Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT Second Quarter 2021 Earnings 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 impact of the ongoing COVID-nineteen pandemic, our expectations regarding our Enlivant joint 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 ks for the year ended December 31, 2020, as well as in our earnings press release included as Exhibit 99.1 to the Form 8 ks 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 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 Investors 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's 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 2 years following his retirement, which essentially means that Harold is just 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 has been with us since inception. In fact, our whole team has been together since inception. So this is a really smooth transition for us, keeps us culturally intact. And we anticipate having Mike's position replaced. Our goal is early in Q4, so we've got a few months of overlap between Mike Harrold and the new individual.
Next, we'll move on moving on to the Enlivant exit. I know some of this was expected. A couple of comments that I want to make. 1, 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 the wholly owned portfolio to continue to work with them and to continue to grow with them after the sale of the joint venture. There were a couple of things that really happened. And just to go back a little bit in history, prior to the pandemic, we're getting pretty close to wanting to exercise the option on the 51% that TPG owned, but the pandemic really changed everything. And 2 things specifically impacted our decision making. 1 is the leverage and while the leverage was high as it is with most PEO companies prior to the pandemic at somewhere around 9 times, it wasn't unreasonable and the size of the check that we have to write to bring leverage down to levels that were flexible to us wasn't an overwhelming amount.
Because of the pandemic and the impact on occupancy and NOI, that leverage is now 20 times. The other issue is the operating company platform, which is really built to support a much larger and growing enterprise in order to accommodate that. And again, that was impacted by the pandemic as well and current management fees no longer support that platform. The structure of the management agreement and the fee structure specifically would have to be increased pretty dramatically to a point that we think is not market. And so those 2 the combination of those two items just makes this something that would be extremely dilutive to us probably over the next couple of years at least.
And it's something that, from our perspective, as much as we like the portfolio, we're better off moving forward. It's immediately delevering and accretive and it simplifies everything about our company and our reporting, which we like as well. And so it's really it really comes down to those issues. So TPG at some point will start the process and we'll tag along with that and that will be that. And the other final point I would make is, when we exited 20 18, we had finished all the restructuring early in 2019 that was related to CCP, along with the sales of Genesis as well and senior care centers.
And we were really focused and committed to our shareholder base on not having noise. And certainly, even though the merger accomplished a lot of what we wanted to have happen to the company, it was a lot of noise over that 18 month period. And over the course of 2019, we stayed true to that. And I think people rewarded as a result of that. We did our first two investment grade note offerings, which were really successful, then the pandemic hit.
But our commitment doesn't change. We want to avoid noise and we just want to move forward and do deals that are more predictable, understandable and just focus on growing the company. The result of our exiting Enlivant puts us in a position that we've actually never been in with lower leverage and the optionality that comes with lower leverage that we've never
had before.
Let me make some comments now about COVID and the current reimbursement environment. So at this point, we're not seeing trends with the variant in the facilities. And the vaccination rate, as we've been talking about the last couple of quarters, is exceedingly high for patients and residents throughout the sovereign portfolio, well over 90%, many of our operators were over 95 percent. The workforce isn't where we would like it to be, but it's certainly much higher than the general population, north of 70% in the aggregate. Although this unlike residents and patients where there isn't much disparity between the uptake rate on patients and residents, there is disparity with employees.
So but 70% to 75% in the aggregate is pretty much where we are in vaccination status for employees. You may have just seen that Massachusetts is now mandating vaccinations for all healthcare workers. We think that's a good thing. We have several operators that have mandated vaccinations for employees, not very many have. I think their primary concern with all the pressures on labor, which I'll get to in a minute as well, is that they'll lose employees.
But I would tell you that for those of our operators that did mandate vaccinations, they did lose employees. And if they had to do it again, they do the mandate again. From their perspective, it was completely worth it. That created a much more comfortable atmosphere in the facilities and they've been replacing the employees that they lost. Unfortunately, we've got other actions happening in other states.
You may have seen in Texas that even if operators want to mandate vaccines, they cannot. So that's really, I find that distressing and a real head scratcher. So it just puts operators in Texas in a little bit more difficult position. But I would say that one of the reasons we're not seeing breakout trends, we have COVID here and there obviously with the variant, but we're not seeing trends because the operators are adhering to protocol. So people are wearing masks and when they come into the facilities, both workforce and visitors.
