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SBRA Sabra Healthcare REIT

Participants
Michael Costa EVP of Finance and Chief Accounting Officer
Rick Matros Chairman and Chief Executive Officer
Talya Nevo-Hacohen Executive Vice President, Chief Investment Officer and Treasurer
Harold Andrews Chief Financial Officer
Juan Sanabria BMO Capital Markets
Rich Anderson SMBC
Nick Joseph Citi
Steven Valiquette Barclays
Lukas Hartwich Green Street
Todd Stender Wells Fargo
Joshua Dennerlein Bank of America
Tayo Okusanya Mizuho
Call transcript
Operator

Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT First 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.

Michael 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 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.

Rick Matros

Thanks, Mike, and thanks for joining us everyone. I appreciate it.

Just a quick note that this is the first reporting period where we got all four quarters of the pandemic included in our statistics and our financials.

Let me start with an update on live edge.

On the last call which obviously was not long ago we talked about that's something that would be pending in terms of a decision in the near-term, given the impact of the pandemic, particularly the latest surge on the managed portfolio. Both we and importantly TPG have decided that we really need to give the portfolio some time to recover.

And so, there's not really a timeframe on it, but I would expect that at this point, we just want to see some recovery at some trajectory over the next few months. At this point, the any offer that we will be able to make them is really not much of an offer. And if we were to acquire the remaining 51%, it would certainly be at levels well below the strike price under the old option, they'd like to do a little bit a little bit better.

So, we're still in the same position that we've been in all along. That is if we could strike a price at the right price, then we'll have some nice runway to grow with the portfolio. And if not, then we'll have plenty of proceeds to produce for other investments, and it will have a minimal impact on the balance of our senior housing versus our skilled nursing.

So either way, we feel like we're in a good position, but do fully agree that this just isn't the right time to put something like this on the market.

So, that's it for now and we will move now to give you an update on COVID and the impact on the business.

For the first time our operators are speaking with an upbeat tone, which has been really fantastic to hear. Well over 90% of our facilities have no positive cases. Since the first week of March, the number of new positive cases in our facilities has ranged from zero to two facilities a week, and many more than that been cleared. Over 90% of our tenants have reported over 90% uptake for patients and residents and over 60% for staff, so 90% vaccinations for our patients and residents, and over 60% for staff. Virtually, all of our tenants have completed the three clinics. CDC has released national guidelines for cohort restrictions.

So, those restrictions are now being relaxed with more visitations and group activities increasing, which does a number of things. One, it's become a leading indicator of census growth and secondary what so very importantly, obviously, is it helps to get our expenses back on the path to becoming normalized and that's a pre-pandemic levels, which will have obviously a direct impact on the margin on margin and our NOI. I just want to point out though, that the CDC guidelines have a mandate.

And so there are different things happening in different markets.

And some markets are still more restrictive than other markets.

So hopefully, people will come to this come to the same conclusions. And also, don't forget to note that you can never fully express or appreciate the staff, patients and residents and endure but nonetheless, it will never be forgotten. Still not over obviously. But we just want to express our appreciation, and as often as we can when it's still not enough. There's 24.5 billion in the HHS fund left, there is another 8.5 billion for role providers, we still think that number will grow as healthcare businesses, who didn't need the assistance start returning some of that money. We do believe that we all have access to some level of monies in that fund. The decisions haven't been made yet that we expect that we will have access to some of that in the rural provider piece. Senior housing is being included in that dialogue.

So, we feel much more optimistic that there will be some funds available for senior living and senior housing as well.

Now, let me move on to reimbursement. There's been a lot of talk and speculation about the CMS proposal in the proposed rule. We now have data to better understand the impact of the pandemic on Medicare revenues, surprisingly, only 15% of the industry still in place. A surprisingly small number that reflects the fact the industry did not take advantage of a three day waiver suspension. This may help the industry position that the waiver suspension should be extended for a prolonged period of time.

You better understand the implications of making that suspension permanent. I would also note that for Sabra's operators, all the operators discount in place to get to one extent or another, there's a wide variance that everybody is given place to some extent and a lot of that has to do with the fact that we have really no long-term care providers, these high acuity operators business have a greater tendency to scale in place. The order number that was a little bit surprising in some of the analysis is that the percent of COVID patients was just under 9%.

I think that's misleading only because, as everybody on the call knows, we didn't have testing available for months.

So we're pretty confident that we had a lot more patients and residents that had COVID and were actually diagnosed with COVID. Despite those two metrics adhering to new facilities rose dramatically driven by limited capacity in the hospitals who were only able to admit the very sickest patients. And then those folks were then transferred skilled mix. This is clearly evident in the impact on skilled mix in our portfolio. And as acuity has come down, we've seen our skilled mix that come down from as high in December and get closer to pre-pandemic levels, although it's still higher than pre-pandemic levels.

