Sabra(SBRA) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2022, normalized FFO per share was $0.39 and normalized AFFO per share was $0.38, with normalized FFO per share increasing by $0.01 compared to Q1 2022 due to higher NOI from the senior housing managed portfolio and a decrease in stock compensation expense [35][36][42] - Cash NOI for Q2 totaled $118 million, down from $123.5 million in Q1, primarily due to lower cash rent collections [38][42] - Annualized cash NOI as of June 30, 2022, was $450.3 million, with skilled nursing facility (SNF) exposure representing 60.7% of annualized cash NOI, down 100 basis points from Q1 and down 640 basis points year-over-year [42] Business Line Data and Key Metrics Changes - Occupancy for the senior housing portfolio improved to 80.7%, with a 290 basis point increase in assisted living communities and a 60 basis point rise in independent living communities compared to the prior quarter [22] - Cash NOI for the assisted living portfolio increased nearly 11% over the prior quarter and 44% year-over-year, largely due to higher revenue [25] - Cash NOI margin for assisted living expanded by four percentage points over the prior quarter, driven by revenue growth despite higher expenses [26] Market Data and Key Metrics Changes - The company noted a slowing down in occupancy improvements in July due to seasonality and ongoing labor pressures, although labor pressures have improved compared to their worst levels [14] - The company is optimistic about Medicaid funding, with many states extending FMAPs and providing larger-than-historical Medicaid rate increases, affecting approximately 60% of the skilled nursing portfolio [11][12] Company Strategy and Development Direction - The company is focusing on diversifying its portfolio, with an emphasis on behavioral health investments, which now include 14 properties and two mortgages totaling approximately $730 million [30] - The strategy includes selling poorly performing skilled nursing assets to enhance the quality and durability of earnings, while maintaining a significant portion of the portfolio in skilled nursing [33][49] - The company aims to improve its balance sheet without accessing capital markets, with a focus on capital recycling and selective new investments [48][50] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the recovery of occupancy and labor availability, although the pace remains slower than expected due to ongoing labor challenges [52] - The management highlighted the importance of state budgets and Medicaid funding in shaping future earnings, indicating a positive dialogue with states regarding funding [90][91] - The company is prepared to support operators with investments in technology to improve labor management and operational efficiency [99] Other Important Information - The Board of Directors declared a quarterly cash dividend of $0.30 per share, representing a payout of 79% of normalized AFFO per share [51] - The company has no material debt maturities until 2024, reducing refinancing risk in the near term [45] Q&A Session Summary Question: Earnings impact of transition assets - Management indicated that the assets being transitioned are not well-performing and are on a cash basis, with expectations of improved earnings from better operators over time [57][58] Question: Dispositions and cash flow - Management stated they cannot discuss specifics of the sales until closed but expect to replace NOI from sold assets with new investments [61][62] Question: Skilled nursing coverage decline - The decline was attributed to moving away from stimulus funding, with stable coverage metrics noted [68][69] Question: Capital markets strategy - Management prefers not to access equity markets currently due to unfavorable pricing and aims to improve portfolio durability through asset sales [70][72] Question: Medicaid funding outlook - Management believes state budgets will dictate future Medicaid funding, with positive momentum expected beyond 2023 [110] Question: Labor pressures and occupancy - Management acknowledged labor pressures impacting admissions but noted that operators are increasing wages and improving occupancy [95][96] Question: Diversification goals - Management aims to maintain skilled nursing as a significant portion of the portfolio while diversifying to mitigate risks associated with market sentiment [84][87]