So that's helping quite a bit as well. So we feel pretty pleased with where we are with COVID in the facilities. Out of all of our buildings, we only have 10 facilities that aren't completely clear of COVID. We actually have one operator that is reopening a COVID unit because one of their primary hospital partners are overrun with COVID and so they're doing that to help out the hospital. So we may see a little bit more of that as well.
In terms of the Provider Relief Fund, it's now at $43,700,000,000 It's increased, as I noted, it would be last quarter because of monies that have been returned by the hospitals. And Phase 4 distribution has been delayed. Really, there were a couple of reasons it was delayed, but most recently it was delayed because of the debate around infrastructure and pay fors. The PRF fund is now protected. And so now we fully expect that there will be an announcement on the announced timing and methodology, but we don't know what it is at this point.
PHE was extended through mid October. FMAP has been extended through December 31, 2021. And the final rule from CMS, the market basket came in at 1.2%, so pretty much where it was expected. And there was no parity adjustment to PDPM this year. I would note that, I see in some I saw in some of the commentary after CMS made the announcement that, some of the analysts out there were expecting that there will be an adjustment next year, so October 2022 for fiscal year 2023, but we don't know about that either.
CMS did note that this year, obviously, it was a tough year to use anything as a database because COVID really impacted all the numbers and really drove up acuity. So we don't even know if the 5% is a real number. Secondly, with the variant affecting operators to some extent, and we don't know how that's going to play out over the next few months, CMS isn't sure how good the database is going to be in fiscal year 2022 either. So we'll see. But however, it turns out, one of the things that we do feel very good about in terms of the relationship with CMS is that they don't want to disrupt the industry.
So anything that they feel they need to do, I think will be spread out in a way over time that doesn't impact our operators. And the fact of the matter is increased Medicare revenue should come from the smart operators who are moving acuity up and not be dependent on market basket and other things. Now let me move on to our acquisition pipeline. Our acquisition pipeline is in excess $2,000,000,000 It's actually busier than it's ever been. So I'm talking pre pandemic times.
It's still primarily senior housing, but we're starting to see some skilled and some more behavioral opportunities. And just a reminder that when we discussed it in our pipeline, those are potential deals that we're actively reviewing. They're always continually coming in and out, and a lot of these will fall off as well. But when we talk about the amount that we have in the pipeline, it's just it's not the amount that hits our desk, it's the amount that hits our desk and after review, we decide to actually spend some time on, do some underwriting analysis, etcetera. In terms of our strategy going forward, we'll continue to be opportunistic within the asset classes that we're in.
And while we would like to find some larger opportunities, we're only going to do larger deals that are clean. We're not going to be taking on larger deals that require restructuring or any of the cleanup that will prolong sort of the noise around the company. And so we'd rather stretch a little bit for a portfolio that's real that has a quality that we really know good about and has clear upside and is accretive as opposed to paying something less for a troubled portfolio. Beyond that, we're laser focused on sort of the bread and butter deals, the $30,000,000 to $80,000,000 deals and even less than that and obviously more than that, because those are the deals that are easily digestible, the team is really focused on it and cumulatively will provide some good growth for Sabra going forward. So regardless of any time we may spend looking at larger opportunities, we never take our eye off the smaller opportunities.
In terms of occupancy trends, our top 8 skilled operators, which is 71% of our NOI since the end of December 2020 bottom are up 6 0 1 basis points in the aggregate. Skill mix while lower than the December high as acuity continues to normalize is 144 basis points higher than pre pandemic levels. We're seeing similar trends in the remainder of our skilled portfolio. Tali will discuss our senior housing occupancy trends with AL improving more quickly than anticipated. I noted earlier, I made a comment about labor challenges.
That's really the biggest challenge right now. Until the pandemic related benefits runoff in September, and you see I know you all have seen this in all sectors, people just aren't coming back to work. And so that's put stress on operators in areas that we haven't seen stress before. So nursing and therapy are one thing because there's always a shortage there. But we're seeing labor stress in departments like dietary and housekeeping and laundry and use of temporary agency in some cases.
So we expect that to improve as we start moving into the Q4. But that's still that's very tough right now and it's going to be tough for a while. And it does have some impact potentially on the trajectory and the rate of recovery for occupancy because depending on what your staffing levels are at any particular time, you may not be able to accommodate every admit. We don't have operators that have had to close off admits. So everybody's admitting, but for example, if you've got 7 admits that you'd like to do in the next week and a half, you may only be able to do 5.