As it relates to the proposed rule, the 5% increase in Medicare revenues above budget neutrality, it seems clear that much of the increase is driven by this pandemic related phenomena and the prolonged spike in acuity. CMS will be taking comments on the proposed rule, we'll look at all the underlying data and insensitive to industry recovery. To the extent that some calibration is necessary, I believe it will be saved in a different over different fiscal years to allow the industry to recover. And that was pretty strong message I think that CMS delivered, it was very conciliatory and they really do want to see the industry recover. A couple of other notes relative to pandemic related assistance, PHA was extended for another quarter FMAP funding was increased, the FMAP funding increase and extended through September 30, 2021, and sequestration suspension which continued through the end of '21 as well.

Now moving on to investments and operations, with a 1.5 billion in our investment pipeline being reviewed, we believe we're on a path towards a great global company. Most of the pipeline continues to be senior housing with behavioral addiction and substance activity.

Although there's not much skilled activity at this point, given that federal assistance has provided time for the operators to recover. And for those that want to sell their assets. They want to get closer to pre-pandemic pricing in terms of getting credit for that kind of NOI.

Our top seven skilled operators which now comprise 66% of the NOI hit their low point in occupancy in late December. It has increased occupancy at approximately 431 basis points leading the way for the portfolio. The rest of the solid portfolio has an increase to that extent. Remaining operators outside of those top seven tend to be operators that we only have a few facilities with and are impacted by local market conditions. Overall sales showing increases in census, but not to the extent our top seven with the exception of Genesis. Do you happen to be our most progressive operators in terms of the level of acuity as they take a nice variety of clinical programs that they provide, and they also comprise some of our top operators relative to having COVID you mentioned taking COVID patients during the course of the pandemic. I noted that skilled mix has been declining since that same point in time, and acuity will always and will level out at closer to pre-pandemic levels. What we don't know is, prior to the pandemic, we did see acuity increasing and length of stay increasing because of PDPM, and obviously PDPM was interrupted pretty early on after implementation.

So, we'll see how that goes going forward, but I would still expect one of the impacts on PDPM will be a positive impact on length of stay.

Our senior housing bottomed out well after the lease portfolio, but it's since started this recovery as well with our lease portfolio bottoming out in February, and the lease portfolio has now seen 365 basis points of occupancy increased since. Talya will discuss the managed portfolio. I'd note that, the remainder of our portfolio, our specialty hospitals, behavioral and addiction facilities fare exceptionally well during the pandemic, with occupancy increases at approximately 550 basis points over the course of the pandemic. And again, they weren't impacted by the pandemic.

So, there wasn't a low point to hit, and rent coverage has increased over that period of time as well. This portfolio as most of you know, comprises an important growth of 11% of our NOI, and it's a strong focus for investments for us going forward. And with that, I'll turn it over to Talya.

Talya Nevo-Hacohen

Thank you, Rick. Sabra's senior housing managed portfolio continued to experience operating pressures in the first quarter of 2021 due to the global pandemic.

However, when we look at the quarterly operating results on a more detailed basis, as well as April results, we see an inflection point in occupancy.

We have stressed over the past quarters that, the challenge facing senior housing is occupancy and that improving occupancy is the vector that will drive the sector's economic recovery. Simultaneous trends of higher move-ins, fewer move-outs, and increasing interest in seniors housing driving tours and leave underlie the start of the occupancy recovery with normalizing expenses, further enhancing margin.

As we expected, the successful distribution of vaccine has been the linchpin for the turnaround in senior housing in the United States. The headline numbers on a quarter-over-quarter basis are as follows. Occupancy in the first quarter of 2021, excluding two non-stabilized communities was 73.1%, compared to 76.4% in the prior quarter. REVPOR also excluding two non-stabilized communities declined sequentially by 1.7% to 3,718 from 3,783, but was slightly higher than in the first quarter of 2020. Cash net operating income declined 33.4% sequentially and margin declined by 6% compared to the prior quarter in part because of continued costs related to COVID and lack of grant income in the first quarter of 2021. The details indicate a more settled story. The rate of occupancy declines slowed over the course of the quarter in our total wholly owned portfolio than occupancy improved in April. From December 2020 to December 2021, occupancy declined 1.7% to 75.9%. From January, 2021 to February, 2021, occupancy declined 0.9% to 75.1%. From February, 2021 to March 2021 occupancy was flat at 75.1% and from March 2021 to April 2021, occupancy increased by 0.6% to 75.7%. From the low in mid March until the latter part of April occupancy increased 0.9% to 75.9%. Similarly in our Enlivant JV portfolio from December 2020 to January 2021, occupancy declined 1.4% to 68.9%. From January 2021 to February 2021, occupancy declined 1.2% to 67.7% and from February to March 2021, occupancy declines 0.3% to 67.4%. From March to April 2021 occupancy grew by 1.5% to 68.9%. From the low and mid March until the end of April occupancy increased 2.5% to 69.7%. Well, occupancy losses decelerated over the first quarter, pandemic related expenses dropped sharply in our wholly owned portfolio. From December 2020 to January 2021 COVID cost the client 10.1% to 396,000 and from January to February 2021 COVID cost decline 27.7% to 286,000 and from February to March 2021 COVID cost declined 31.9% to 195,000. Similarly, in our Enlivant JV portfolio from December 2020 to January 2021 COVID, costs increased 26% to 764,000. But from January to February 2021 COVID cross declined 14.3% and from February '21 to march 2021 COVID, cross declined 36.5% to be at 416,000.

