Ladies and gentlemen, thank you for standing by, and welcome to the Sabra Health Care Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator instructions]. As a reminder, today's program maybe recorded. I would now like to introduce your host for today's program, Michael Costa, Executive Vice President of Finance. Please go ahead, sir.

Thank you. 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 impact 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, 2019 and in our Form 10-Q for the quarter ended March 31, 2020, 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 that 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 Investors section of our website at www.sabrahealth.com. Our Form 10-Q, earnings release and supplement, can also be accessed in the Investors section of our Website. And with that, let me turn the call over to Matros -- Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Mike. And welcome everybody to our call, appreciate everybody participating. First, let me just start off by thanking all of our caregivers, and all our frontline workers, we are nine months into the pandemic and they really haven't had any breaks or any relief, and continue to show up every day. And it's just -- we just look at that with all -- that they continue to do that, their commitment to taking care of our patients and residents is just first and foremost in their mind. So, I'll never be able to express our gratitude adequately. I also want to thank the government for the stimulus funds for skilled nursing space and now the assisted living space as well and their partnership on protocols and standards to address the virus. We are in better shape now than we were several months ago. We'll talk about that more as the call goes on. I also want to note that the majority of states that we’re in made moves to help on FMAP as well. When I finish my remarks, I'll turn it over to Mike Costa, who will take you all through a detailed presentation on everything related to the stimulus and the impact on the facilities and all other related assistance. There is still $30 billion of CARES Act stimulus left, there's Phase 3 $20 billion is in the process of currently being distributed. We do expect another stimulus package once the election gets settled, as well as an additional extension beyond the one recently announced of the PHE Act which extends skilling in place and the FMAP add-on. I also want to note this was an important event for the industry to deal with the government cut with Walgreens and CVS to provide three vaccines for our…

Thanks, Rick. I'll be giving an overview of the various federal government relief packages enacted in response to COVID-19 pandemic as well as providing details and recent developments for the major components of these relief packages. The Federal relief packages generally fall into three categories: direct funding to providers; temporary regulatory suspensions and administrative waivers; and lastly, loans and referrals. Starting with the direct funding category, these are direct disbursements of funds to operators to help mitigate some of the financial impact of COVID-19 and includes the Provider Relief Fund and a temporary increase to the state's Federal Medical Assistance Percentages or FMAP. The temporary regulatory suspensions and administrative waivers include the temporary suspension of a 2% Medicare sequestration cut, and the waiver of the three-day hospital stay requirement for Medicare coverage at a skilled nursing facility. As the benefits from these two categories are utilized to offset increased costs and loss revenues related to the pandemic. The negative impact to our operators’ earnings and coverage will be reduced. These benefits would also help our operators by providing important liquidity. Loans and deferrals include the accelerated and advanced Medicare payments, employer payroll tax delay and Paycheck Protection Program or PPP loans. With these loans and deferrals -- while these loans and deferrals provide liquidity to our operators, the first two must be repaid in full, while the PPP loans must be repaid if the borrowers do not meet certain criteria. Therefore, these loans and deferrals largely have no impact on the earnings and coverage of our operators. A breakdown of how much our operators have received or qualified to receive from the various relief packages is included on Page 7 of our third quarter supplemental as well as in our third quarter earnings release. The most significant of the aforementioned…

Thank you, Mike. This morning, I'll provide you with third quarter operating results of our Managed portfolio. This is the second consecutive quarter where operating results have been materially affected by the global pandemic and the first where federal government funding to the CARES Act, that Mike just described, has provided assisted living operators some relief. I will also share some statistics for the month of October in order to provide additional visibility into operating trends as Senior Housing continues to find its way during these challenging times. As of the end of the third quarter of 2020, approximately 15% of Sabra's annualized cash net operating income was generated by our Managed Senior Housing portfolio. Approximately 51% of that relates to communities that are managed by Enlivant and 34% relates to our Holiday managed communities. The balance includes our Canadian portfolio and five assisted living and memory care communities in the United States. Senior Housing operators have now transitioned into a phase where operating during a pandemic is the new normal. They have operationalized protocols, focused on infection control and prevention, and created ways to relax restrictions which can be flexed as warranted by circumstances and location. At the same time, consumers have transitioned from pandemic fear to pandemic fatigue. The results have been that while our Senior Housing operators have data and evidence that living in our communities is safer than staying at home, prospective residents worry that they will never embrace their families again as they move in. To start, I will provide highlights of the operating results of our Managed portfolio on the same-store quarter-over-quarter basis to illustrate the trends in the industry. These results will exclude two recent acquisitions and one transitioned community in our wholly-owned portfolio, consistent with the presentation and our supplemental information package.…