So occupancy growth is continuing to happen, but here and there it could get impacted by some of the labor stress. The skilled portfolio EBITDA and rent coverage is flat sequentially on an EBIT and on an EBITDAR basis remains above 1x when excluding provider relief funds. The triple net senior housing portfolio was down to 1.12 from 1.23 sequentially and that was purely a function of a strong pre pandemic quarter dropping off and that was replaced by a severely impacted quarter coming on the difference in occupancy between the quarter that dropped off and the quarter that came on is 7 80 basis points. Our other acute and post acute operators at 11.6 percent of NOI continue to perform at a high level with coverage and occupancy higher. We continue to be strategically focused on growing the behavioral and the addiction segment.
And with that, I will turn the call over to Talia.
Thank you, Rick. Sabra's senior housing fully owned managed portfolio continued on the path of rebuilding occupancy and net operating income after the successful distribution and implementation of the COVID-nineteen vaccine late in Q1 of this year. The headline numbers for the wholly owned managed portfolio are as follows occupancy at the end of the Q2 of 2021 was 78.4%, up 322 basis points from 75.1% at the end of the prior quarter. Same store RevPOR, excluding non stabilized communities was slightly higher than the prior quarter at $3,230 compared to 3 $1,205 and in line with RevPAR in the Q2 of 2020. Same store cash net operating income increased by 34% sequentially and margin increased by 5.9% compared to the prior quarter in large part because of the occupancy rebound in our wholly owned Enlivant portfolio as well as reduced pandemic related operating costs such as additional labor, PPE and supplies with a small boost of $519,000 of COVID grant income in the Q2 of 2021.
When we look at sequential operating results on a more detailed basis, we see that the pandemic was not uniform in its impact on occupancy with higher acuity assets experiencing greater declines and faster recovery and vaccine clinics being pivotal to this turnaround. Sabra's wholly owned managed assisted living portfolio excluding acquisitions made during the quarter has continued the occupancy recovery that began in the second half of March, driven primarily by our wholly owned Enlivant assets, which comprise about half of the units. From March 2021 to April 2021, occupancy increased by 160 basis points to 69.5%. From April to May 2021, occupancy increased 214 basis points to 71.7 percent. And from May to June 2021, occupancy increased 39 basis points to 72.1%.
From the low in March through mid July, occupancy increased 425 basis points to 71.8%. This trend was driven by our wholly owned Enlivant portfolio, which had spot occupancy of 72.1% at the end of July, 200 basis points above June. We are seeing leads and torques consistently well above 2 19 levels indicating that pent up demand for needs based communities continues. With no current infection outbreaks in this portfolio, MoveOut volume has reverted to normal trends allowing occupancy to rebuild. For comparison, Sabra's net leased assisted living and memory care portfolio has shown continued occupancy recovery increasing 246 basis points in the 2nd quarter compared to the prior quarter.
During the quarter, the increases were steady. From March to April 2021, occupancy increased by 84 basis points to 75.7%. From April to May 2021, occupancy increased 71 basis points to 76.5%. From May to June 2021, occupancy increased 63 basis points to 77.1 percent. And from the low in February through mid July, occupancy increased 505 basis points to 77.6%.
Because we report EBITDA on coverage on quarter in arrears, this portfolio's lower coverage reflects declining occupancy from the pandemic over 11 months, with only March reflecting the post vaccine recovery. Sabra's managed independent living portfolio experienced less occupancy loss in our assisted living portfolio and its recovery has been more gradual. In addition, it has been impacted by deferred move outs, lack of prioritization for vaccine distribution in the U. S. And delayed vaccine distribution in Canada.
From March to April 2021, occupancy increased by 31 basis points to 77%. From April to May 2021, occupancy decreased 52 basis points to 6.5 percent and from May to June 2021, occupancy increased 166 basis points to 78.2%. From the low in May through the end of July, occupancy increased 212 basis points to 78.6 percent. In higher acuity settings, initial vaccination clinics began in January and were completed in February. In independent living, vaccination clinics began in March and continued into April.
In both cases, we see the timing of vaccination in the communities as pivotal to increasing occupancy. Unlike our higher care portfolio of communities, independent living experienced a higher rate of move outs in May, Residents in independent living requiring higher levels of care deferred moving during the pandemic resulting in pent up move out volume, a trend that has reverted to normal levels by this quarter end this past quarter's end. Together, these factors delay the occupancy recovery. Demand for independent living appears to be strong. At holiday, leads are tracking 10% higher than in 2019 and move ins are tracking at nearly 20% higher than 2019.