Over the past few quarters, we've all speculated about the extent of pent up demand for senior housing.

Now we have some statistics that suggest the immediate demand is deep. Enlivant joint venture gross move in during March, we're at the highest level in 18-months, and close to the historical peak of 2.3 movements per facility per month. At the same time move outs in March continued their significant decline from January and we're at pre pandemic normalized levels. In April net movement significantly outpaced March results. Lead and tour volumes in March were up 35% compared to March 2019 and April 2021 track at a similar pace. Together these statistics point to a backlog of interest in senior housing, which should support higher lease conversions and results in increased occupancy. Metrics in our Holiday Independent Living portfolio reflects and similar trend that was a timing lag compared to our assisted living communities. Recall that in live in his -- had completed 100% of exempting clinics by April. But Holiday as an independent living operator not prioritized by the government and had to create his own vaccine program, by the end of April Holiday has already completed two clinics in each of our 18 of our 22 communities.

While the pace of move as has started to decline sequentially, we expect to move out ways to normalize the pre pandemic levels as the vaccine clinics are completed. Both movements are starting to rise, with March movements nearly 50% higher than February movement and occupancy at the end of April was 78.8% to 0.6% higher than the low in mid March, growth and leads has accelerated in every month since December.

The other component driving revenue is rate.

As discussed earlier, we have seen web for hold up across our managed portfolio over the course of a pandemic. But we recognized it's not certain operators feeling urgency to increase occupancy and may choose to use rate as a tool.

While we haven't seen material discounting within our portfolio, we are seeing greater use of incentives, particularly in our lower care communities where lifestyle rather than care drives the decision to move in. In our higher community activities, safety is now a key element in the sales pitch. And with that, I will turn the call over to Harold Andrews, Sabra's Chief Financial Officer.

Harold Andrews

Thank you, Talya. I'll give a quick overview of the numbers for Q1 and then provide additional color on our guidance for the second quarter of 2021. But first, I want to note that we collected 99.9% of our forecasted rents from the start of a pandemic in February 2020 through April 2021. I would like to point out that we have one operator in New York states, with at least three skilled nursing, transitional care facilities from us and who has decided to exit the business. These operations generate approximately $3.8 million of annual cash rates, and we expect to utilize deposits continue to pay the rents through June 2021. We're in the process of transitioning new three facilities to one of our top operators. He has significant operations in the state of New York.

We expect this transition to take some time duty extended approval process in New York, which could result of a period of time when we are collecting no roots from these operations. Recovery from the impact of a pandemic will also take time, reducing the waste generated after the transition is completed when unknown period of time.

We expect risk to return to the current level of your future, but not likely to occur in 2021.

Given that this portfolio represents less than 1% of our total NOI is impact from the loss rate during this transition and stabilization period is not expected to be material. After the numbers for the quarter for the three months ended March 31, 2021, we recorded total revenues, rental revenues and NOI of $152.4 million, $113.4 million and $121.3 million, respectively, as compared to $152.1 million, $110.7 million and $124 million for the fourth quarter of 2020. The increase in total revenues and rental revenues of $0.3 million and $2.7 million dollars respectively, primarily due to increases in collections, the laser leases accounted for on cash basis. Total revenues in NOI were also impacted by $2.1 million reduction in revenues from our wholly-owned senior housing managed portfolio compared to the fourth quarter, including a $0.6 million reduction in government grants income. NOI was further impacted by the results of the Enlivant joint venture, which will lower compared to the fourth quarter by $2 million, including a reduction in government grants income of $0.5 million. We did not recognize any government grant income during the first quarter.

Finally, COVID-19 related costs, our senior housing marriage portfolio totaled $2.7 million for the quarter $0.3 million decrease compared to the fourth quarter $1.8 million of this related to live enjoy richer, while $0.9 million was incurred in our wholly-owned portfolio. FFO for the quarter was $82.4 million and on a normalized basis was $85.5 million or $0.40 per share. This compares to normalize the FFO of $88.4 million or $0.42 per share in the fourth quarter of 2020, and at the high end of our guidance, we gave for the quarter in February. AFFO which excludes from FFO certain non-cash revenues and expenses was $82.8 million and on a normalized basis was $83.2 million or $0.39 per share. This compares to normalized AFFO of $86.9 million or $0.41 per share in the fourth quarter of 2020, and at the high end of our guidance, we gave for the quarter in February. These declines in normalized FFO and normalized AFFO are primarily related to the reduction in NOI of $2.7 million, previously discussed.

For the quarter, we have recorded net income attributable to commerce stockholders of $33.4 million or $0.16 per share. G&A cost for the quarter totaled of $8.9 million, compared to $8.1 million for the fourth quarter of 2020. G&A costs included $2.3 million of stock-based compensation expense in both quarters. Recurring cash was $6.6 million were were 5.4% of NOI and in line with our expectations.

During the quarter, we recorded a $2 million provision for loan losses and other reserves, primarily related to the loan to the New York operator exiting the business we noted previously.