Thank you, Talya. Before we get into the numbers, a couple of quick updates. First, no COVID-19 related relief has been provided to any of our tenants to-date. Second, we collected all of our forecasted rents, without the use of any deposits or other credit enhancements through the end of October, and have seen a normal level of collections through the first few days of November. We have concluded that our leases with subsidiaries in Genesis and Signature will no longer be accounted for on an accrual basis, resulting in a write-off of straight line rent receivables and above market lease tangibles totaling $14.3 million. The auditors for these two tenants concluded that absent additional government stimulus, increased occupancy and/or reduced operating expenses, Genesis and Signature would likely have insufficient liquidity to meet their operating needs over the next 12-months. Both tenants are current on all rental obligations to us and neither have requested rent relief during this pandemic. After moving these two tenants to a cash basis of accounting and assuming we collect all contractual rents due, our AFFO will not be impacted, and our FFO will increase by $3.2 million over the next four quarters. Now for the numbers for the quarter. For the three months ended September 30, 2020, we recorded total revenues, rental revenues and NOI of $143.3 million or $100.6 million and $119.3 million, respectively. These amounts represent decreases from the second quarter of 2020 of $10.6 million to $12.1 million and $7.6 million respectively. The decreases in rental revenues was primarily due to the $14.3 million Genesis and Signature write-offs noted earlier, offset by $2.2 million increase in collections related to leases accounted for on a cash basis. In addition, we recognized a total of $4.2 million of CARES Act government grants during the…

[Operator Instructions]. Our first question comes from the line of Nick Yulico from Scotiabank.

Thanks. This is Josh Brown with Nick. Could you just talk about what you're hearing from your operators about why we really haven't seen occupancy start to increase yet given elective surgeries are picking up?

Well, elective surgeries are picking up in some areas more than others. We were 100 basis points higher on skilled occupancies and we were at our low point. So we have seen increases, but you see the numbers, we’re having spikes and COVID all over the country. So there's a direct relationship there. We have about 95 facilities currently that still have some level of COVID positive, and so they’re restricted on what they can do. Most of the -- rest of the facilities are admitting. So the majority of the facilities are admitting. But because of all the spikes in COVID around the country, hospitals are keeping beds open to COVID patients. And in some cases we've got -- they've already hit or are exceeding capacity. So, there's just a direct relationship there. So it's not as if we're not seeing the occupancy increases on the skill side, we are, but it's definitely mitigated by the impact of our inability to control the virus. I don't know if that answers your question. Are you seeing something different in numbers out there on COVID?

No. And then just -- you mentioned in your prepared remarks, the pandemic fatigue and a kind of pick up in discussion and move-out there. How much of an impact is that having on your operator occupancy?

Talya?

It's quite significant. Because you heard what the occupancy trends are across the portfolio irrespective of assisted living and memory care, and independent living and assisted living, and memory care, I guess. You are seeing just a longer tail to getting residents to move in. And it really is a function, I think, of getting people at higher acuity when they have to move in as opposed to when it's more of a choice. So, the challenge is your move-outs are happening, as they always -- the move-outs that you always have, whether it's higher acuity or people pass or whatever that might be. But then you're also having people move out, there's a whole tranche of people that are moving out because after -- within a community that is, at various times have to maintain social distancing, sometimes there's been food delivery to the rooms, because they've wanted people not to socialize. Because it's just a concern and that's the regulations in that location, that people feel limited. And so they're reluctant to move from their home, let's say, to senior housing community where they maybe in a 14-day quarantine, and maybe then they're not going to be able to be out of their room much anyhow. And so the whole aspect of socialization, which is the watch part of the equation for moving in, is really, really limited.

Let me clarify, the fatigue in terms of staff, in case you're referring to that, yes, the fatigue has been very stressful but that isn't impacting admissions. Everybody is -- within the facility, everybody is working just as hard to admit, as they always have, you just got those other factors that Talya articulated that create some issues. And in terms of acuity, we’ve been seeing pretty consistently, I think our peers are seeing it too, because folks have been staying at home longer, whether it was delays on the skilled side, or all the reasons that Talya articulated sound to senior housing side, they are coming in synchronous. But I just want to make sure that it's clear that the stress and fatigue is not impacting the desire or the execution on the part of facility management or staff to admit.

