Sabra Health Care REIT, Inc.

Good day, everyone. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Healthcare REIT first quarter 2023 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, that is star one again. 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 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, 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 that 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 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 REIT.

Thanks, Lucas, and good day, everybody. Thanks for joining us. We're continuing to see traction in operational recovery. Occupancy in our skilled nursing portfolio has now improved every month in the fourth quarter and continued through January. Occupancy, October through January, our skilled nursing portfolio improved 130 basis points. Our skilled mix jumped up dramatically in the first quarter as well. Labor trends are improving, but it's still tough. And it's going to be a bit of a slog there, I think, for a while, but we're certainly off our highs in terms of inflationary increases and agency utilization. So we feel good about the progress that's being made there as well. EBITDOM coverage without PRF, and that's really the only way we think everyone should be looking at it at this point, has improved sequentially on a trailing 12 months basis and even more so on a trailing three months basis. I want to comment on a couple of specific operators. I think everybody saw and noted signature health coverage decline. Signature health had a tough second half. They sold 24 facilities close to and right size their corporate infrastructure to accommodate a leaner company. And so that was quite distracting for them. However, their first quarter rebounded dramatically and I went back over a year and a half to find a quarter that was as strong as the first quarter is for Signature Health and wasn't able to find one. So we feel really good about where SIG Health is on a current basis. Similarly, Avomir, while their coverage was fine as reported, they also had a strong first quarter as well. Comment quickly on the transition from the old North American portfolio. That's going well for Avomir, and it's going well for Ensign. As Ensign noted on their earnings call, they're ahead of schedule, even though there's still a lot of upside to be had there. So in terms of our three largest operators, SIG Health and Avomir and Ensign, We feel like we're in a really good place with all three of those operators right now. We're pleased with the proposed 3.7% market basket, and we do expect better than historical Medicaid rate increases. Most of those rate increases for our portfolio will be effective on July 1st. We'll have some more clarity probably over the next several weeks on what those rates will be. Our expectation, though, is that some states will be extending COVID rate add-ons, and some will update the cost report base year to reflect more current data, and that's a reflection of the fact that many states do acknowledge the impact of COVID on the industry and the lack of viability of some of the Medicaid rate increases in certain states. So, as we saw last summer, we're seeing some of the same things this summer as states are being more generous with their Medicaid rates. Investment activity is light and will remain so in the near term. Competitive landscape has changed with lender loans and liquidity needs driving sales. Pricing uncertainty exists, and I'm sure Talia will talk more about that as well. As noted in the press release, we have terminated our position in the JV. There is no impact on earnings or any other ramifications to the company other than the fact that there are a number of folks out there, rating agencies and others, who still look at the debt carried by the JV, and so that obviously is gone. So, from that perspective, for those that looked at the JV debt, it's a delevering event for us. We're now focused on transitioning the 11 wholly-owned facilities to a new operator. I would note on the 11 wholly-owned facilities, they are different than the JV portfolio. The JV portfolio was part of the original ALC acquisition. The 11 facilities that we own came afterwards. And these are larger facilities and larger markets that are primarily a combination of AL and memory care patients or residents. And with that, I will turn the call over to Talia.