We continue to have very strong liquidity position as of March 31, 2021 with over $1 billion of cash and availability on our line and our ability to take advantage of acquisition opportunities.

During the first quarter, we acquired one addiction treatment center and senior housing managed community on aggregate purchase price is $28.5 million with weighted-average cash yield of 7.7%.

In addition, subsequent to quarter end, we acquired one additional senior housing managed community for $32.5 million. We issued 5.2 million shares of common stock under our ATM program during the quarter, at an average price of $17.75 per share, generating net proceeds of $90.2 million.

Additionally, we utilized the forward feature of new ATM program in preparations upon certain upcoming investments, 1.3 million shares of initial weighted average price of $17.94 net of commissions remained outstanding under the forward sale agreement.

As of March 31st, 2021 we have $139.8 million available under the ATM program. We were in compliance with all of our debt covenants as of March 31st, 2021, and continue to have very strong credit metrics as follows.

Our leverage is at 4.84x and 5.48 times, including our share of the Enlivant Joint Venture debt. Interest coverage is at 5.23x and charge coverage of 5.05x. Total debt to asset value stands at 33%, unencumbered asset value to unsecured debt at 295% and a secured debt to asset value at only 1%. On May 5, 2021, the Company's Board of Directors declared a quarterly cash dividend to $0.30 per share is given. This dividend will be paid on May 28th to common stock holders of record, as of May 17th. It really represents a payout of approximately 77% on AFFO and normalized AFFO per share.

Now, a couple of comments on our Q2 2021 guidance, we are linking our guidance again to the second quarter of 2021 due to continued uncertainty around the timing of the recovery from the effects of COVID-19.

We expect the following amounts per diluted share for the quarter ending June 30, 2021, net income $0.13 to $0.14 cents, FFO $0.38 to $0.39 per share, and AFFO $0.37 to $0.38 per share. With that estimates and based on certain key assumptions spelled out in our supplemental, which I will bring attention to just a couple, as many of them out, we do not include any anticipated funds from the provider Relief Fund for our senior housing managed communities.

As we began to see signs of improvement in the early part of the second quarter, we expect our senior housing managed portfolio average quarterly occupancy fall within the following ranges wholly owned portfolio 77% to 79% and consolidated joint venture portfolio 68% to 70%.

We expect to close investments totaling $86 million, with a weighted average initial cash yield of 9%. We anticipate funding investments using revolver with match funding the equity component using the ATM program.

Finally, we expect to maintain leverage below 5.5 times including our unconsolidated joint venture debt based on expected annualized adjusted EBITDA between 470 million and $472 million as of June 30, 2020. And with that, I will open it up to Q&A.

Operator

Thank you. [Operator instructions] Our first question comes from the line of Juan Sanabria of BMO Capital Markets.

Your line is open.

Juan Sanabria

Maybe just to start with the question for Harold. Apologies if I missed this, as you read through the numbers. Is there any one time numbers to the positive? I heard you mentioned a provision for losses and loan losses that up the first quarter relative to the second quarter guide given you're expecting staff to improve?

Harold Andrews

No, Juan, as there's there was nothing in there. That was kind of one time out of the ordinary you're looking at three pure true operating results in the second quarter.

So, there was nothing that I would classify as one time. Like I said, we didn't actually didn't even get any without maybe we get some government funds in the quarter but that did not happen.

So, it was purely their just their operations.

Michael Costa

And Juan, I take your permission to add something. Obviously, we see the commentary and the fact that we're you're really upbeat about recovering what we've seen so far.

Although, we also don't know how much it's happening to the pent up demand, what's the actual trajectory is going to be over a longer period of time. And that the commentary, goes to losing out the EBITDA and some of the trends we're seeing, but our Q2 guidance is slightly down from Q1 actuals. And really what it comes down to is, like everybody else we've been really scarred the last year. And we don't see any reason to put out something that we say is optimistic. We're not even optimistic, but we're just more comfortable with putting something out there. That's conservative giving outs early these trends are.

So it's really as simple as that there's just no upside, we don't think they are putting ourselves out there any more than we did for Q2.

So you alluded to that in your question.

So go ahead and finish out what you're asking.

Juan Sanabria

I think I get it. But no kind of product of cash rent accrual or cash rent paying from previous period in the first quarter of a thing that would dip away or fall off in the second quarter just to double check?

Harold Andrews

You're going to see some level of variability in cash collections from the cash basis.

So if you kind of go back to the prior few quarters, you'll see this kind of little up and down quarter-over-quarter, but nothing significant there that we're expecting any call back.

Juan Sanabria

Great. And then I guess maybe one for Rick on the SNF occupancy, I take your point on the largest operators being the bulk. Could you give the change year-to-date for the total SNF portfolio occupancy is and/or what the change has been from the trough to today in occupancy?

Rick Matros

We don't have a number for the total one. That's still being reconciled and people operated in a different methodologies and things like that.

Over the course of the pandemic, our manage portfolio and our top operators have gotten really good at giving us just really right on data that we've required. And we've asked more of them because they have the infrastructure. There are small operators that we have. We just haven't pushed them because they have much more limited resources and they have their hands full.

So it's positive. It's just not as positive as this, but we don't have an actual number.

