Yahoo Finance Sabra Health Care REIT, Inc. (NASDAQ:SBRA) Q4 2023 Earnings Call Transcript
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) Q4 2023 Earnings Call Transcript February 28, 2024
Sabra Health Care REIT, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, everyone. My name is Mandeep and I will be your conference operator today. At this time, I'd like to welcome everyone to the Sabra Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Lukas Hartwich, SVP Finance. Please go ahead, Mr. Hartwich.
Lukas Hartwich: Thank you, and good morning. 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 our earnings guidance for 2024 and 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, 2023 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 this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at sabrahealth.com. Our Form 10-K, earnings release and supplement can also be accessed in the Investors section of our website. And with that, let me turn the call over to Rick Matros, CEO, President and Chair of Sabra Health Care REIT.
Rick Matros: Thanks, Lukas. Good day, everybody. I appreciate you joining us. We're pleased to report continuing stability and organic growth in our portfolio. In our skilled portfolio, occupancy is up 50 basis points sequentially and 290 basis points year-over-year. Our EBITDARM rent coverage is up 0.10 sequentially with similar improvement in our top 10 in the aggregate. While labor is tough, the improvement over the last year is material. Contract labor is down 29% on a patient-day basis and nursing all-in is up just 4.3% on a patient day basis. And the combination of that coming down and our revenue per patient day growing at the rate that it's been growing in the skilled portfolio has put us in a position where in the aggregate, our portfolio's margins are pretty much where they were at pre-pandemic.
And so the really good news there is we're not even a pre-pandemic occupancy. So we see a really terrific opportunity ahead of us in terms of margins improving where they were on a pre-pandemic. We also continue to see improvement in the Senior Housing lease portfolio. Occupancy is up 130 basis points sequentially and DARM rent coverage jumped 0.11. Talya will talk in detail about our SHOP portfolio. For both the skilled and Senior Housing portfolios, we expect occupancy to exceed pre-pandemic levels, as I said. But the reason is different for each of the two different asset classes. So for skilled, it's the demographic coupled with the declining product. And for Senior Housing, it's a demographic combined with the negligible new supply for the foreseeable future.
We appreciated that CMS and numerous states have been capturing cost increases and reimbursement rates, and we're optimistic that we'll continue at the state level this summer and for fiscal year 2025 for CMS. Our behavioral and specialty hospital portfolio has had stable performance. We have provided full-year guidance for the first time since before the pandemic with 5% and 6% increases in normalized FFO and normalized AFFO, respectively at the midpoint of guidance. We're also starting to see more investment opportunities, but no clear trends as of yet. And with that, I will turn the call over to Talya.
Talya Nevo-Hacohen: Thank you, Rick. Sabra's entire wholly owned managed Senior Housing portfolio maintained positive momentum in the fourth quarter with mid- to high-teen percentage growth in revenue and cash net operating income on a year-over-year basis. This was a function of continued occupancy and REVPOR gains coupled with moderating expenses. Quarterly occupancy in independent living, assisted living and memory care in our managed portfolio is the highest it has been since the second quarter of 2020. Sabra's same-store wholly owned portfolio currently consists of 51 properties, of which 28 are independent living and 23 are assisted living memory care communities. The headline numbers for this portfolio, excluding non-stabilized assets and government stimulus are as follows: Occupancy for the fourth quarter of 2023 was 81.2%, a year-over-year increase of 130 basis points, the highest occupancy for this portfolio over the past five quarters.
REVPOR in the fourth quarter of 2023 increased by 4% over the fourth quarter of 2022. Current increases for asking rents and renewals are in the 5% to 7% range more moderate than prior years as anticipated. Cash NOI for the quarter grew 12.2% over fourth quarter 2022. More recently, in January 2024, this portfolio's cash NOI posted an increase of more than 25% compared to January 2023. The performance of Sabra's same-store assisted living portfolio is attributable to strong gains made by nearly every one of the operators managing these communities, while the foundation was set by our Inspirit portfolio, which was transitioned from Enlivant in mid-2023, nearly every operator was able to drive REVPOR while managing ex-POR. The Inspirit portfolio, about half of our same-store assisted living portfolio experienced cash NOI growth of 14.5% sequentially and 21% year-over-year.