Importantly, the rate of lead to lease conversion is higher than in 2019. While occupancy gains began to be felt in the 2nd quarter across our wholly owned managed portfolio, pandemic related expenses also dropped 56% quarter over quarter. The decline would have been even greater, but for ongoing workforce challenges being faced, the same challenge affecting all industries and a vaccine mandate as enlivant as of June 1, resulting in temporary increased agency utilization as permanent staff is recruited. In our portfolio, we are seeing nearly all community residents and patients vaccinated. Staff participation has been lower and ahead of industry rate of 67%.
In communities where operators have mandated employee vaccination, we are seeing participation at the same level as residents. There is a cost of this mandate as staff refusing the vaccine must be replaced with temporary labor until permanent employees can be hired. Even in this challenging labor market, we expect vaccine mandates to become increasingly commonplace across all segments of the healthcare industry, considering the current concerns over the Delta variant spread. Enlivant among other operators has already mandated vaccinations and holiday is requiring it of new hires. Our operators continue to put resident safety first.
And with that, I will turn the call over to Harold Andrews, Sabra's Chief Financial Officer.
Thanks, Talia. First, let me just say it's been a real pleasure working with all the investors and all the analysts these past 11 years. It's been a blast and really a blessing working with Rick, Talia, 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 and rather exit the investment when the opportunity to sell arises. And for clarification, the sales process will be handled by TPG. We expect to exercise our tag along rights to sell our interest if and when that sale 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 the current debt to EBITDA of 20 times as of June 30, 2021 compared to the historical 9.5 times leverage has significantly increased the cost to Sabra to buy out TPG and right size leverage on the portfolio to match our balance sheet targets. Additionally, expectations of the need for a higher management fee on the portfolio would further reduce the long term earning prospects below our prior expectations. These factors will result in an extended period of earnings dilution for us if we were to acquire 51% interest at what we believe to be the fair market value of the portfolio. This decision has resulted in our recognizing an impairment on the investment during the quarter of $164,100,000 reducing our carrying value to an estimated fair market value of $114,000,000 Finally, we currently have our net debt to adjusted EBITDA approaching the lowest level we have seen in our history at 4.75x excluding the Aligna joint venture debt.
I would like to point out that the calculation excludes our share of the Alignment joint venture debt and only includes actual cash distributions from the joint venture to Sabra in that EBITDA calculation since this is the proper measure of cash available for us to repay cyber consolidated debt. This current 4.75 times leverage includes only $5,700,000 of cash distributions from the joint venture in our adjusted EBITDA amount as the joint venture suspended distributions to preserve cash during the pandemic. As a result, our leverage will likely be positively impacted by the sale of the portfolio. As an example, if we receive proceeds equal to our new carrying value of $114,000,000 our net debt to adjusted EBITDA would decline on a pro form a basis by 0.19x to 4.56x. The benefit of the potential further delevering are significant to our strategy to maintain a long a strong balance sheet and provide us with significant optionality in how we think about funding future growth.
And now for the numbers for the quarter. For the 3 months ended June 30, 2021, we recorded total revenues, rental revenues and NOI of $152,900,000 $110,800,000 $121,300,000 respectively, as compared to $152,400,000 $113,400,000 and $121,300,000 for the Q1 of 2021. This decrease in rental revenue of $2,600,000 is primarily due to a decrease in collections related to leases accounted for on a cash basis. Note that rental revenues can fluctuate quarter over quarter due to the timing of collections and recording of cash based rental income as demonstrated by our first quarter rental revenue increasing by $2,700,000 over the Q4 of 2020. Total revenues in NOI were also impacted by a $3,100,000 increase in revenues from our wholly owned senior housing managed portfolio compared to the Q1.
The increase is due to a $500,000 in government grant income as well as 2 senior housing management facilities we acquired in 2021. NOI was further impacted by the result of the Enlivant joint venture, which generated $2,300,000 of cash NOI during the quarter. This was lower compared to the Q1 due to a $2,500,000 one time support payment the joint venture made to the management company to support its cash flow needs. Excluding this one time payment, cash NOI increased by $1,700,000 over the Q1 of 2021. Finally, COVID related costs in our senior housing managed portfolio, excluding the joint venture, totaled $400,000 for the quarter, a $500,000 decrease compared to the Q1.
