Good day, ladies and gentlemen. And welcome to the Sabra Health Care REIT Second Quarter 2021 Earnings Conference Call. I would now like to turn the call over to Michael Costa, EVP Finance and Chief Accounting Officer. Please go ahead, Mr. Costa.

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 Enlivant join venture, 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, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished with 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-Q, 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 thanks everybody for joining us today. First, let me start by once again thanking our operators and all the team members that work at the facilities. It's been a really tough 18 months, the worst is over. But there are still some challenges ahead. And for myself, as someone who spent most of my career as an operator, I still can't even imagine what it was like these last 18 months dealing with COVID in the facility. So they continue to have our thanks, our appreciation, and our admiration. As you saw in the separate press release, we did Harold Andrews, our CFO is going to be retiring at year end, he'll stay on in a consultation role for the two years following his retirement, which essentially means that Harold's is going to be available to us for whatever we need in an advisory capacity, and I'm sure Mike will be accessing him as well. And with that, we're really pleased that Mike Costa will be promoted to the CFO position. Mike's been with us since inception. In fact, our whole team has been together since inception. So it's a really smooth transition for us, keeps us culturally intact. And we'll have - we anticipate having Mike's position replaced. Our goal is early in the fourth quarter, so we've got a few months of overlap between Mike, Harold and the new individual. Next move on - moving on to the Enlivant exit. I know some of this was expected. A couple of comments that I want to make. One, our exit from Enlivant is specific to Enlivant. We're completely committed to continuing to grow in senior housing. I want to note and express my appreciation also to the management team, at Enlivant and our desire with a…

Thanks, Talya. And first, let me just say it's been a real pleasure working with all the investors and all the analysts these past 11 years. And it's been a blast and really a blessing working with Rick, Talya Mike and the whole Sabra team. It's tough to leave the greatest gig of all time for me. But I do know that Mike will continue to do amazing things for Sabra as CFO and I'm thrilled for him to have this opportunity. So let me now get quickly into the quarter. I'll give a quick overview of the numbers for Q2 and then provide additional color on our 2021 guidance. But first I want to provide some additional color on the decision not to acquire TPG's 51% interest in the Enlivant joint venture without an exit the investment when the opportunity so arises And for clarification, sales process will be handled by TPG. We expect to exercise our tagalong rights to sell our interest if and when that fail occurs. As Rick noted, the decision was not an indication of a lack of belief in the management team or recovery prospects for the portfolio at some point in the future, rather than pandemic has had not only a significant impact on the expected near term financial performance of the portfolio, but it also had impacted our cost of equity capital as compared to late 2019 when we contemplated exercising our option to purchase the portfolio. These two factors, along with a current debt to EBITDA of 20 times as of June 30 2021 compared to the historical 9.5 half times leverage has significantly increased the cost to Sabra, to buy our TPG and rightsize leverage on the portfolio to match our balance sheet targets. Additionally, expectations of the need for…

Thank you. [Operator Instructions] Our first question comes from Rich Anderson with SMBC. Your line is open.

Hey, thanks. Good morning. So, Harold, you, you talked about the new carry implies the previous carry on the JV was 278. I think I have my math, right. And, full value of 567, at 49%, I recall talking about the 51% being a kind of a $400 million type of nuts. Can you just sort of connected dots to how the, the value of the Enlivant portfolio and the JV has changed over time. In particularly now with the impairment because, that sounds a lot like distress. And I don't know how much meaningful distress that we've seen really, in the transaction environment for the senior housing business overall. So I just wonder if you could just connect Enlivant situation with kind of the broader observations about senior housing?

Sure. Well, I'll start by just kind of giving you a little bit of insights into – and how that valuation is determined. We talked a little bit about it, you see some details in our in our 10-Q about the calculation, but it is based on a discounted cash flow model, obviously, we don't have any offers to look at from a valuation perspective. And is taken into account, not only the fact that there has been a decline in the performance of the portfolio, but also takes into account some assumptions around right sizing the management fee for the portfolio. So I think, when you look at what's out there in the market today and some of the pricing, I think that was very informative for our valuation calculations, we utilized a professional firm to help us with that calculation. And certainly the recent deals provided data points, which were helpful. And I would say, I don't view it as a distressed valuation as much as it's highly levered, and therefore the equity value, there is some amount of risk associated with the discount, utilizing the discounting calculation, we built into it to be conservative, but I don't view it as a distress valuation at this point, I think it's a conservative valuation. But I think when you factor in a justice to the management fee [ph] you factor in the amount of debt is on the portfolio, it gives a fair, a fair number for consideration and puts us in a position where, we're not likely to have to see much of a change one way or the other once the asset – once the portfolio actually sells.

