Sabra(SBRA) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 2022, normalized FFO per share was $0.38 and normalized AFFO per share was also $0.38, with a sequential increase of $0.01 in normalized AFFO primarily due to higher NOI from the wholly-owned managed senior housing portfolio [32][34] - Cash NOI for the quarter totaled $123.5 million, up from $109.2 million in the previous quarter, reflecting a sequential increase of $6.9 million after normalizing for support payments [34][36] - As of March 31, 2022, annualized cash NOI was $449.6 million, with skilled nursing facility (SNF) exposure representing 61.7% of annualized cash NOI, down from 65.5% a year ago [35] Business Line Data and Key Metrics Changes - The managed senior housing portfolio showed improved operating performance, with occupancy for Q1 2022 at 79.3%, driven by a 190 basis point increase in assisted living communities [20][21] - The Enlivant joint venture also reported increasing occupancy and cash NOI, with occupancy at 74.2%, a 1.6% increase over the prior quarter [22] - Behavioral health facilities now represent 13.4% of annualized cash NOI, with investments totaling about $730 million and a weighted average yield of 8.3% [25][26] Market Data and Key Metrics Changes - Medicaid rates are expected to increase significantly in nine states, with larger than historical rate increases anticipated for 167 skilled nursing facilities [13] - The overall occupancy trends in senior housing are expected to improve, with demographic growth and facility renovations propelling occupancy above pre-pandemic levels [15][16] Company Strategy and Development Direction - The company is focused on diversifying its portfolio with smaller deals in existing asset classes, particularly in behavioral addiction treatment and assisted living [8][9] - The strategy includes reducing skilled nursing exposure through asset sales, with expectations to reach historical lows by the end of the year [9][56] - The company is also investing in ESG initiatives, including partnerships aimed at improving the physical environment of facilities [16] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the recovery trajectory and the inability to provide earnings guidance due to ongoing uncertainties, including the impact of proposed CMS reimbursement changes [39] - The company remains optimistic about occupancy gains and the stability of its tenant relationships, with no current discussions on lease restructurings [11][14] - Management highlighted the importance of monitoring state-level Medicaid rate increases and the potential impact of the public health emergency on operations [81] Other Important Information - The company declared a quarterly cash dividend of $0.30 per share, representing a payout of 79% of normalized AFFO per share [38] - The company maintains a strong balance sheet with liquidity totaling approximately $1 billion as of March 31, 2022 [37] Q&A Session Summary Question: Thoughts on proposed CMS ruling and potential changes - Management indicated that the industry is focused on providing CMS with data to support a phased approach to changes, which would be more beneficial [42][43] Question: Timing on addiction recovery conversions and growth potential - Conversions are expected to commence soon, with a healthy pipeline for behavioral health investments, though the scale of growth remains uncertain [44][46] Question: Changes in the watchlist and coverage improvement - The watchlist has remained stable, with confidence in coverage improvement based on historical performance and recovery trends [52][53] Question: Specifics on SNF exposure reduction and asset sales - The company aims to reduce SNF exposure to around 57% through asset sales and recovery in senior housing, with expectations for asset sales to exceed $100 million this year [54][56] Question: Comments on Healthmark and Enlivant performance - Healthmark is performing well with a strong skilled mix, while Enlivant is recovering from Omicron impacts, showing significant occupancy gains [100][102] Question: Month-to-month occupancy trends and behavioral health segment performance - Occupancy trends are affected by market conditions, with behavioral health experiencing a temporary decline due to Omicron, but expected to recover [106][110]