and gentlemen, and welcome to the Sabra Healthcare REIT fourth quarter 2021 earnings call. I would now like to turn the call over to Lucas Hartwich, SVP Finance. Please go ahead, Mr. Hartwich. Thank you, and good morning.

Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations. including 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 31st, 2021. as well as in our earnings press release included as Exhibit 99.1 to the Form 8K we furnished to the SEC this morning. 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 gap results included on the financials page of the investor section of our website at sabrahealth.com. Our Form 10-K 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, Lucas, and thanks everybody for joining us today. Our opening song heroes is dedicated to the staff at the facilities. Let me start with updating everybody on our current trends. In terms of vaccination uptake, the workforce is now up to 87% vaccinated, which is really fantastic. Residents are about 92%. Approximately half of our operators have mandated vaccines. And moving on to occupancy, for occupancy, 25.5% of our operators are now at pre-COVID occupancy levels. The last week of January, about 41% of the staff returned to work from being out due to Omicron. We had just huge numbers of staff out that was really impacting occupancy. So with staff coming back really in droves, it's having a direct impact on occupancy. The last two weeks, our managed portfolio showed improved occupancy of 46 basis points. And our top seven skilled operators have shown improved occupancy of 149 basis points in the last two weeks, which is as big a jump in that timeframe as we've seen since the pandemic started. Additionally, I would note that while there was obviously a lot of concern over coverage and things like that as Omicron hit, skilled mix from the first of the year was up 360 basis points due to acuity and skilling in place. And that really helped mitigate some of the financial impact of Omicron. Moving on to reimbursement. Phase four funding, that money is still coming in so we don't have solid numbers yet on what the total is. We'll update as soon as we have that. I do want to spend some time today though on Medicaid because most of the focus understandably has been on all the assistance from the federal government. But there's really been tremendous assistance from the states which is going to go beyond the federal government, and so I just want to highlight a few things there. We took a look at 14 states that represent 73% of our skilled assets. In most states, there's a two- to three-year timeline before increased costs are captured. However, most states will use an annual market basket to adjust for inflation, which provides an opportunity for sooner recognition of increased costs. That inflationary increase has a specific labor component. About 80% of our states have provided a temporary Medicaid add-on. There's a common misconception that if PHE isn't continued, the Public Health Emergency Act, that FMAP funding goes away, but that's actually not the case. The states have discretion as to whether they want to keep those Medicaid add-ons in place, and we're optimistic that a number of the states will have that in place. So from a lobbying perspective, the focus has really shifted from the feds to all the individual states. After phase four, there's not much left in the fund, and we're certainly not betting on getting new money in this Congress, so the focus is really going to be on the states and all the Medicaid assistance that we've gotten there. I want to make one comment on Avomer. I know that's been out there. I just want to point out that that negotiation we think went really well. We look forward to the ability to recapture it, and we fully expect that we will see some upside there. We have no additional restructurings being contemplated. There's no ongoing discussions with any of the tenants about restructurings. I also want to comment on ESPRIT, the Canadian deal, which Tali will talk more about. These are very high-quality new assets with a trusted operating partner and strong growth prospects. So we're really pleased to finally, after years of making the effort, see additional growth in Canada. Our acquisition pipeline. Currently it stands at about $1.4 billion. While it's still primarily senior housing, we are starting to see more skilled nursing opportunities and opportunities in the behavioral addiction space. We're also seeing more deal flow in Canada, and we're seeing more deal flow anyway But the announcement of the Canadian deal has increased that deal flow even more so. In terms of the balance sheet, Michael spent a lot more time on that, but leverage continues to be well within target range, and it should be expected to fluctuate. And that's really the primary message that we want to convey to everybody, that if we hit five times, it doesn't mean we're going to access equity. We've got plenty of room up to five and a half times as deal flow happens. leverage can be expected to fluctuate up and down. We'll have some natural deleveraging events with the portfolio improving, particularly the managed portfolio and EBITDA improving. We've got asset sales still that will be ongoing. So we're in really good shape from a balance sheet perspective and in terms of the fact that we don't need to access the markets. We aren't issuing guidance. And while we did issue guidance at least for periods of time last year, The impact of Omicron, particularly on the managed portfolio, makes it impossible right now to predict the degree and the rate of recovery. Hopefully we'll be in a better position to do that. I doubt by the time we have first quarter, because that's only about six weeks away, but hopefully after that. And if we are able to, we will do a first quarter, but I think it's unlikely. at this point in time. If we had strictly a triple net portfolio, we'd be in much better shape and have a high degree of confidence relative to issuing guidance. And with that, I'll turn it over to Holly.