Thank you. Our next question comes from the line of Nick Joseph from Citi. Your question, please.

Thanks. You talked about the external growth pipeline. I think you mentioned $600 million. What would be a good assumption for a hit rate on that?

Well, most of that’s already come in. I think we've got about -- only about 18 million less through 2021 coming in, and then a small amount in 2022. So, if you look at the schedules that we've always published, most of that, we exercise those options and work that in. This has been the last sort of big year left of the $600 million and then it starts declining.

Okay. And then how do you think about the ability to backfill that pipeline then?

Talya, you want to talk about that? It's pretty tough right now.

Sure. So, it's actually a really interesting question because there's some dynamics obviously in the marketplace. So, when -- our operators are not unique in the pressure on occupancy, and there's quite a bit of new construction, you may have heard that's been going on, it's been underway for the last three years or so in senior housing, you may have heard about it. And my guess is, in fact, I can say with certainty that those properties are also having pressure on their occupancy and they’re in lease up mode. So we think that there's going to be some interesting opportunities within that segment. So asset set, as Rick had mentioned earlier, have not had pressure from their lenders. But probably will eventually if they're not really -- not getting on back on track if you will, to hit their numbers under their covenants. So I think that there are assets out there that are going to be come to market at an odd time, right, during a pandemic, but where liquidity is -- or recapitalisation is really important. So we think that's an interesting opportunity.

Thank you. Our next question comes from Rich Anderson from SMBC Group. Your question, please.

So, Harold, you mentioned that you're not going to normalize out stimulus income going forward, I think I heard that right. Then do you have an assumption about how we should assume going forward what kind of stimulus money will be in the numbers? Or is it still sort of a choppy thing yet, you're still not going to normalize it out?

Well, I think the numbers that are coming in from the revenue side, obviously, are in our Managed portfolio and we got the 2%. So it's going to require incremental stimulus to be coming in for there to be incremental revenues coming in. And we're hopeful that, that will happen. But it's impossible to predict the timing or the scale of that. And I would just say on the operating cost side, things are -- have come down this quarter compared to last quarter as they built up inventories. And we've seen things become more operationalized. And so as we start moving through the pandemic, obviously we expect to see labor costs that are impacted from COVID to normalize as well. But again, it's very difficult to predict the timing. So I think we'll see -- what we saw this quarter, I'm not going to predict because it's hard to but I think it's kind of indicative of the level of cost that we're going to see for a while, as the pandemic is ongoing and then it should start to moderate as we get closer to a vaccine, and we start to see less cases in the buildings.

Okay. And then Rick, does this environment inform you more about the choice between RIDEA and triple-net. Is it sort of like -- maybe it’d expose some vulnerability, so you want to go more triple-net or is it like an opportunity in the future with all the fundamental shifts that may happen positively after COVID that you might want to spend more time thinking about an operating model? I'm just curious ….

Thanks, Rich. Appreciate it. So it doesn't really affect our thinking. Part of the answer to that is, it's just practical. There's hardly anybody out there when you do -- that want to do triple-net anymore. So you've got some of that practical consideration if you want to stay in the space and grow in the space. You're going to do manage deals. And I think there's lessons to be learned. And I’ve said before, we've all been complicit in this. The coverage that we put in place when we do acquisitions on the Senior Housing side are pretty good, certainly extremely good on the independent living side, because they're not viewed as really healthcare facilities. And so when you hit any sort of headwinds or hard times or pre-pandemic to supply demand equation creating issues as we've seen, that really -- it really depresses the amount of breathing room those folks had on coverage, which led to not just more managed deals being done, but the conversion of existing triple-net deals to managed deals. So, we think, if we do -- as long as we continue to partner with good operators, the managed deals are fine. And we're happy to find the upside. The initial diligence and analysis is critical to determine that there is upside, because as we all know, with a managed deal, your volume goes upside and downside, and so you don't want to do any transaction when you're buying that particular operator at a peak level. Now, it's possible that over the next couple of years as the demographic really starts making its way into the occupancy of senior housing facilities, that folks might be interested in doing triple-nets again. And if that's the case, hopefully everybody has learned their lesson. Instead of underwriting 1.2 times versus delivering 1.1 times, for independent living you're going to go in there with a higher level, whether it's 1 point, so whatever it happens to be. So that when there are inevitable headwinds and headwinds are always inevitable at some point for whatever reason, that you've got cushion there. So it's possible that the triple-net can come back but I think that that's a function of demographic really impacting occupancy, and then sort of the state of the dynamic between supply and demand. And all that’s interconnected.

