Sabra Health Care REIT, Inc.

Good day, everyone. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra fourth quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. I would now like to turn the call over to Lucas Hartwich, Senior Vice President, 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 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 end of December 31, 2022, 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 sovereignhealth.com. Our 410 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 REIT.

Thanks, Lucas, and good day, everybody. Thanks for joining us. We appreciate it. First, I just want to comment on our asset recycling program. We've got a couple of transactions that we're hoping to close over the next couple of months or so. And that'll pretty much be the end of the program. After that, we'll continue to have dispositions, but it's more ordinary course of business dispositions. So we're looking forward to that. Just a quick comment on the North American transition. As we put out earlier, that transition closed effective Tuesday. February 1st as we anticipated. The operations held up really well throughout the period prior to the transition and continue to do so. In addition to the improvement in credit quality that we get from replacing North American with Ensign, I did want to point out that for Avenir, it will strengthen their portfolio as well. The four facilities that Avenir is picking up or has picked up in Washington State densifies its key market for them, which is allowing them to enter into managed care contracts that should help both occupancy and revenue overall in that particular market. Next, there's been a lot of talk about PLRs recently, and I just wanted to remind everybody that Sabra got a PLR in February of 2020, right before the pandemic hit. And that came shortly after we converted the holiday portfolio from triple net to managed, allowing us to not have holiday in the right data structure. At one point, we had some internal discussions about whether we wanted to do anything else relevant to management, because at the time, there was a lot of, it was an unsure environment relative to what Fortress was going to do with the portfolio. But after Atria wound up taking over the portfolio, we decided that we would just keep That is an optionality for us going forward. We've been really pleased with what H-REIT has done with the portfolio and happy to collaborate with them operationally. As I said, this provides some optionality for us going forward, but we don't anticipate doing anything different with it at this time. Moving on to the operating environment, occupancy held steady over the holidays. with some skilled operators up and some slightly down. So overall, a better outcome than we anticipated. We've had very little impact, if any, from flu, RSV, or COVID. So that's been helpful as well. Our sequential quarterly performance on the skilled space showed improved occupancy and skilled mix. Labor pressures persist, but has slowly been improving. But that's still going to take quite some time. Our sequential occupancy for our senior housing triple net portfolio was up materially by 240 basis points and over the fourth quarter moved up very nicely as well. Not quite at that pace, but at a pretty healthy clip. We currently don't have any discussions ongoing with any tenants relative to lease restructurings. Our coverage in our skilled portfolio is down primarily due to the quarter dropping off, having lower labor costs than the one coming on. So we anticipated that, and I think most everybody else did as well. Our skilled nursing exposure is now down to 58%. That's 1% higher than our all-time low. It will continue to drop this year, resulting in the most diversified by asset class the Sabra portfolio has ever been. We don't anticipate at any point that it would drop below 50% because we still anticipate doing skilled nursing acquisitions, but we like being in a different place relative to the level of diversification in our portfolio. Our investment pipeline is lighter than historical. We're starting to see some skilled opportunities and continue to see behavioral opportunities. The bulk of what we're seeing continues to be senior housing. As everybody knows, the PHE expired or is expiring effective May 11th. There's no real impact. Skilling in place has become negligible as acuity is normalized post-COVID breakouts. That's not to say that we wouldn't like that to stay in place, but it just doesn't seem to be in the cards at this particular point in time. The FMAP increase of 6.2% is no longer attached to the PHE and is unaffected by the May 11th date. We're not issuing guidance, and it appears that there's some consternation about the fact that we are still not issuing guidance, but we issued guidance in 21, and we see some of it appears that it's just particularly when you have a managed portfolio, really impossible to project the velocity of recovery, and until we have a little bit more clarity there, We just don't want to be in a position where we put the number out and then we have to change it again, which is what we see happening throughout. So Mike will talk a little bit more about that in his talking points. And hopefully at some point this year we will be able to put guidance out. Generally speaking, we expect a relatively quiet year as our asset classes continue to recover. And we do expect, based on all the initiatives we've embarked on, the... the asset sales that we've done, the transitions that we've talked about, and the general recovery of the managed portfolio, all to result in nice earnings growth for us as we look at 2024. And with that, I'll turn the call over to Talia.