Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sabra Health Care REIT Inc (SBRA, Financial) reported a 17.7% growth in shop cash NOI, indicating strong operational performance.
- Senior housing and skilled nursing occupancy increased, with EBITDARM rent coverage improving for both asset classes.
- The company announced approximately $136 million in new investments, showcasing active growth and expansion efforts.
- Medicaid rate increases are estimated to be roughly 7%, with the top 5 SNF tenants experiencing a 10.6% increase, enhancing revenue potential.
- Labor costs, including contract labor, are at their lowest level since March 2021, with agency costs down 50% from a year ago, improving cost efficiency.
Negative Points
- Behavioral segment rent coverage was down, indicating volatility and unpredictability in this business line.
- Cash G&A expenses increased by $2 million due to performance-based compensation adjustments, impacting overall cost structure.
- Cash interest expense rose by $900,000 due to higher borrowings under the revolving credit facility, affecting financial leverage.
- The company recognized $900,000 of non-recurring business interruption insurance income last quarter, which did not recur this quarter.
- The investment impact on 2024 earnings is muted, with most benefits expected in 2025, delaying immediate financial gains.
Q & A Highlights
Q: Can you provide more color on the occupancy ramp expectations for the senior housing segment in the second half of the year?
A: Talya Nevo-Hacohen, EVP, Chief Investment Officer, & Treasurer, explained that they are seeing consistent growth in both assisted living (AL) and independent living (IL) across the portfolio. The holiday portfolio hit 83% occupancy at the end of July, which is 200 basis points below pre-pandemic levels. The Canadian portfolio is at about 93% occupancy, and three-quarters of the leased portfolio operators are at 85% or higher occupancy. The additional supply is being absorbed, indicating positive momentum.
Q: What is the current investment pipeline, and how does it relate to transaction activity and pricing?
A: Talya Nevo-Hacohen noted that the market for senior housing cap rates starts at 7% and can go up to 8%. They are seeing significant deal flow, with about $0.75 billion under review, though not all will proceed to LOI. The focus is on selective investments that enhance Sabra's portfolio. Rick Matros, CEO, added that the SHOP cap rates are going in yields, with expectations for growth as the business recovers from the pandemic.
Q: Was the SHOP segment the sole driver of the guidance increase, or did investment activity also contribute?
A: Michael Costa, CFO, stated that the investment impact is muted for this year as most activity is in the second half. The guidance increase is primarily driven by the performance in the core portfolio and stability in the triple-net portfolio.
Q: What gives you the confidence to incorporate mid-teens growth in the senior housing managed assets into your assumptions?
A: Rick Matros explained that more time has passed since the pandemic, allowing for increased predictability in the business. Michael Costa added that if the portfolio stabilizes, it becomes easier to predict, and they would consider providing guidance.
Q: What is the expectation for Medicaid rate increases next year, given the current inflation trends?
A: Rick Matros mentioned that while this year may have hit a high point, they expect outsized Medicaid rates next year due to ongoing inflation capture. However, rates are expected to moderate in the coming years as inflation stabilizes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
