Ladies and gentlemen, thank you for standing by and welcome to the Sabra Health Care REIT Fourth Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Michael Costa, Executive Vice President of Finance and Chief Accounting Officer. Thank you. 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 impacts 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, 2020 that was filed with the SEC yesterday, 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 the 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 in the financials page of the Investors section of our website at www.sabrahealth.com. Our Form 10-K, 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, Chairman and CEO of Sabra Health Care REIT.

Thanks, Mike, and good day to everybody and thanks for joining us. I appreciate it. First let me start by once again thanking our operators, who have just done an amazing job on showing resilience and dedication. I mean here we are a year later, who would have thought and then finally they're at a point where we really see the light at the end of the tunnel and have some real positivity, which I'll talk about here in a few more minutes. I also want to thank the workforce, all the caregivers and other frontline employees in the facilities, who continue to show up every day and execute on the mission of providing care to the elderly. I'd also like to express my continued appreciation to state and federal government for continuing to provide support primarily to the skilled sectors but also to the senior housing sector, the assisted living sector as well. And then finally, I want to call out the Texas operators, who are top of everything else shouldn't have had to go through what they went through recently with the weather and all the difficulties that cause. And fortunately all the facilities have emergency backup generators. There was minor to moderate damage, if any. So fine from a physical plant perspective, only one of our facilities had to evacuate and that was for a very short period of time. And there were a few facilities that had short block outs, but they didn't last very long. The bigger problem really was staff just being able to get in and drive on the roads and all that. But we're past most of that right now, but again on top of everything else for them to have dealt with that was really difficult. So I want to express…

Thank you, Rick. In the fourth quarter of 2020, our senior housing managed portfolio continue to experience occupancy pressures as a result of the pandemic and the surge that followed the Thanksgiving and Christmas holiday season. While government funding provided some mitigation from the financial pressures adoption of the vaccine is the linchpin to getting the senior housing industry on the road to recovery. All our operators have been intent on implementing vaccine clinics at their buildings, educating and incentivizing both residents and staff to maximize participation and using their clinics and documented safety record to demonstrate the potential residents with the fastest path to a normal lifestyle as to move into a senior housing community. CMS data compiled by Nick shows that COVID cases in skilled nursing closely tracked cases in the general population from June 2020 until the launch of the Pfizer and then the Moderna vaccine in December 2020. In January 2021, this changed dramatically. Cases in skilled nursing began to decline just as cases in the U.S. spiked from the post holiday surge. By early February, new cases in skilled nursing fell by 83% and cases in the general population fell 47% compared to late December when the Pfizer vaccine was launched. After the launch of the vaccines, deaths in skilled nursing began to decline and have continued to do so dramatically while deaths in the general population spiked and have plateaued since. With skilled nursing as a leading indicator of the impact of the vaccine and congregate living, we have reason to be optimistic. As of the end of the fourth quarter of 2020, approximately 14% of Sabra's annual cash net operating income was generated by our senior housing managed portfolio, approximately 49% of that relates to the communities that are managed by Enlivant and…

Thanks, Talya. I'll give an overview of the numbers for Q4 and then provide additional color on our guidance for the first quarter of 2021. For the three months ended December 31, 2020 we recorded total revenues, rental revenues and NOI of $152.1 million, $110.7 million and $124 million respective. These amounts represent increases from the third quarter, primarily due to a third quarter $14.3 million write-off of straight-line rent receivables and above market lease in-tangibles for Genesis and Signature as we move those tenants to a cash basis for revenue recognition. Excluding this write-off, total revenues declined $5.5 million. Rental revenue declined $4.2 million and NOI declined $9.6 million in Q4 compared to Q3. This decline was due to a $3.7 million decrease in collections related to leases accounted for on a cash basis. Note that the third quarter of 2020 had a $2.2 million increase over the second quarter in rates collected from cash basis tenants. These fluctuations in collections stem from a handful of cash basis tenants that are in some Phase of transition or stabilization period and pay rent based on cash flow available for payment, which can fluctuate quarter-to-quarter due to fluctuations in cash flows at the operator level. Tenants with this type of arrangement represent just 2% of total revenues during the fourth quarter. And we do not see the reduction of cash collections this quarter as a new trend. Total revenues with NOI were also impacted by a $1.2 million reduction in revenues from our wholly owned senior housing management portfolio compared to the third quarter, including a $0.6 million reduction in government grant income. Why? Which further impacted by the results of the Enlivant joint venture, which was lower compared to the third quarter by $4 million, including a reduction in government…

Our first question comes from Josh Brown with Scotiabank. Your line is open.