Juan Sanabria

And just one last thing for me. Anybody on the watch list, we've had some hiccups with some of your triple net peers that have come to light.

You mentioned the SIP operators in New York. Anything else to flag those that you guys are watching or that we should know about?

Rick Matros

I'll make one comment and then Harold can jump in.

So one, the answer is no, we've had remarkable consistency in our watch list, that was in place pre-pandemic now through the pandemic. Comment I want to make about the one operator. This has less to do with sort of their operational performance. But this particular operator, the CEO, who I've known for a long time, it's been in the business for decades, and certainly could have retired before this. And the pandemic, he called me and just said the pandemic just finished him off, just can't handle it anymore. He's stressed, he just depressed, he just can't deal with it.

And so that's what precipitated the move, as opposed to sort of any concerns about operation.

So if you hadn't made that phone call, and I'm not sure, this would be happening.

So Harold do you have anything else?

Harold Andrews

No. I don't have anything to add.

As you said, Rick, the watch list have been very stable, and there's not maternal concerns that we have with our operators.

So I think as you said well.

Operator

Our next question comes from the line of Rich Anderson of SMBC.

Rich Anderson

I appreciate the comments from the front end of this on CMS and whatever you want to call it a call back on the 5% upside of revenue. But what do you gauge as being the Russia like I don't quite understand. It's hard enough to pinpoint things under normal times, with all the noise, both on the revenue side and on the expense side. How are they able to really kind of come up with an informed conclusion and also do you expected there to be some sort of concrete sort of law by October 1st of this year? Or do you think it gets pushed a year out because of all the confusion out there?

Rick Matros

Yes.

So to your original point, I think some of us sort of reacted the same way why not just let this year pass and then start looking at the data, whether it's the 5% caught them by surprise maybe that was the case. But we all saw rising almost from day one.

So, we knew that that number was going to continue to grow over the course of the pandemic. But, if you actually read this full track of the proposed rule, they're pretty tempered in their comments. I know some of the headlights haven't been, but they're pretty tempered in their comments are very conciliatory, and in fact, more conciliatory in the proposed rule than I've ever seen in my career.

So, is it possible if something happens this October, maybe, I don't think, it's going to be major. They really have made a point of indicating that, they don't want to do anything to disrupt the recovery, the industry.

And so, yes, I was surprised. But their approach, I think is quite tempered.

Rich Anderson

Okay.

You mentioned, the number, the top seven operators making a big chunk of the business.

You also mentioned, you have a bunch that are owners of one or two or operators of one or two facilities. Is there an opportunity to sell more and kind of consolidate your portfolio a little bit and maybe not be having some of those one-off situations perhaps as a way to finance it and live, and if that does sort of come to fruition?

Rick Matros

Well, one from a timing perspective, so I'll take the second part first. From a timing perspective, I don't think that, I don't think Enlivant all that far off, right.

So I don't think we would get much done in charge of sales to raise much money, but the other more important as a part of the answer, I think is that, we like our operators and we haven't had surprises with our operator in pandemic. When we identified, this goes back four years, when we did CCP, it's hard to believe it's that long. We identified who we wanted to do certain things with seller or restructure or whatever. And then, we would be going and it's been stable ever since.

So, I think some of what we see out there.

So there's about 32 of those operators out of which 16 of them showing occupancy increases, the other 16 flat or maybe slightly down, but those are very market specific. And a lot of that has to do with local department of health officials, where they haven't age restrictions yet, because as I said in my opening comments, easing a cohort restrictions of leading indicator with centers increase.

So it's not like there is something inherently wrong or troubling about those operators. This stuff will pass and those environments will normalize, and they'll probably start spiking once those restrictions are listed just as we've seen some spiking with our larger operators with the pent up demand.

Rich Anderson

Okay, last quick question.

You mentioned group activities. Are you seeing any amount of concurrent therapy starting to take shape in your facilities?

Rick Matros

We are seeing some and it's really all over the place, as you would expect with restriction evenings, kind of all over the place, but it is happening.

And so that's going to be obviously super helpful with labor costs, and just overall expenses within the facility.

So, I think we're hopeful that as some of these states that and municipalities are having age restrictions to this award that have suffered in any way by hearing so that the CDC guidelines will become more uniform. And then what we may have some trajectory that we can actually quantify and do something with, which we, if we just don't have. And I also say to that point, and my opening comment about so is that still have COVID, it's really heartening that, if you think about, you still got a pretty decent percentage of the workforce that isn't vaccinated.

And so you have to assume that there is some exposure to community spread, we're seeing it we're seeing. Obviously, Michigan that's by, in-spite from Washington and in parts of Oregon and other places around the country, but it's not impacting buildings, it really goes to the efficacy of the vaccine, that you have facilities with 90 year olds that have an awful lot of issues. And you're really frail individuals. And it's all holding up.

So, that's what we feel really good about. And for those facilities that have been able to use restrictions more so than others to same thing, there's no positive COVID cases. There's nothing happening that's negative.

Operator

Thank you.

Our next question comes from Nick Joseph of Citi.

Your question please.