Thank you, Rick. We recently announced that Sabra in joint venture with Siena Senior Living has entered into an agreement to acquire 11 senior housing communities in Ontario and Saskatchewan. This will nearly double Sabra's investment in Canada. Given the vintage of the assets on average six years old and the timing of the acquisition, there is a clear path to increase occupancy across the portfolio as well as the one community in lease up. Substantial expansion opportunities exist at four of the communities providing for an additional avenue of growth. As Rick said, transaction activity in Canada has increased significantly in the last 12 months and we believe that Sabra is well positioned both financially and operationally to pursue assets there, including through our joint venture with Ciena. Now let me turn to our managed senior housing operating results. In the fourth quarter, Sabra's wholly-owned managed senior housing portfolio continued the momentum on top-line growth seen in prior quarters. This was offset by higher labor costs and contract labor expenses that have been challenging the healthcare industry since the middle of the third quarter. with the emergence of first the Delta and then the Omicron variants of COVID-19. Early indicators point to the dissipation of the Omicron variant and rising employment rates as we speak, which will result in lower community spread, fewer infections among staff, greater availability of labor, and lower utilization of contract labor. Continued move-in rates at or exceeding pre-pandemic levels and normalizing move-out rates point to the strength of demand for senior housing, which, along with the return of the workforce, will create the equation for ongoing recovery of senior housing, barring another highly contagious variant of the virus. Demand for senior housing communities remains resilient and somewhat price insensitive. After a sustained lift in occupancy following the vaccine rollout, occupancy dipped in the fourth quarter, but gross move-ins have remained in a range between even with 2019 and 10% higher. In higher acuity communities, particularly memory care, gross move-outs have been impacted by higher death rates resulting from the Omicron variant. We have heard from our operators that five to seven and a half percent rate increases have gone unquestioned by residents and their families, while at the same time our operators are seeing move-ins coming from competing communities where aggressive pricing has changed residents' view of value. The headline numbers for the wholly owned managed portfolio are as follows. Occupancy in the fourth quarter of 2021 excluding non-stabilized communities was 79.4% compared with 78.8% in the prior quarter, a 60 basis point increase. RevPOR, excluding non-stabilized communities, was $3,303, and RevPOR has remained stable over the past five quarters. Assisted Living has shown increasing pricing power with the same store RevPOR, increasing 5% from the first quarter to the fourth quarter of 2021, despite pandemic surges from two variants and labor shortages. Cash net operating income declined by 9.9% sequentially and margin decreased to 20.1%, 2.6% lower than the prior quarter. Virtually no COVID grant income was received in the fourth quarter and none was received in the third quarter. Contract labor costs and Sabra's assisted living and memory care properties drove this decline. Sabra's wholly owned managed assisted living portfolio experience of dip in occupancy following the third quarter and began to recover late in the fourth quarter and into 2022. From September 21 to October 2021, occupancy declined 126 basis points. From October to November 2021, occupancy declined 43 basis points. And from November 21 to December 2021, occupancy increased 28 basis points. From December 2021 to January 2022, occupancy increased 108 basis points, making up most of the decline in the fourth quarter. There are signs of positive momentum in February with occupancy in the enlivened portfolio increasing 80 basis points from January to mid February. The downward occupancy trend was driven by our communities caring for memory care residents where move-outs increased due to deaths related to surges of the Omicron variant in the general community. Because these residents are generally frailer and less able to comply with mask wearing and other infection control protocols, they are more vulnerable to COVID-19. While revenue in our wholly owned assisted living portfolio grew 1.8% quarter over quarter, Cash NOI margin compressed to 9.7% compared with 15.1% in the third quarter. Nearly the entire increase in operating expenses is attributable to increased contract labor costs in our wholly owned and livened portfolio. Sabra's wholly owned managed independent living portfolio experienced less occupancy loss than the assisted living portfolio and its recovery has been more gradual. Throughout the duration of the pandemic, we have seen more move-outs driven by the need for higher care as residents have stayed in place longer, and we continue to see that this quarter. From September 2021 to October 2021, occupancy increased 44 basis points. From October to November 2021, occupancy declined 34 basis points. And from November to December 2021, occupancy increased six basis points. From December 21 to January 22, occupancy decreased 119 basis points, but there was a clear distinction between our Canadian portfolio where occupancy increased by 73 basis points in this period and occupancy in our U.S. portfolio declined by 165 basis points. While revenue in the wholly owned independent living portfolio grew, 1.8%, cash NOI was flat quarter over quarter, and cash NOI margin decreased slightly to 27.7% compared with 28.3% in the previous quarter. As a whole, the independent living portfolio has been less vulnerable to accelerated move-outs and labor challenges. Contributing to that result is that eight of the 30 properties are in Canada, where the impact of COVID-19 has not been the same as in the U.S., Despite high vaccination rates among residents in our holiday communities, there was a rise in active COVID-19 cases among both residents and staff starting in late December and through January, which began to decline in February. At the same time, labor shortages that emerged during the holiday season and drove higher labor costs due to overtime began to trend down after the new year. Our Siena retirement home portfolio had few and largely minor COVID-19 outbreaks during the surge of the Omicron variant in BC and Ontario, where there was a partial lockdown over Ontario through the end of January. While move-ins slowed during this period, residents were safe given the mid-90% vaccination rates in these retirement homes. And with that, I will turn the call over to Mike Costa, Sabra's Chief Financial Officer.