Hey, thanks. So could you provide some more insight into the current acquisition pipeline and what investment opportunity Sabra sees today? Just looking at Q1 guidance, it looks like you guys are going to raise over $100 million from the ATM program, has some availability under line of credit and $40 million will be used for investment. So is that remaining capital being raised just meant to delever and kind of keep leverage levels where you want them?

Yes. Most of the raise is to maintain our balance sheet where we want it to be. But it also pre-funds potential acquisitions as well. So, you have to think of it sort in both ways. If there’s an opportunity now to raise money on the ATM then that’s going to keep our leverage down and give us room for leverage to go up slightly and still will be below our target as we match for an acquisitions that come in. Talya, do you want to note some of the specific kinds of things we’re looking at in the pipeline?

Sure. We’re looking at senior housing assets that we can buy at reasonable prices. At this time we’ve spoken in the past about the population of assets out there that have been had their lease up projections delayed if you will because of COVID. And so there’s an opportunity to acquire newer assets that have some upside to them. And so that’s a lot of what we’re seeing because people need liquidity at various time for various reasons. So we’re seeing that kind of opportunity where, as Rick said earlier, we’re seeing opportunities in other sectors as well, including behavioral and a little bit in skilled nursing.

Got it. That’s helpful. And then how are you guys comparing the Enlivant JV, buying up the other portion compared to just traditional acquisitions? I know it looked like that portfolio had some more occupancy challenges in Q4, and you guys are also factoring in some more occupancy loss in Q1 versus the wholly-owned portfolio. So how are you guys underwriting that occupancy NOI recovery and comparing that with other acquisition opportunities?

Yes. So, one really has nothing to do with the other, we’re already in the JV. So that’s just going to be a negotiation with TPG. And as I mentioned in my opening remarks, it’s going to have to be something that works for us economically. We’re not going to do a deal just to do it. That’s going to be dilutive to our earnings. So it’s just a completely separate thing that how we look at others and we know that portfolio really well. We have a lot of confidence in the team. And everything that they have in place from an infrastructure perspective to rebound. And what’s been unfortunate for them is, unlike all of our other operators, they really have a national footprint. And so the surgeries so that they just couldn’t catch a break every time you have one area that started getting a little bit better, they’d get hit with in another geographic area and over half their states hadn’t lifted any restrictions, the cohort restrictions either. So it’s completely separate thing how we look at it. When we look at the individual senior housing opportunities that we’re currently looking at, we just look at where we’re at with the current NOI is and what their lease up looks like. And we underwrite everything on it on a balance sheet mutual basis. And then we just see if it works. That answers your question.

Thank you.

Thank you. Our next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Hi. Good morning and thanks for the time. I was just hoping you could talk a little bit Rick about the occupancy recovery, both in skilled nursing and seniors housing, you seem to imply maybe a longer recovery in seniors housing for the TPG stake at least they seem to be a little bit more optimistic about skilled nursing. But if you could just give us some benchmarks in how long you think you can get back to pre-COVID levels for those two major groups. That’d be great.

Yes. So my thinking has been that by the first quarter of 2022, we’d be back on skilled nursing to a pre-COVID or pretty close, close enough that you feel comfortable, you’re going to get there. And I think it’s probably not before the middle of 2022, on the senior housing piece. Obviously, it can take a little bit longer particularly with the Enlivant portfolio because what happened during the surge, but their pent up demand is still their pent up demands. And a lot of the same dynamics that help the skilled space should help the senior housing space, including Enlivant as well with easing of restrictions on the isolation protocols and such and being able to have real tours and group activities and all those kinds of things. So I do think it’ll take longer, if you’ve got on the skill side, it’s intensely need based. We also expect that as occupancy picks up, people will be sicker than they would’ve otherwise have been because they’ve had a delay going into hospitals first. And then that goes to senior housing as well. But AL, and certainly the operators that we have, have seen their acuity tick up pretty dramatically over the past number of years. So it’s much more need based model than it ever did, which is why we have the confidence that it’s going to rebound. It’s just going to take time. And I’d also point out, I think we talked about this before, we think the safety factor for senior housing is going to be a big deciding factor in terms of admissions coming back in at a pace that we’d like to see. And in the case of a couple of our tenants, just by way of example, Enlivant and Holidays, they’ve done really an incredible job from a safety perspective. Enlivant’s infection rate is 2% and the cohort and assisted living is 47% and in independent living, which you would expect to be lower because they’re healthier less than 1% at Holidays. So I think those statistics are going to be really critical from a marketing perspective and help our portfolios to recover.