Our next question comes from a line of Lukas Hartwich from Green Street.

Hi, this is John MaGee on for Lukas, thank you for your time and congrats on the quarter. Just a quick one for me. I was just hoping to get some insight into, as you look to take advantage of the deals that are kind of manifests over 2021, if you look up to your own portfolio, there are areas where -- you can see yourself selling into the strong bid out there for Senior Housing assets that you look to recycle capital to take advantage of the deal in the future?

Talya, do you want to take that?

Sure. So potentially, yes. There's always something in the bottom of the barrel that we're looking to sell. That's inevitable. Everyone does that. It's funny you asked the question, because we probably get almost weekly a call from somebody who wants to buy an asset -- is looking to buy an asset, they're not even asking about specific assets, they just want to buy, and can they buy something from us. Oftentimes it's multi-family guys looking at senior housing, particularly independent living, but it's really quite general. So there's a lot of capital there, looking to find a home. And we frankly haven't tested the market to see whether something that we bought at 7, we can sell it at 5.5. And then you have to make a judgment as to whether long-term that makes sense because we'd have to measure, well how we redeploy that capital and how we think about the long-term improvement and the sturdiness of the returns that we can get over time.

[Operator Instructions] And our next question comes in the line of Steve Valiquette from Barclays.

I was just hoping to get a little more color regarding the Genesis and Signature, growing, concern opinion, the Sabra press release from September 25th says that you guys have not received any rent relief requests from either operator as of that date. I'm sure if that was still the case today, and I'm not sure if you'd even talk about this, but what do you expect to be the likely scenarios from here, just how it might play out or is this more just really an accounting protocol, just want to get more flavor for kind of this whole situation?

Let me make a couple of comments and then turn it over to Harold. I think that, one, we have not gotten any rent requests. And when you make -- when you're forecasting and you exclude for assistance, and include a relatively high level of supply expenses related to the pandemic, with really no relief, and so if you apply that kind of analysis to any operator, you may come to the same conclusion. So, we think it was as much about that, if anything else. But let me just kick it over to Harold.

We don't have any detailed insights into more than that from the auditors. We have conversations, obviously with the operators. And obviously, Genesis will be having their call here at some point to this quarter. And they're clearly under pressure. They told us that this is not an imminent issue for them as far as having problems, but they got to see relief continue to come in and they got to see occupancies improve over time, or it would be a problem for them. So, we're just kind of in a wait and see mode with Genesis and Signature. Signature has been one that we've restructured that lease a while back. We have been very pleased with the progress that they've made and what they've done. But as Rick said, their conclusion was, they could not provide a forecast to show things being able to be funded, absent increased occupancy or more relief, given the occupancy levels are at today. Similarly, given all the relief that has been received by Signature, we feel like their cash flow position in the short-term is fine. So, we're basically in a wait and see mode. And I think there's not a whole lot more I can say about it than that. One other, just real quickly too, we have gotten Genesis down to such a small percentage to -- and we've got -- it's about $10 million of recurring rent and the $10 million a year for the next couple of years. So, whatever happens there, it's not going to be a significant impact for us. If something negative happens, hopefully that won't be the case, but I think the fact that we've gotten it down so dramatically, this is just really -- obviously is -- indication that, that was the right move for us to do.

And we've also had internal conversations -- sort of we came to that -- we've had internal conversations relative to who we can move in those facilities, so it’s only one region. So, it would be not a difficult move and it’s in a state that we really like, New Hampshire.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rick Matros for any further remarks.

Thanks for joining us today. We're available if you'll have any follow-up questions, or have additional conversations. For a lot of you we will be talking to you for a while so I hope you find ways in this environment to enjoy the holidays. And please stay safe out there. Take care.

Thank you, ladies and gentlemen, for your participation in today's conference. This does include the program. You may now disconnect. Good day.