Thanks, Talia. For the fourth quarter of 2021, we recognized normalized FFO per share of $0.39 and normalized ASFO per share of $0.37. For the year, our normalized FFO per share totaled $1.57 and our normalized ASFO per share totaled $1.54, both of which hit the midpoint of our 2021 earnings guidance. As we noted in our earnings release, Avamir's December rental obligation of $3.6 million or two cents for diluted common share, was paid in January 2022. Since Avomare's lease is accounted for on a cash basis, this amount will be reflected in our results for the first quarter of 2022. Compared to the third quarter of 2021, normalized ASFO per share increased one penny, primarily due to lower rental revenues from cash basis tenants, namely Avomare, and lower ASFO from both our wholly owned managed portfolio and enlivened joint venture, as a result of higher labor costs. These decreases were partially offset by higher interest income, primarily from the funding of the RCA mortgage loan during the quarter. Compared to the third quarter of 2021, normalized FFO per share increased one penny. The decreases noted for normalized FFO were offset by sequential reductions in both deferred taxes in the enlivened joint venture and stock-based compensation. Cash NOI for the quarter totaled $109.2 million compared to $116.5 million in the third quarter. Included in cash NOI for the fourth quarter is $7.4 million of payments made to Enliven from our joint venture to support them as they dealt with persistent labor pressures and the impact of the Omicron variant on operations. Excluding these support payments, cash NOI was effectively flat sequentially. As of December 31st, 2021, our annualized cash NOI was $452.4 million, and our SNF exposure represented 61.4 percent of our annualized cash NOI. G&A costs for the quarter totaled $8.2 million compared to $8.7 million in the third quarter of 2021. G&A costs for the quarter include $900,000 of stock-based compensation expense compared to $2.4 million in the third quarter. Recurring cash G&A costs of $7.2 million were 6.6% of cash NOI and in line with our expectations. We are in compliance with all of our debt covenants as of December 31st, 2021, and continue to maintain a strong balance sheet. During 2021, we fortified our balance sheet by meaningfully extending our weighted average maturity, improving our debt laddering, and lowering our reliance on term debt through the issuance of our $800 million senior notes due 2031, while only increasing our fourth quarter cash interest expense by less than $200,000 to $22.7 million. As of December 31, 2021, our leverage was 4.98 times, which is in line with our long-term leverage target of five times and well below our maximum of five and a half times. From time to time, our leverage may tick up above our target of five times, particularly as we make investments, but we would expect leverage to come down naturally over time as performance in our managed senior housing portfolio recovers from the pandemic and as we recycle capital. Our liquidity as of December 31, 2021, totaled approximately $1.1 billion, consisting of a full $1 billion of availability under our revolver and $112 million of unrestricted cash and cash equivalents. On February 1st, 2022, our Board of Directors declared a quarterly cash dividend of 30 cents per share of common stock. The dividend will be paid on February 28th, 2022 to common stockholders of record as of the close of business on February 11th, 2022. The dividend represents a payout of 81% of our normalized ASFO per share of 37 cents. Lastly, I want to comment on guidance. Given the uncertainty around the timing of a recovery in occupancy, continued labor pressure, and the resulting impact of these items on our financial performance, we will not be providing 2022 earnings guidance at this time. We will continue to evaluate these circumstances in future quarters to determine if we can confidently provide meaningful earnings guidance. And with that, we will open up the lines for Q&A.