Thank you, Rick. But maybe just a quick modeling question for Harold, cash rent payments from those few tenants that on a cash basis. What’s the assumption in the first quarter guidance relative to the fourth quarter payments?

Yes. It should be pretty consistent with fourth quarter for a vast majority of our cash flow. I’d say all of them, but one or two. And I’m actually expecting an uptick in collections in the first quarter over the fourth quarter for those two. So my expectations would be slightly up, not dramatically, but slightly up over fourth quarter.

And maybe just one last one for Rick. What’s the view on these dual capacity rooms you referenced in skilled nursing coming back. And do you sense any hesitancy by the regulators or whatnot to kind of do away with those given some of the lessons learned from the pandemic?

No. I think – well, a couple of interest things in terms of the point you’re making. One, there’s a difference between the semi private rooms and the wards that had three beds and four beds. I think over time, you’re going to see – states want to see – they’re going to want to see those go away. And that's what actually already happened in Massachusetts. So I think we'll see that elsewhere as well. And there's – there'll be corresponding reimbursement changes as well to go along with those so that the operator can continue metro and a viable business in terms of what's happening – that's sort of something to think about and look forward to going forward, which is also going to exacerbate the access issue that we're starting to see in different markets. Before the pandemic, the industry was projected to be essentially full on virus, somewhere around the middle of the decade. So that's going to exacerbate that problem, but in terms of what's happening today in the pandemic, I think that the vaccine changed everything in terms of the concern regulators had about easing restrictions. So and I also think it's fair to say that when you feed the numbers in terms of cases of mortality dropping so dramatically, so quickly, as Talya pointed out it's the vaccine, but it's more than the vaccine. We still have a lot of patients that stay in skilled nursing facilities under Medicaid for long periods of time. You think about short stay because the Medicare, but we've got a lot of longer-term patients in there. And a lot of the patients and residents in these facilities both skilled and senior housing have already had COVID and we're aware of it or they've had it and we're unaware of it, because there was so little testing for the first number of months, and they're still not in the testing as far as antibody testing facilities. So the buildup of those antibodies with the existing population combined with the vaccine, I think is why we saw such a dramatic improvements in case there's a mortality dropping. I think it was just a vaccine that would have happened that quickly. And there were conversations ongoing more specifically to your point one with CDC about not having national guidelines or restrictions easing once a certain percentage of the population has been vaccinated. So there were discussion, so that hopefully it can be addressed on a more uniform basis, because right now as you can imagine, it's quite different from state to state and even within States different regulatory localities.

Thanks, Rick.

Thank you. Our next question comes from Nick Joseph with Citi. Your line is open.

Thanks. Just wondering what the timing is on a decision in terms of Enlivant at least current expectations for any timing.

I'm guessing here a little bit Nick, because TPG is really driving the process. If I was going to guess, I would say we arrive at a decision in the next several months. And then in terms of closing the deal, whether you're out or you're in, it's usually 180-day period because of the regulatory approval.

Thanks, Rick. If you just think about more broadly, I guess, pricing for senior housing particularly like a national portfolio like that. How do you think about it versus pre-COVID values?

Well, we all know how PEs has driven pricing over the past few years, but I think for us and certainly if you're going to buy something before its recovered. It's got to have a much higher yield than the six handles that everybody got used to. But so I think for us, it's going to be a very specific exercise and looking at their current NOI being as conservative as possible in terms of recovery and there may be some other mechanism that can be built into a transaction that gives the portfolio more time to recover without us being out of pocket. But I don't want to get ahead of myself here, because I was in negotiations that we have to have with TPG.

Thank you.

Thank you. Our next question comes from Rich Anderson with SMBC. Your line is open.

Thanks. So on Enlivant, how binary is the decision? Is it in or out? Or is there a rainbow of opportunities within being in or completely out? Could it involve third parties? What's on the table or is it pretty straightforward?

Harold, you want to take that?