Nick Joseph

Thank you. Appreciate the updated comments on Enlivant. Are there any contractual timing considerations for the JV?

Rick Matros

No.

Nick Joseph

You can both wait and see on the recovery before making a decision.

Rick Matros

Right, I don't anticipate that they're going to, this is a very, this is a vintage trend.

So, I don't expect they're going to wait until this is fully recovered.

I think I want to see some recovery and maybe some trajectory.

So, there's a case to be made whether it's to us as a buyer or someone else that there's evaluation here that at least gives them something.

Nick Joseph

Okay, but always, there's some flexibility there. Then just on the I guess, the positive commentary overall, I just wonder if you can kind of marry that with leverage thoughts and issuing ATM equity to kind of keep the leverage levels where they are, versus letting it drift a little higher in the near-term?

Rick Matros

Harold, do you want to take that?

Harold Andrews

Sure.

So, I think it kind of goes back to what some of disconnects that people might see also in a positive tone in the fact that our earnings are basically flat quarter-over-quarter. And a lot of that is driven by the share count shares that we've issued in the first quarter shares that we will issue the second quarter to fund acquisitions and maintain leverage.

And so there is, as we start to see clarity on recovery in our managed portfolio then we can begin to look at leverage on a little bit longer term basis, and start to see that equity issuance needed to manage that moderate.

So I think we're already starting to feel like it will start to moderate now that we've got, as Rick pointed out early on, the pandemic is in there for the full 12 months, which is how we calculate EBITDA for leverage. But remember, we still saw EBITDA decline as the pandemic progressed.

So we're still fighting that a little bit in our equity issues. But I think as we start to see it recovers, start to see performance improve and we can really evaluate where we're at, as well as then we started thinking about how the joint venture will play out, that will give us another opportunity to look at how financing that may occur or exiting would naturally be leveraged and have an impact on our equity issues.

So leverage is still an important aspect for us to maintain it below the rating agency levels, and we've issued equity in the past to do that. We'll continue to do that if it's necessary. But I think we're starting to see, as we come into the pandemic, that should start to abate and we'll be able to start to get back to where we're only funding acquisition through.

Rick Matros

And Nick, I would just add to that, while we're not sort of loosening up, if you will, as soon as some folks might like us to really since the pandemic started, we determined at that point in time that we were going to take an extremely conservative stance on everything to do with our balance sheet with liquidity. We were the first ones cut the dividends.

And so everything was being for us was being about being a good and conservative steward of our capital.

So that we would be actually in a stronger position to ease off not to stop growing the Company again. And we're going to be in a really good position to house points as EBITDA continues to grow with the recovery. And our leverage will then naturally drop even more.

Now we're going to be in a position to have a lot more to play with there, on the leverage side, whether we decide to keep it where it is, or it'll be lower than it is now as EBITDA he grows to want to keep it lower. We're just going to have some real optionality. There's nothing historically that I prefer more as a CEO that optionality.

Operator

Our next question comes from Steven Valiquette of Barclays.

Your line is open.

Steven Valiquette

Just to come back quickly on that question of the 2Q '21 FFO guidance being down a little bit sequentially from the first quarter.

You mentioned that you're taking a bit more of a conservative stance is due to the pandemic. But I guess, I'm just curious whether the concern is more on the risk of rank collections in the triple net portfolio? Or is it more perhaps REVPOR or pricing on the shop asset? Because it seems like from an occupancy standpoint, there's pretty good visibility for Sabra and really the entire industry, for occupancy to improve sequentially.

So I'm just guessing the cost of this is more tied to raise then or collections just want to confirm that? Thanks.

Harold Andrews

I'll take that. It's just cautious overall. I would say that we don't have any concerns over with collections that are material. But at the same time, we do have marriage portfolio, cash basis, tenants, to pay as they're able to, so you do see volatility that we want to be careful with and our expectations there. And, as I alluded to a little bit earlier, part of what you're seeing in the dynamic is just a function of the digital shares being issued official shares that are outstanding today that were issued in the first quarter and then expectation of some additional shares next quarter.

So the fact that we're within a penny on an absolute dollar basis, it's much closer to flat. And as Rick as said, let's being cautious of our expectations across the board, but there aren't any specific triple net operators, do we have significant concerns with? And it's just a matter of cash basis that might have some timing differences as well.

Rick Matros

And just quick comments on I make on that is we don't have concerns about and for the quarter that's held up pretty well, so that can be some discounting but we don't have the kind of operators that to give it away some so that's not a concern. But the other thing relative to manage portfolio, we're just weeks away from hitting our bottom.

So, it's just not that much time for something that's been this damaging to the business.

Steven Valiquette

Okay, got it.

Okay. It just helps to get a confirmation around that and your thought pattern.

So appreciate it. Thanks.

Rick Matros

Thank you.

Operator

Thank you.

Our next question comes from Lukas Hartwich of Green Street.

Your line is open.

Lukas Hartwich

Thanks. Hey, I was hoping if you could just talk a little bit more about the opportunity set for behavioral health hospital acquisitions. Is there much deal flow in that segment?