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Nick Joseph of Citi. Your line is open.

Thank you. Have any other tenants come to you after the Avamir announcement, just given the unique lease structure and the ability to recapture some of the rent reduction? Not one. Is that surprising? Obviously, AveMirror was in a bit of a unique situation, but just given the map both in terms of near-term liquidity, but also kind of that ability to participate in the upside, you know, is that a roadmap for future tenant restructurings?

No, I think we've got a really good rapport, and if they don't need it, they're not coming to us. We talk with them all the time. They know we're here to help if it's necessary, so they're not going to take advantage of a situation like this if they don't need it.

Thanks.

Yep.

Thank you. Our next question comes from Stephen Valliquette of Barclays. Please go ahead.

Hi, thanks. Hello, everyone. Just a question here around... just healthcare REITs in general with skilled nursing assets this quarter, I think has brought a pretty wide array of strategic updates from the various companies. One of your peers is talking about some high demand and elevated valuations for SNP assets and wants to sell some underperforming assets into that string. And then, Rick, I was caught by your comment saying that you're seeing more SNP opportunities showing up in the deal pipeline from your perspective. I guess I'm curious whether what you're seeing are assets that are You also more on the distress side or more on the side of, you know, richly valued assets, you know, and, you know, that was described by one of your peers. So just curious how you view that overall market. Thanks.

Hi, it's Talia. Let me take a stab at answering your question. So first of all, I think there's no conflict in what you just described. There has been skilled nursing sales transactional activity, and it's really been mostly off-market. If anything, the publicly traded healthcare rates have sold or certainly tried to sell into that bid. We are seeing a small amount of skilled nursing facilities. Frankly, there's nothing consistent in terms of quality, both high or low, in what we're seeing, but we're not seeing a lot of skilled nursing. And part of that is because there are other groups bidding for assets where they are pricing more than what we would price. In other words, there's incremental NOI that they're valuing.

The other thing I would add is some of the pricing that you see out there is a little bit misleading because these are private groups, so private capital, not private equity, and they own other kinds of businesses. And the SNF opportunity is an opportunity for them to generate revenue in their ancillary businesses, whether that's pharmacy or therapy or whatever. So it's a bit of a different picture.

Right, and also the operators are typically affiliated in some fashion with the real estate landlord. So, again, they're able to capture more of the essentially different parts of the income stream and not the same as what we were able to capture. And I think that's why you're seeing fairly limited SNF-ACWIC transactions being bought by the publicly traded healthcare REITs.

Okay, got it. Okay, that's helpful. Thanks.

Thank you. Our next question comes from Vikram Mahatra of Mizuho. Your line is open.

Thank you. Thanks for the questions. Two quick ones from me. Can you just remind us your latest thinking on sort of the recovery path for both skilled nursing and senior housing versus sort of pre-COVID levels? What are you sort of baking in in your internal projections in terms of occupancy gains? And then second, just on the regulatory front, you mentioned FMAP kind of may vary quite a bit in terms of states, maybe relooking post any matching that goes away, but Can you just talk about other regulations you're monitoring, whether it's waivers potentially going away or additional capital for labor that SNF may receive? Just anything on the regulatory front would be helpful. Thanks.

Sure. So on the Medicaid piece, in addition to FMAP, we're keeping a close eye on the three-day waiver, so it's going in place. It's important at certain points in time, so I don't want to make too big a deal out of it. When you've got an active variant that's really affecting us the way Omicron did, then skilling in place was really important because that increase in skilled mix really helped mitigate some of the other financial impacts from the Omicron virus. But we also saw as things normalized, and even with Delta, because Delta Wallet was more serious, wasn't anywhere near as contagious, our skilled mix went back to pre-COVID level. So that one is a nice to have, and we'd like to see that actually stay in place long term. We already know sequestration is going away. So essentially, it's really skilling in place and all the Medicaid add-ons from the various states. And as I said, most of that dialogue has been positive. Say again, your first question. I'm sorry.