Sure, Rick. I would say the decision is going to be made to do something, it's pretty binary between buying or not buying, but that's not to say that you couldn't structure a deal that provided some level of earn-out or some other mechanism to kind of bridge the gap if you will, between where NOI is today and where NOI is expected to be in the future. So all those things you kind of on the table, who knows where it might land, and I don't think that there's an opportunity from our perspective to have bringing in another investor alongside us. And I also think that it's just going to come down to TPG, the price that they require for it or not, and let us or somebody else to be seen and how we can structure to bridge the gap is something we'll be working on within.

Okay. And then when you compare the occupancy level, the JV, which is a lot more than the 11 wholly owned assets. Is there any reason why there shouldn't ultimately be a full recovery and/or the 11 assets that you own on a wholly-owned basis, sort of outlier positive assets in that, the real occupancy number kind of steady state for the JV is something below those 11?

Talya, you want to take that.

Sure. So it's a couple of things I'd start with big picture. The 11 wholly owned are in a very small geographic area. They're kind of Pennsylvania, Delaware, and so that already changes the profile versus a portfolio of 158 that are spread from East coast to and all across the country, to the West coast. So that's the first thing. The second thing is there is much more memory care in the wholly owned than there is in the joint venture. And that also affects – well, it affected COVID spread within the building because I'm sure others have spoken at greater length than we have about memory care and how it's much harder to manage COVID spread and memory care. But also people far fewer people are moving out just, just because of a lifestyle on a memory care. So that also changed the bias. Given that the 11 wholly owned have performed at such a high level in terms of occupancy 90 plus in fact, we even had 95% occupancy. Several quarters ago, I expected that rebound will – I think that 90-ish area is probably going to be where it has back because the loss was quite specific and quite specific in timeframe. I think the joint venture there's – I think it's just different and it's going to be a balance of the local markets and the environment, and what's happening with respect to COVID vaccines, et cetera, and the competitive landscape in those areas across the country.

So it's Rick. It's a matter of time, Rich; it's not a matter of the end result. We don't see any reason that the JV is not going to be back to where it was.

Yes. Okay. And then quick for you, Harold, the $100 million of equity for the first quarter, I'm getting like an implied cap rate and your stock around 80-ish or so. And I see you're comfortable with that in the interest of deliberating, but are you kind of be kind of quick to get into that ATM to capture that pricing, and take the risk off the table. What happens if, God forbid some disruption in the stock and now you have to rethink the equity raise component of the story for first quarter?

We'll get into it when it makes sense for us, but I would point out Rick than it is our intent to do that. But we do have cushion. We've got cushion in our leverage metrics. So while we'd like to get it done and keep it right where we're at it. We're a little bit behind on that, it's not going to be a big deal relative to our range of sketch and S&P. But we're going to get in there and do it as quickly as we can. Also keep in mind that we want to monitor the performance of the managed portfolio because performance starts to pick-up and we can see a pathway to improve EBITDA more quickly than we might be thinking today. Then we can temper that as well.

Okay. That's perfect. Thanks everyone.

Thanks Rich.

Next question is from Steven Valiquette with Barclays. Your line is open.

Great. Thanks. Hello, everyone. Maybe just a question here for Rick, just on the COVID in the skilled nursing setting. So you guys did mention the dramatic drop in COVID patients in SNF in early 2021? I mean, that generally should be net positive in the big picture. I guess I'm curious if you can provide a little bit more qualitative color just around the notion that some SNF's actually do want to treat COVID patients in the SNF setting, maybe just to help us frame this better quantitatively as well. Do you know, just roughly what percent of the SNF in your portfolio are actively seeking to treat COVID patients presumably on a post acute basis versus what percent of the SNF's where they want nothing to do with COVID patients at all and are either isolating or discharging these patients to other care settings?

Yes. So it's a relatively small percentage that are actively pursuing COVID patients and trying to set up units and things like that. It's definitely not higher than 20%. But I would say we have very few operators that just want nothing to do with it. So the majority are comfortable with taking care of COVID patients. It's just that it's only a small percentage of those folks that are actively working with hospital partners. And a lot of that was also driven by the hospitals in particular markets seeking out – actively seeking out partners. And – but hopefully that's along with piece of the business. And I think for operators to do that on a longer-term basis, just under the assumption that you may always have a little bit of it from time to time, it's going to just depend on facility configuration and not prevent them from hitting their overall occupancy goals because of the isolation requirements.

Okay. Okay. That's definitely helpful. Appreciate the extra color. Thanks.