Talya Nevo-Hacohen

I'll take that. The answer is that, we're seeing more deal flow than we've seen in prior years. Certainly in addiction treatment, there is a lot of interest by a lot of capital sources and it's a sector that is evolving quite rapidly and an opportunity for a lot of roll-ups of operators, because it's been a relatively small scale and very localized in its approach and the operating model there has really evolved very rapidly, even over the course of the last five years.

So, there is a lot of interests there. There are opportunities there, and we are seeing more transactions in that sector than we've ever seen before.

So, I'd say for the time being, yes.

Lukas Hartwich

That's helpful. And then on the acquisition in Alaska, just curious what the challenges are with asset managing.

I think that's your only property in Alaska is pretty far away.

So maybe we can just talked about the challenges after managing that property, and then maybe I'm assuming you made that acquisition with the hope to add more properties in that state.

So, maybe touch on that as well.

Talya Nevo-Hacohen

Sure.

So, there may be an opportunity to expand that property and add some additional units, specifically IL units, that's something that will see overtime if make sense, which gives us a bit of a campus there, which would be nice. Frankly, we -- our asset managers have toward the building prior to closing and they don't seem to be hesitant at all about making the trip up to Alaska, given all that we have in the Pacific Northwest it adds further, but it's not that much further, if you're already up in Washington and Oregon.

Rick Matros

Lukas if you haven’t [indiscernible] it’s really phenomenal.

Lukas Hartwich

Thank you.

Operator

Our next question comes from Todd Stender of Wells Fargo. Please go ahead.

Todd Stender

Hi. Thanks and totally recognize it's a little premature to get too enthusiastic about the positive move in trends. But when you look at holiday, there're two good months March and April. What are you hearing from holiday, right now? And how are they ramping their marketing efforts, just you've got seasonal demand potentially coming sound that you get a little bit of upside? Just any color, if you can provide.

Talya Nevo-Hacohen

I can take that.

So, one of the things that's really interesting about the last year is that large operators and including Enlivant and it is very much so holiday in this basket, have shifted a lot of efforts to, to digital sales.

For one, the outreach became different during the pandemic, because you weren't talking to people want face-to-face. But they really move to owning attitudes is sort of the whole optimization on their website and focusing on outreach through their website, as opposed to referral agencies that were much more to whom they were much more beholden in the past.

So it's hard for me to say to you here today, and given the trends that we've described, how all that's going to play out as people start to open their doors and start to come out and really look, how the referral sources may shift or continue to move in the direction that they have been a little last year and how that impacts move in. What we do know is that move out as a result of debt frankly have declined and we expect that to move to a normalized level for sure. Together PT equation is that to the extent that residents stayed in buildings, because they there was a fear of moving to higher level of care, for example, because they were safe, where they worked, and I didn't want to change, there may be some pent up new doubts as a result of the meeting needing a higher level of care.

Todd Stender

Understood, that's helpful. I guess just switching gears when I look at the cash yields on your senior housing facilities. One, the one you bought in Q1 and then you've already bought one in Q2 are pretty high in the high sevens, but it sounds like they include earn outs. Do you have more of a year one kind of initial going in yield?

Talya Nevo-Hacohen

So far, we just concluded what we think is the stabilized number, which includes in earn outs.

Todd Stender

Okay and that would be more one like a stabilized in year gosh or three or four months?

Talya Nevo-Hacohen

Yes, it's sort of a 12 to 18 month window for both of those assets.

Operator

Thank you.

Our next question comes from Joshua Dennerlein of Bank of America.

Your question please.

Joshua Dennerlein

Rick, last quarter, you've kind of provided your thoughts on when you thought SNF and senior housing occupancy will return to pre-pandemic levels. Any updated thoughts on that front you could share?

Rick Matros

Yes, I actually still feel the same waywith the caveat being that my guess is as good as anybody's, and we don't have enough time yet to really have a trajectory that we can project over a number of months.

So, I still believe that skill size, sometime in the first quarter of '22 will be either back to pre-COVID occupancy levels, or pretty close to senior housing. Likewise, I still think it's going to be the latter half of '22.

So, when I say pretty close, either asset class, I mean, close enough that you're the markets going to feel like yes, we're going to get there.

Joshua Dennerlein

Do you think it will be choppy or do you think it's kind of steady and do you see right over the summer or any kind of color?

Rick Matros

So that's the tough part contingent, that's in different factors. One, how much has pent up demand impact? When you look at a pretty significant increase with our top operators, it feels like there's some pent up demand in there, right? The other piece of it is, is acute, has acute effects, sometimes acuity is normalized, because we're still getting people that are so much typically may used to be, that may impact like the state and shorten it a little bit.

So you've got pent up demand which is helping, then you got potential pressure, I'd like to stay, all of which to say is, I think it's going to be a little choppy, I would expect that. And in the summer on the school side, as you know, normally have a dip in occupancy to get to where we are and given all the delays and surgeries and things like that. I'm not sure we're going to see that same.

So my hope is that, sometime in the summer months, it'll be kind of steady growth that you can really start projecting off of.

Joshua Dennerlein

On SNF side, how are you thinking about SNF mix going forward? Like, do you think we see more Medicare patients come back first, because they're being discharged from the hospitals and maybe before they were? Or is it somewhere there kind of crosslink going on?