Just the recovery path.

Yeah, so caveat obviously is our prognostication is no better than anybody else's. We think we're about a year away on skills. And either being closer at pre COVID levels, and probably the latter part of 2023 for senior housing. And I don't want to make too much of the fact that we just had a huge increase in skilled occupancy the last two weeks because, you know, there's just been pent-up demand. And so I think part of that is because of that. But if we could get back to, you know, the rate of recovery that we saw from January of 21, say, through the fall before Delta hit, which was, you know, 50 to 70 bps a month, I think we'd be really happy with that.

Okay, great. And then if I could just clarify, you mentioned no additional, you know, tenants have come for relief or anything kind of post-AVM year. I guess just some of your peers have mentioned they anticipate seeing additional requests, whether it's deferrals or it's actual rent relief. Can you just kind of, in your underwriting for the year, are you anticipating additional tenant issues and skills?

We're not in our underwriting or in our internal forecasting, but a cautionary note I would put out there is that if you think about, you know, late spring or the summer and the federal assistance has kind of played out and maybe there hasn't been quite enough recovery, you know, it's certainly possible that we may need to defer rent for some folks, but that's a temporary kind of issue. and not a longer term restructuring issue.

Thank you.

And let me just one more point on your previous question. The add-on to Medicaid rates are part of the waivers along with the nursing assistant waivers that are helping labor. So you might recall that there was a relaxation of certain rules to help staffing in the facilities. And those add-on to the Medicaid rates are part of that. And as COVID subsides, admission restrictions will subside as well. And we're already starting to see that.

Great. Thanks for the clarification.

Yes.

Thank you. Our next question comes from Rich Anderson of SMBC. Please go ahead. Thanks.

Good morning out there. So, Rick, you said... triple net if the portfolio was entirely triple net it'd be easier to produce guidance um so maybe we can get some triple net guidance out of you so if we um if we go fourth quarter good try good try rich that's not going to fly well let me just hear me out so fourth quarter is what it you know is came in and then you have a couple of payments coming in from avamir to make whole for December and January. So if we were to just sort of normalize that out going forward, shouldn't the triple net portfolio be fairly predictable if there's nothing else going on from an abatement perspective or any kind of lease negotiations? That should be a pretty fair run rate, shouldn't it, for the remainder of 2022, barring any sort of new COVID spread?

Hey, Rich, it's Mike. Yeah, I think that's a fair way to look at it. You know, you hit one of the key points on the head, which is the timing of that AVMIR rent payment in the first part of this quarter. That's going to skew, if you're looking at our Q4 2021 numbers as a run rate, that's going to skew it a little bit. But you're right. I mean, absent, you know, any shortfall like Rick was alluding to between government assistance and recovery, and us giving a kind of temporary deferrals or anything like that for tenants, that's a good way to look at what our triple net run rate would be for 2022. Okay, good.

Second question is, you guys have been fairly active lately with your external investments. I'm wondering, you mentioned 1.4 billion pipeline. I'm wondering how much of the recent pace is something that we could expect going forward in light of You know, the stock had a tough year last year. You want to keep an eye on your balance sheet. Do you expect perhaps a more, you know, a slower pace of activity from an external growth standpoint going forward, and that there happen to be just a bunch of things going on at once lately? Or can you actually see an acceleration through the year despite, you know, kind of all the challenges still going on?

So I'd say a couple of things. One, we're going to take advantage of the opportunities out there, but philosophically, Because we're a REIT and we invest for a long period of time, we don't look at just today's stock price and we look at our underwriting. We are making an assumption that there is going to be recovery. And you'll note last year, before Delta hit, everything was recovering pretty nicely. Occupancy was increasing. The stock by August had gotten back up to $19. which makes everything that we're looking at very doable. And that's not even getting back to pre-COVID levels when we're in the 20s. So, yeah, we do make an assumption that we're not going to be stuck at 14, you know, for a long period of time.

Yeah, I think the other comment I'd add there is to the extent that we can structure our investments in a way that allows us to ride the recovery up of the investment, then that becomes a real positive. So even if the entry point is, like in our Canadian portfolio, around 6%, there's upside, and we'll participate in that upside through the investment. That, again, is opportunity, and opportunity to go back to Rick's point, over the long term.