Thank you. Our next question comes from Lukas Hartwich with Green Street. Your line is open.

Thanks. I'm just curious on the acquisition pipeline. Are those concentrated in any markets or are they kind of distributed?

Yes. All over the place?

Okay. And then the coverage metrics on Page 5 of your stuff. I know the unstabilized assets are not in that. I'm just curious; do you have a rough number of percentage of total NOI or rent that's not reflected in those coverage metrics?

Yes. It's less than 10%. Its non-stabilized, maybe it's excluded from those figures.

Okay. And then last one for me is the specialty hospitals looks like occupancy's taking a nice uptake over the last few quarters. Is there anything kind of COVID related driving that or is it just unique issues at the properties? I'm just curious, what's driving that?

No, there's really – there's nothing COVID driving it. They're relatively unaffected by COVID. They have very dynamic populations that we've always seen a lot of fluctuation up and down with those assets a little bit different and we've got the behavioral assets and now we've got children's hospital in there. And so there's a couple of different things, but a lot of its driven by the behavioral facilities. So it's just the dynamic population that unaffected, so...

Great. That's it for me. Thank you.

Thank you. Our next question comes from Joshua Dennerlein with Bank of America. Your line is open.

Yes. Hey guys, I'm just curious on the Enlivant JV. Have you guys also considered maybe selling your stake when TPG kind of looks to exit. Is that something you thought of?

I can take part of it. They have drag along rights with us and so they have more control over the cell. I mean, we've looked at obviously selling our interests before. You don’t see that is being a potential outcome here?

Okay.

Josh, you may not recall, but because it seems like a decade ago now, that in December early fall of 2019, we took a look at other potential JV partners to take out TPG and really nothing really came of that. So we thought about it and actually pursued it a while back.

Okay. So you thought about selling your stake in the past and it just hasn't worked. I wasn't sure if it don't seem like on the shop side, like there is pretty good pricing, and maybe you guys will trading again. I don't know, maybe it's potentially accretive but okay...

With this is – but at this that they have, yes, you just can't see somebody buy our interest and then how TPG sells them out and not be able to...

Well, I thought maybe it would be easier if like someone could take the whole portfolio, right? Like if, instead of just like someone getting a TPG stake?

Well, it's a problem is it isn't just a matter of the whole portfolio because TPG has a management company as well. And a lot of the parties that you would expect to come to the table or a new JV weren't necessarily interested in OpCo; so just complicated.

Okay. And then I wanted to find some of your comments earlier about the recovery to pre-COVID occupancy levels. What was your, sorry if I missed it, what was your expectation for kind of the trough on senior housing occupancy? Like not so much the level, but I guess timing, I'm just, I'm just trying to get a sense of like how quickly like the recovery comes back to that draw to get the kind of the pre-COVID levels that you mentioned that you thought they would pursue?

I think we're close to bottom on senior housing now, primarily because of the vaccine roll allowed. So I think going into March, we pretty much should be a bottom and maybe you just similar to what we've seen on the skill side had set. We've had some period of time where we just should have stayed flat before we started picking up. So, maybe things are relatively flat in the month of March and in April we start to see some pickups I'm obviously I'm guessing no better or worse than anybody else's, but that's kind of what it feels like right now, because we do think that the impact of the vaccine roll out senior housing excluding independent living should follow somewhat the same pattern that we're seeing on the skilled side.

Okay. Okay. And do you think it's kind of a steady marks higher or do you kind of see like a big surge in the summer that the seasonal dynamic?

I think it's more of a steady march. I think skilled picks-up a little bit more quickly now skills drop more than senior housing as well. But skilled, I think picks up more quickly just because of the nature of the individuals that get admitted to skilled facilities. And so many of them are in worse shape now because of the delays. So I think for that reason, and you've got – and even though you've got a needs based model in assisted living there is some choice there still as well, depending on who the operator is and how high the acuity is. So yes, I think it's more of a steady march on senior housing.

Okay. Appreciate that. Thanks guys.

Thank you. This concludes the question-and-answer session. I will now like to hand the call back over to Rick Matros for closing remarks.

Thank you all for joining us today. I know it went a little bit long. We'll do our best to shorten up the front end after Q1, as we start moving past this. We just want to provide as much detail as possible. I appreciate everybody hanging in there, and we're available to have some offline conversations. If there were some additional follow-up questions or modeling or anything else that you all have in your mind. So have a great day. Thanks very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.