Rick Matros

First of all, I don't want to get too technical. They're all Medicare patients when they come in.

We have very few operators that take Medicaid only patients.

So they're dual eligible for Medicare, Medicaid.

So they come in under as a Medicare patient. And with changes over time is, let's say for some Medicare rehab patients, they maybe home after 20 days, okay. But if it's a patient has come in under Medicare initially, that has a lot of complex nursing issues, which is what PDPM was set up to service. Then once they stabilize, they still had too many other health issues to get through the skilled nursing facility. They're going to be there for the long-term and they will convert at that point for Medicare and Medicaid. And they'll be in a facility for you no longer in the facility.

So that's kind of how that works.

Operator

Our next question comes from the line of Tayo Okusanya of Mizuho.

Your line is open.

Tayo Okusanya

I wanted to talk about the 5.5 kind of leverage target that you guys have set up for yourself. Is that something that's hard set in stone by the credit rating agencies in order for you to maintain your investment grade rating? Is there some flexibility around that, like I understand EBITDA going up as things improve. That gives you a little bit more flexibility. But the not the target itself that five limits like what was that come from? And why do you kind of limit yourself that way?

Rick Matros

I'll take that. Tayo, it is not a hard limit by all the rating agencies, but it is what Fitch has identified for us is their target leverage added below that level for us to maintain our current credit rating.

So if we were to move into an area where we had sustained leverage above that level, then they would downgrade, Sabra, absent other factors, but it's kind of with our profile today, if it went above that it was sustained at that level, when they were downgrade. And if you'll recall, they put us on a negative outlook, and that negative outlook was specifically because our leverage was above that level.

And so, they were telegraphing either if we didn't get it down within the next 12, 18 months, they were going to downgrade our credit rating. And that's why we got so focused on it in 2019 and got it down below that level just before the pandemic.

And so, when the pandemic hit and we started seeing issues with our performance in the managed portfolio, we knew we had to manage at that level. And then frankly had no expectation with Fitch would do anything with our ratings outlook until after the pandemic was behind us. But because we took such an aggressive stance on that, they actually removed the negative outlook, because we demonstrated to them our commitment to maintain it below that level.

So, in the near-term, it's going to be where we keep our leverage below. I will add that, when they look at that level, it is exclusive of the joint venture. In other words, we're actually a fair amount below that today, but until we determine the course of action around that joint venture, and we're going to maintain including that joint venture, the level below that. But let's say we got out of that joint venture then our leverage would drop pretty significantly immediately, and we're obviously going to have more flexibility in funding acquisitions.

On the first side, if we go ahead and are able to buy that portfolio, there will be some need to further delever because we'll take our 51% of that portfolio. And we have highly levered, even excluding the pandemic impact.

So, we're just maintaining it today with the current structure, with the current ownership in that joint venture, it give us obviously the six from the rating agency of our commitment to do that. And then as we've said over and over the last several quarters, if we determined to exit then we're going to have a lot of flexibility and part of the decision to make that investment and take the ownership of the JV up to a 100% is going to be, there is a clear path to strong growth in earnings including maintaining leverage, where it needs to be. And Tayo, the other comment I would make is, one of the key words of how you would sustain.

So, look, they're realistic. They know that, there is going to be some ups and downs when you do your acquisitions once you're really in growth mode and all of that, and that's not an issue. They just don't want to see it at a higher level on a sustained basis. And what we've demonstrated to them into commitment and consistency in not doing that.

So, it's not as if you pop up here for a quarter because you've had a lot of activities and then you're going to do some more things to get her back there and it's going to be problematic to sustain is really the key word.

Tayo Okusanya

Got you.

Okay. And then I apologize if I missed this earlier on. But, Rick, I mean, in regards to just state and local government kind of stepping up in regards to providing government support, local government support for the skilled nursing industry. Could you talk a little bit about just what you're heading out there, whether it's kind of still too early for state to make any major moves, just kind of given the sense that the federal government is probably going to be moving away from this overtime?

Rick Matros

Yes.

So, one, it is too early.

However, the dialogue and tone had changed.

I think there have been a couple of reasons for that. One, the state budgets just didn't take the kind of hit at the time of deficits that were projected the beginning of the pandemic.

And so, when they get all this Medicaid in for the federal government, even though it may not be targeted to skilled nursing, it really provides them even additional relief, which gives them more room to do things for us. And I think, if you look at the number of states that the FMAP increases, I think it's about half the states might be off a little bit. We felt really good about that they looked at their states and chose to do that.

So, there does seem to be an awareness that should be new, but it seems to be that Medicaid is historically underfunded in most states.

So, I think the tone and dialogue has changed, but it's definitely too early to anticipate what might happen.

Operator

Thank you. At this time, I'd like to turn the call back over to CEO, Rick Matros for closing remarks, sir.

Rick Matros

Thank you. Thank you for joining us. Appreciate your time today and your support. And as always, we're available for follow-up and hope everybody has a good weekend and continue to stay safe out there. Thank you.

Operator

This concludes today's conference call. Thank you for participating.

You may now disconnect.