Sabra Health Care REIT, Inc.

Today, ladies and gentlemen, welcome to the Sabre Healthcare REIT first quarter 2022 earnings conference call. I would now turn the conference over to your host, Lucas Hardwick, EVP Finance. Please go ahead, Mr. Hardwick.

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 31, 2021. 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 made 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 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 Healthcare Reads.

Thanks, Lucas. Good day to everybody. Appreciate everybody joining the call. Let me start off by talking about guidance. So as everybody knows, we haven't issued guidance. It's really specifically because of the managed portfolio. Even though it's recovering, it's been a pretty short period of time that we've seen recovery. So we just need a little bit more of a trajectory over a longer period of time so that we have a strong level of confidence and get back to providing guidance. That said, Mike and his talking points will give some direction on what the triple net numbers will look like over the course of the year. Our strategy for this year is pretty simple. We're focused on diversifying the portfolio with smaller deals in our existing asset classes, primarily in behavioral addiction treatment and assisted living. And that, combined with SNF asset sales, will leave us, we believe, by the end of the year having skilled nursing exposure either close to or at our all-time lows. And as a result of expected asset sales, our existing cash position, how low our leverage is, and the volume of deals that we think we could get done this year, there's no expectation that we'll have to access the equity market. Moving on to COVID-related data, despite post-Omicron variants, the portfolio has not been impacted at this point. Our tenants have had an insignificant number of positive cases among staff and residents, and that's really all over our geographic areas in the states and in Canada. Moving on to tenant health. Portfolio continues to be stable with no discussions with tenants on restructuring leases. The proposed CMS rule on the skilled nursing market basket, if it were to become FONO, would reduce our skilled rent coverage by 0.02. Our occupancy gains for our top seven skilled operators increased 190 basis points from January through March, so a really terrific recovery from the hit we all took with Omicron. The wholly owned AL portfolio showed similar trends, and Talia will spend more time on that. Our independent living portfolio hasn't shown that level of movement, but it never really dropped as significantly, so it's been a relatively stable portfolio for us. It's not a needs-based asset class. Moving on to Medicaid rates, you may recall on our year-end earnings call, I noted that with federal assistance tapering off, the industry is more focused now on the state assistance going forward. We are starting to get a lot more information about what Medicaid rate increases will look like over the course of the year, most of which happen over the summer. Nine of our states with 167 of our skilled nursing facilities will have larger than historical rate increases this year. Most have already been approved. There are a few that are still pending legislation, but we're optimistic about them. As for PHE, I know there's a lot of questions on the Public Health Emergency Act as to whether it will get extended. We should know by May 15th if it gets extended an additional quarter. It currently expires July 15th. The states have been assured by the administration that they'll receive a 60-day notice if it is to expire, so that's where the 5-15 date comes in. I just want to make a couple of comments about asset class outlook, and it's really a lot of it revolves around skilled nursing. In the five years prior to the pandemic, just under 800 nursing homes closed. Over the course of the pandemic, 300 more closed with 400 additional nursing nursing homes set to close so in other words in 26 months we've had almost as many nursing home closures as we had in the five years prior to the pandemic that combined with demographic growth renovating facilities and taking beds out of service will propel occupancy above pre-pandemic levels as we look out over the next several years we're also positive on senior housing occupancy trends as we see a window of several years of occupancy growth before the supply dynamics that hampered growth pre-pandemic begin to have an impact. And finally, just a couple of comments on our ESG initiatives. You probably noted our press release. We're really excited about this partnership we have with World Living Lab and the Delos Partnership. Phase one of the partnership is going to be focused on the physical environment in the facilities and specifically portable air filtration. Phase two will focus on employee stress and burnout, which obviously is a critical issue for the industry. Our second ESG report is expected to come out this summer, and with that, I will call over to Talia.