Okay. And then on the process of getting it sold, describe the sort of them, the lack - the motivation of TPG to get it done. I mean, you're so kind of sit there waiting. Now, what's the chance that this can sort of stay with you, well through 2022?

Well, I think this is a vintage fund for TPG. And they've done pretty well on it. And I think they were willing to hang in there pre-pandemic. For a while the company was starting to really do well. And as I stated in my opening remarks, we're really getting closer to wanting to do something with 51%. But the pandemic changed everything including changing everything for the fund in terms of your how long everybody wants to sit around and wait for things to recover. So in terms of timing, it is going to be with us, I would say through at least the first half of ‘'22, simply because if it takes a few months to find a buyer, it's going to take another up to six months to close the transaction. So yes, it's going be there for a while. But that's why we wanted to make the announcement now cleanse the supplemental, take the write down. And so from our perspective, it's behind us, we'll always be happy to answer questions or talk about what's happening with that component of the portfolio relative to occupancy, recovery and things like that and if people have questions, the visibility for it is gone as far as we're concerned.

Okay. Well, thanks for that. And congrats to Harold and Mike.

Thank you.

Thank you. Our next question comes from Nick Yulico with Scotiabank. Your line is open.

Thank you. I just want to go back to Rick, you talked about getting out of the Enlivant JV is being de leveraging that that's clear, very clear, but maybe you could talk a little bit more about, he said, the assumption that you think it's also in a creative transaction for you.

Yes, I think the way to think about that is, we can't stand pat with where we're at, with your vision. In other words, TPG wants to sell the portfolio. So we've either got to buy it, or we've got to exit at some point. And so for us to go and invest money to acquire, it will be extremely diluted for us. And so it's accretive for us, given the situation that we have right now, we either have to buy it and be diluted or sell it, which would be accretive to that on that comparative basis. Does that makes sense.

Okay, got it. All right. The other question was, in terms of the guidance, I know you did mention the, the cash basis tenant last quarter. And I thought the annual rent for that was less than $4 million. And yet, the guidance now is, a little bit higher than that in terms of the cash basis tenant impacts, are there - is there, am I missing something? Is there another tenant that is creating an issue?

Well, get a little more into the leap about it, that that portfolio - you're right, it's just under $4 million in cash revenues. And they paid rent basically through the end of June. So that's $2 million in the first half of the year. And we're not expecting to get any rent in the guidance for the second half of the year, it's going to take months to get that portfolio transition a new operator up and running. So that $2 million of that penny, I referenced in my comments around the decline, as it relates to comparing, first half of the second half, we also, had received 100% of the rents from Genesis, and in our previous guidance numbers, we assumed Genesis would, at some point, we would strike a deal with those guys and reduce rents on some, on some level, even if it were just the rents that are going to be going away here in a few months, or I should say that in about 18 months. So now we're assuming that those rents get paid fully through the end of 2021. So that's why the cash basis rents are going up or staying pretty solid. But we are saying that $2 million decline from one operator.

And Nick, this is also specific to New York. It's just a process that we have to go through there. There are other states where the transition would have been a lot smoother. And we wouldn't have gone the number of months that we're contemplating without getting a new operator in and pick me up or anything. And so that's really just the New York issue, which is timing.

Okay, thanks. Just one other quick one is on the senior housing occupancy guidance. It looks like it doesn't assume that much of a pickup in the back half of the year. Maybe you just talk about kind of what underlies that assumption, how much you're just being conservative based on, Delta variant, issues may be coming back because it sounds like the move and activity, everything else follow Talya's point earlier was pointing in the right direction.

I think that's exactly right, Nick, in the absence of the Variant given how well the recovery has been going, particularly on the Al side, as Talya pointed out, we would have felt more bullish. And while we're still pretty optimistic, we're just going to be conservative on those assumptions for guidance purposes. There's only…

Got it. Thanks.