Okay. And then last question, perhaps for Mike. You know, debtdiva.below5.com. by a hair. I know it's an adjusted EBITDA that I think assumes the full annual impact of investment activity. First of all, correct me if I'm wrong about that, but assuming I'm right, how do you underwrite those in that calculation so that when the day comes and perhaps they underperform expectations because of everything that's going on in the world, do you haircut those so that when you calculate your leverage metric there that you don't sort of miss the number, you know, when the real numbers start to come in.

Yeah, you're right in that we do pro forma any acquisitions or dispositions, for that matter, into that number. And if you look at kind of the larger pro forma adjustments to get there for Q4s, the biggest, by far, adjustment is going to be related to our RCA mortgage loan. So don't expect much, if any, volatility in that number. So I think the risk that you point out is correct, just not necessarily for our fourth quarter leverage calculations. But on a go-forward basis, you're right. We're looking at it based on an annualized expected NOI, and to the extent that there is a potential that it doesn't reach that, that could cause some variability in our leveraged numbers going forward. But what we're focused on is keeping it, you know, around in the ballpark of that five times on a long-term basis. Will it get to 502? Possibly. Will it get to 498 like Elizabeth scored? Yeah, that's going to happen too. It's going to be hovering around there. And we want to give ourselves enough room for, from our maximum of five and a half times such that if there are some blips or some, the timing is off by a quarter on any of that performance that we underwrote, it's not going to create an issue for us from a balance sheet perspective.

Okay. Fair enough. Thanks very much.

Thank you. Our next question comes from Juan Sanabria of BMO Capital. Your line is open.

Hi. Good morning. I'm just on the – and so deferrals, watch list, or whatever you want to call it, is there any other tenants where you're using a security deposit to help pay current rents?

No. We're a pretty transparent one, so no. Okay.

That's good to hear. Sorry?

No, we think so. We've had a remarkably stable portfolio, relatively speaking. through this whole pandemic.

Just looking at, um, I wanted to go back. I think Mike said something about a $7 million plus, uh, support payment. I just, I wanted to get more details around that. If that was to the joint venture with TPG, I thought there was, had already been a top up and that was supposedly the last of it. So just wanted to, to understand what that was about.

No, the original one wasn't the last of it. You should expect that to continue from TPG because as we noted on our second quarter call last year, which I know seems like a lifetime at this point, one of the reasons that we opted not to take on the other 51% was because of TPG's decision to exit OPCO. OPCO's got a pretty big bleed and we didn't want to be in the position of both having to write a check to view lever and to support the OPCO bleed. So until a sale is finalized, there is a bleed there. And so from time to time, because TPG owns 100% of OPCO, they are going to provide some support for that. We did participate last June in a little bit of that support as we've talked about in the past. It was about $2.5 million, but we're not participating at this point. So, yeah, you should expect that. The sales process, there are some parties that they're talking to. There isn't a full-blown sales process yet. One of the things that we're seeing out there for large portfolios is everybody's kind of waiting until things subside enough that there's some recovery that people can project off of. There was a huge portfolio that did go through a marketing process, about $2.5 billion in senior housing. It didn't happen. There's a private portfolio that's about $1 billion to $1.5 billion out there that's pretty high quality, and they're holding off as well, and there's another portfolio as well. So I think until there's a little bit more traction on recovery, there's not going to be a full-blown process of having individual discussions.

Thank you. And then just one last one. Can you quantify how much agency costs are flowing through the shop numbers to help us think about how that hopefully moderates at some point forward and what that could represent in terms of growth?

No, we actually don't have that number, and it peaked around November, then it came down, and then it went up because of Omicron, and it's coming down again. So we'd actually like to have a little bit more rather than take a moment in time because it's been so volatile. We prefer just to wait a little while and see, get a little bit closer to where it's normalizing towards, which should be a relatively small number. The other point I'd make is an aggregate number isn't particularly meaningful because the degree of disparity that we see between our operators and the individual facilities, not just the operators, but really, better said, the individual facilities by market is huge. I mean, there's nothing that even resembles the bell curve. So coming up with one number, you know, just doesn't make any sense. People are just going to run with it and extrapolate from it and make assumptions that I think are incorrect. Fair enough. Thank you. Yep.