We continue to see operational, financial and cultural improvement in these communities since the transition. The same-store pool of properties in our unconsolidated joint venture with Sienna, excluding non-stabilized assets and government stimulus had 2.5% higher occupancy in the fourth quarter on a year-over-year basis with a 159% increase in cash NOI in the same periods. The drivers were occupancy increases and 5.7% higher REVPOR coupled with 9.1% lower ex-POR leading to cash NOI margin expansion of 12.7% in the fourth quarter on a year-over-year basis. Our now leased stabilized Senior Housing portfolio continues to perform well with occupancy well above pre-pandemic levels and steadily improving rent coverage. At the end of the fourth quarter, Sabra's total investment in behavioral health remained approximately $800 million.
I want to point out that the trailing 12-months statistics in the supplemental, one quarter in arrears for our behavioral health portfolio shows a slight downward trend over the prior quarter for both occupancy and rent coverage. This is largely a functions of changes in the pool of properties including the addition of our Monroeville residential treatment center to the stabilized pool in the second quarter, Monroeville currently operates at a lower occupancy rate than the rest of the pool, but continues to cover its rent payment. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.
Michael Costa: Thanks, Talya. For the fourth quarter of 2023, we recognized normalized FFO per share of $0.32 and normalized AFFO per share of $0.33. During the quarter, we saw an $800,000 decrease in cash rents compared to the third quarter, primarily due to the sale of a portfolio of 13 skilled nursing and two Senior Housing assets during the third quarter. Also during the fourth quarter, we updated our estimates of performance-based compensation, which resulted in an increase to general and administrative expense totaling $5.1 million of which $3.8 million relates to the first three quarters of 2023 and is normalized out of our fourth quarter normalized FFO and normalized AFFO. These amounts were partially offset by a $300,000 increase in normalized AFFO from our managed Senior Housing portfolio as a result of improved rates and occupancy.
This quarter, we are pleased to introduce full-year earnings guidance for the first time since the start of the pandemic. Throughout the pandemic, Sabra and many of our peers did not issue full-year guidance because the uncertain operating landscape in the industry made it difficult to project expected financial performance with a high level of conviction as the industry enters 2024 with a much improved operational environment and as Sabra specifically enters 2024 with the majority of our portfolio transitions and repositioning behind us, we have a much clearer line of sight into the expected performance of our portfolio for the coming year. Our estimated ranges for the full-year 2024 performance on a diluted per share basis are as follows: net income, $0.53 to $0.57, FFO $1.33 to $1.37, normalized FFO, $1.34 to $1.38, normalized FFO, $1.38 to $1.42 and normalized adjusted FFO of $1.39 to $1.43.
As a reminder, our guidance does not assume any acquisition or disposition activity. I also want to point out a few things on our 2024 guidance. At the midpoint of our normalized FFO and normalized AFFO ranges, we expect to realize year-over-year growth of approximately 5% and 6%, respectively, which would be the first year of earnings growth for Sabra since the start of the pandemic. Our guidance also assumes a return to a more normalized run rate of cash G&A of approximately $36.8 million in 2024 compared to $39.5 million in 2023. As discussed on previous earnings calls, we have no floating rate debt outside of balances on our line of credit. Therefore, we expect cash interest expense in 2024 to remain consistent with 2023 with any variability coming from changes in outstanding borrowings on our line of credit.
Our current quarterly dividend of $0.30 per share would represent an 85% payout using the midpoint of our normalized AFFO guidance. Our expected earnings growth throughout our guidance range would also reduce our leverage from current levels and closer to our long-term average target. Now briefly turning to the balance sheet. Our net debt-to-adjusted EBITDA ratio was 5.74x as of December 31, 2023, and as noted earlier and on previous calls, we expect leverage to naturally decrease as the performance in our portfolio continues its recovery from the pandemic. We remain committed to a long-term average leverage target of 5x and are confident we can achieve that target over time without needing to access the capital markets. As of December 31, 2023, we are in compliance with all of our debt covenants and have ample liquidity of $947 million consisting of unrestricted cash and cash equivalents of $41 million and available borrowings of $906 million under our revolving credit facility.
Finally, on February 1, 2024, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on February 29, 2024, to common stockholders of record as of the close of business on February 13, 2024. The dividend is adequately covered and represents a payout of 91% of our fourth quarter normalized AFFO per share. And as noted earlier, this payout percentage is expected to improve in 2024. And with that, we'll open up the line for Q&A.
Operator: [Operator Instructions] Your first question comes from the line of Joshua Dennerlein with Bank of America. Your line is open.
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