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

Hi, guys. Just hoping to ask another question on the Enlivant JV on the sales process. I guess when do you expect that to start? And how should we think about the OPCO issue here, in terms of would it be - it's been a lack of profitability because of the collapsing cash flows because of the Coronavirus? Or is it - was there a feasibility issue kind of before all this happened just because it didn't expand maybe as an OPCO, as was previously anticipated?

So we believe TPG is going to start talking to folks after Labor Day. So I'm not sure that they, exactly formulated and settled on that. But that's our understanding. In terms of OPCO kind of, it really goes back to what I what I said earlier. And that is, the platform was built to support a company that was going to continue to get larger, at TPG, continuing to make investments in the senior housing space, and outside of the JV. And so, the pandemic just put a halt to all of that. And so, if you've got the combination of the impact of the pandemic, on occupancy and NOI, and the fact that that portfolio isn't going to be growing, I mean, their focus as it should be, is on recovery. It's a really well run company. And so they've just got to get back to where they were from a recovery perspective. And so - and, remember, these are, these are smaller facilities. And so you can't - it's smaller facilities are more dependent upon corporate support, than, say, larger facilities where you can actually have more infrastructure in place. The whole - our wholly owned portfolio, for example, those are larger facilities, those are the original ALC facilities, they also happen to have quite a bit more memory care as well. So it's really a combination - a combination of those things, and whether there'll be changes to APCO as a result of the process. We could all just speculate, speculate about that. But that's really what the issue is. Does that make sense?

Yes, it does. Thank you. And then just start Genesis. So I'm assuming it sounds like they continue to be current. I mean, have you had any discussions with them about their assets that they're running and about their ability to continue to pay rents the coverage level there for that? And if you could, just to remind us how much is under that, that kind of top MOU type income? And you're booking quarterly now, when does that come off again?

So I'll take the first part. And Harold take the last part, the we haven't had any discussions with them. Really, since the new management team has been in place. They're aware - they're aware of the fact that we have other operators that are prepared to take over those eight facilities, if necessary, but they are they're paying the rent in is, as Harold mentioned, they're paying the base rent, plus the excess rent. They're both similar amounts, and that excess rent, about $10 million burns off at the end of ‘'22.

Thank you.

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

Thanks. First of all, congratulations, both Harold and Mike. Rick you mentioned being committed to the senior housing growth. Obviously, you've seen a few large deals in the space. So I'm wondering how many opportunities you're seeing that that really fit exactly what you're looking for>

Hi, its Talya. We're still continuing to see opportunities that we're taking a run at where we are - we have economic solutions that make sense to groups. Some of the some of the large deals that you've probably heard about their come to market have been a feeding frenzy, because there's still quite a bit of capital that's looking to put out sizable investments into the senior housing space, they're not going to do it by doing one-sies and two-sies. They're going to do it by doing half a billion or more three quarters of a billion at a time. So they're gunning for those deals. And frankly, where we're making sure we're in the mix where we want to be. And we're dutifully pursuing a lot of other transactions that are smaller scale, and seeing our supplemental, we are getting things done. It's, not splashy headlines, but that's okay. We're just trying to just keep doing what we know how to do and do it well. And make those deals creative.

Thanks. And then as you think about kind of the overall portfolio, I guess, post COVID, whenever that is, there are geographical differences already, particularly on the skilled side. But, when we come out of that's how we think about kind of positioning the portfolio from a geography perspective, are there any markets that may be a little more active in trying to either exit or lessen exposure, just given the lessons learned over the past 18 months?

So we're spread out pretty nicely right now geographically, and, we haven't had tenant issues. So, we really feel like we addressed the things that we needed to address through the merger with Genesis and things like that. So, from a disposition perspective, anything that we do going forward is going to be kind of normal stuff, you'd like to suppose the stuff in here there, if the circumstances call for it in a certain market. But we just, we just don't have that much exposure to problematic markets at this point. I think we've set ourselves up pretty well going forward.

Thanks.

Thank you. And there's no further questions in the queue. I'd like to turn it back to Rick Matros for closing remarks.

Thank you all for joining the call today. And if you all have any things you want to follow up on, as always, were readily available and take care of thanks again, be safe.

This concludes today's conference call. Thank you for participating, you may now disconnect everyone. Have a great day.