Thank you. Our next question comes from Connor Saversky of Barenburg. Your line is open.

Apologies there. He just took my last question. I'll leave it right there. Thanks. Thanks, Connor.

Thank you. Our next question comes from Tayo Acasana of Credit Suisse. Your line is open.

All right. Good morning out there. So question around the acquisition outlook going forward. In the pipeline, you guys talked about $1.4 billion. It looks very healthy. You've done some really good deals year-to-date, again, buying senior housing and kind of six to six-and-a-half. You can sometimes close a seven cap when your payers are buying portfolios in the fives, which is all great. But when I still kind of think about your cost of equity today, given where the stock is trading, I'm just kind of curious how you guys kind of think about funding acquisitions going forward, especially kind of giving some of your leverage targets.

Yeah, I'll take that real quick. So in terms of funding in the short term, I think there's a couple sources that we would look to. First, we have quite a bit of cash on hand. That would be one. We have full availability on our line of credit. But we also have some capital recycling that's occurring throughout the area. including the enlivened sales proceeds. So we have some capital recycling that we have expected throughout the year that will help finance some of those acquisitions without putting our leverage in a place where we would have to think about raising equity.

Gotcha. But you would fully expect to use the availability on the ATM, which basically is an equity issuance, right?

Well, if we had to go there, but what I'm saying is that with the cash on hand and using a little bit on the line of credit plus sales proceeds, like the Canadian portfolio that we just announced, we wouldn't have to hit the ATM to keep our leverage in check. We'd be comfortable with our leverage with the sales proceeds and everything and the cash on hand.

Yeah, and that's an important message, Tyler, because, you know, last year, As we were really focused on de-leveling the balance sheet, we were pretty aggressive, as you'll recall, with the ATM. And I think there's a certain sensitivity about how quick we might be willing to use it. But we got to where we needed to get. And as Mike said, we've got a number of tools available to us now. So we're in a much better place.

That's very helpful. Thank you.

Thank you. Our next question comes from John Polowoski. Green Street, please go ahead.

Hey, thanks for the time. Maybe just a follow-up on that last question there. Could you give us a sense for the disposition volume or range of disposition volumes we could potentially see come to market this year?

Yeah, I mean, I don't really want to be given disposition guidance on the earnings call. I mean, we have it's going to be of a similar level that you've seen over the last couple years in terms of volume. I'm not going to be giving cap rate guidance either on this call, but like I said, we have a bit in the pipeline, just your normal pruning of your portfolio and recycling of our capital and putting it into new investments, and I'll leave it at that.

Yeah, the only thing I would add is to the earlier discussion about what some of these private buyers are paying, we may be willing to look at some additional dispositions. Again, to Mike's point, it's not going to be major, but it could be slightly more than just the day-to-day stuff that we normally do if we think folks are willing to pay a valuation that we think is worth considering.

Okay. Rick, could you give us your latest thoughts on the size of the mortgage loan and PREF equity book? $400 million right now. Does it grow meaningfully from here? Is it stable? Just help us think through the two to three-year trajectory of that book.

Yeah, I'll make one comment and turn it over to Talia. Philosophically, it's not a direction that we're going in strategically. It's more relationship-oriented with operators. and the ability to be a good capital partner and grow with those operators. We don't expect it to be substantial, and it's not a strategic thing that we're pursuing.

That's right. On the mortgage side, that's exactly right. On the preferred equity, we've been doing preferred equity at various points in the real estate and financial cycle since we started Sabra. And I think you'll see us continue to do that as – but very specific as to which project and the timing of where we are in the cycle. It's an opportunity for us to have a small amount of capital deployed with a relatively high rate of return and optionality typically on long-term ownership in the future. So that's something we like. It also lets us be in the front row of of property types that might otherwise not be willing to be able to buy on a stabilized basis on a fully marketed process.

Understood. Thank you for your time.

Thank you. Our next question comes from Joshua Darlene, Bank of America. Your question, please.

Hey, everyone. Sorry if I missed this, but are there any states where you're more or less kind of positive on operators receiving more state funds or maybe even like changes to kind of also maybe ease some of the pain points that they have?

Actually, most of the states that we're in have been really good. So the biggest surprise state really was Texas, which, as everybody knows, historically has one of the worst Medicaid systems in the country. But they've been really terrific to operators. So I am happily surprised by the fact that by far the majority of the states have been really helpful. And I think it bodes well for the future as well. They're in good shape from a budget perspective. The pandemic has affected their view of Medicaid and how underfunded in certain states it's been. Doesn't mean that we're going to get big increases, but certainly the tone of the dialogue has changed. and the fact that so many of them have stepped up when they could have just banked that, I think is a good sign.

Okay, awesome. And then maybe just to follow up on potential dispositions, would there be kind of like more of a weighting one way or the other to a certain asset class, or is this kind of... It's really opportunistic.

So I'd say Mike noted... that our skilled exposure is down to almost 61%, which is as low as it's been in a really long time. And we'd like to see that below 60%. There seems to be kind of this thing out there where as soon as we hit 60, we're a sniff-read. So, but that said, our primary focus is to get back to growth. Between all the Genesis sales and the Senior Care Center sales and the pandemic, We've had declining earnings these last several years, and so our primary focus is getting back to growth. And so we're not going to bypass doing a good skilled deal or do a number of them simply because we're trying to get skilled exposure under 60. The pendulum always swings. So number one, it's growth, earnings growth. Number two, it's balancing the portfolio, but earnings growth comes first.

Thank you.

Thank you. Again, to ask a question, please press star one in your touchtone telephone. Again, that's star one on your touchtone telephone to ask a question. We have a follow-up from Juan Sanabria of BMO Capital. Your line is open.

Juan Sanabria- Hi. Thanks for allowing me to come back in the queue. Just a question on the lease expirations. You've got 3.5 percent of rents expiring this year. Any color on how we should be thinking about that? And potentially, is there any purchase options we should be thinking about as well in the portfolio over the next year or so?

Yeah, over the next year or so, there's no purchase options that stand out to me. For the lease that's maturing this year, that's a tenant that we've talked about for a while now. It's one of our cash basis tenants. It's a portfolio called Y-Oak and We've talked about it for several quarters now. That expires at the end of the year, and we're in the process of putting in a long-term lease for that portfolio, and hopefully should have that announced for the end of the year.

One other comment let me make to follow up on some of the Medicaid stuff, Juan. All the states have received money from the feds, and as I said, the majority of states have been passing that on to the skilled nursing industry. If states don't spend the money, they have to return it. So that should create good tailwinds for our operators as the federal assistance tails off.

Mike, could you just give us a bit more on that exploration on what the coverage is? Are they essentially paying one times at this point in time?

Yeah, they've been on a cash flow sweep for several years now. It was a portfolio that we transitioned to one of our best operators, Cadia, their top 10 operator. They took over that portfolio a couple years ago. And there's really two portfolios. There's the stabilized portfolio that we did with Cadia back in 2011, one of our first deals and one of our best deals that we've done. And then they took over that Y.O. portfolio a couple years back. And as we're looking to, one, reopen one of the facilities that got shut down. And just reposition the portfolio there. We put them on a cash flow sweep. And that was a short-term lease. I think it was a five-year lease at the time. So that five years is coming up now. And now we're going to be looking to put it on a more, you know, a fixed level of rent and something that's just going to be, you know, not on a cash flow basis and more steady.

Great. And just one last one for me. Any questions? Guidance or color you can provide on GNA, $35 million in 2021. I know there's some uncertainties to what the T&E budget would be, but any color would be appreciated.

Yeah, I mean, we had our, you know, our run rate for the quarter was $7.2 million. You know, the year-end numbers, the fourth quarter numbers, I should say, are always a little bit on the higher side. You have some tax, payroll tax issues, and you have, not issues, but payroll tax issues acceleration that happens in the fourth quarter with like stock off and things like that. But I think that 7 million 7.2 call between seven and seven and a half million is probably a decent run rate to assume on a quarterly basis for our cash gna. Thank you.

Yep.

Thank you. This time, I'd like to turn the call back over to CEO Rick metros for closing remarks, sir.

Thanks, everybody, for joining us today. And hopefully we are through the worst. I know we've said it before. I think the fact that 87% of the workforce is now vaccinated really bodes well going forward. So putting some positivity out there. Thanks, everybody. Talk to you all soon.

And this concludes today's conference call. Thank you for participating. You may now