HABFO for the quarter was $85,700,000 and on a normalized basis was $88,400,000 or $0.41 per share. This compares to normalized FFO of $85,500,000 or $0.40 per share in the Q1 of 2021. AFFO excludes from FFO certain non cash revenues and expenses and was $83,900,000 and on a normalized basis was $86,600,000 or $0.40 per share. This compares to normalized AFFO of $83,200,000 or $0.39 per share in the Q1 of 2021. The primary normalizing items for FFO and AFFO was the elimination of the one time support payment made by the Enlivant joint venture to the management company.
The increases in normalized FFO and normalized AFFO are primarily related to increases in NOI previously discussed. For the quarter, we recorded a net loss attributed to common stockholders of 132 point $6,000,000 or $0.61 per share, of which $0.76 per share is the impairment charge related to the Enlivant joint venture. G and A costs for the quarter totaled $8,800,000 compared to $8,900,000 in the Q1 of 2021 and included $2,300,000 of stock based compensation expense in both quarters. Recurring cash G and A cost of $6,200,000 or 5.1 percent of NOI and in line with our expectations. We continue to have very strong liquidity position as of June 30 with approximately $1,100,000,000 of cash and availability on our line.
During the quarter, we acquired 1 senior housing managed community and acquired land for 1 skilled nursing transitional care facility for an aggregate purchase price of $33,900,000,000 with a weighted average estimated stabilized cash yield of 7.78%. Additionally, the skilled nursing transitional care facility is currently under construction with a budget of $19,600,000 and is estimated to be completed mid-twenty 22. We also made an $11,000,000 preferred equity commitment on a 150 unit senior housing development during the quarter. This preferred equity investment earns a preferred return 10% per year and as of June 30, 2021, we had funded $3,800,000 of this commitment. Our year to date investment activity totaled $75,500,000 with an average weighted average estimated stabilized cash yield of 7.94%.
We have completed the sale of 2 skilled nursing transitional care facilities for aggregate net sales proceeds of $5,900,000 These sales resulted in an aggregate $3,800,000 net loss on sale. We issued 4,900,000 shares of common stock under our ATM program during the quarter at an average price of $17.76 per share, generating net proceeds of $85,000,000 As of June 30, 2021, we have $75,800,000 available under the ATM program. With our decision to no longer consider the acquisition of TPG's 51% majority interest in the Enlivant joint venture, we believe we have positioned ourselves well to focus future equity issuance opportunistically in financing growth rather than ensuring that our leverage does not exceed our target maximum ratio of 5.5 times. We were in compliance with all of our debt covenants and continue to have strong credit metrics as of June 30, 2021 as follows: leverage 4.75 times interest coverage 5.2 times fixed charge coverage 5.03 times total debt to asset value 33 percent unencumbered asset value to unsecured debt 300% and secured debt to asset value just 1%. On August 4, 2021, the company's Board of Directors declared a quarterly cash dividend of $0.30 per share.
This dividend will be paid on August 31st to common stockholders of record as of August 17th. The dividend represents a payout of 75% of our normalized AFFO per share. And now a few quick comments about our 2021 guidance. We expect amounts per diluted common share for the full year 2021 as follows: net loss, dollars 0.15 to $0.13 FFO, dollars 1.53 to 1.55 dollars normalized FFO, dollars 1.56 to 1 point 5 $8 AFFO, dollars 1.51 to 1 point 5 3 dollars and normalized AFFO $1.53 to $1.55 The above estimates are based on certain key assumptions spelled out in our supplemental. I'll bring attention to just a few of those.
The estimated amount above do not include any anticipated funds from the Provider Relief Fund for our senior housing managed communities. The Enlivant joint venture is expected to be held through the end of 2021 and contribute normalized FFO and normalized AFFO
during the
second half of twenty twenty one of between $4,400,000 $5,400,000 $3,300,000 $4,500,000 respectively. The senior housing managed portfolio average quarterly occupancy, excluding the JV, is expected to fall within a range of 76.8% 78.9%. During the second half of the year, we expect to close investments totaling $111,000,000 with a weighted average initial cash yield of 8 0.2%. Disposition and loan repayments for the second half of twenty twenty one are expected to total $95,600,000 with associated annualized cash NOI of $6,400,000 We anticipate funding these identified investments with cash on hand and the revolver. Any incremental acquisitions not identified here would likely be funded with the revolver and with match funding the equity component using the ATM program.
And finally, I'll leave you with this. Our expectations for the second half of 2021 imply an expected decline from the first half of twenty twenty one at the high end of the normalized FFO and normalized AFFO ranges of $0.04 and $0.03 per share respectively. The vast majority of this decline is due to higher weighted average shares outstanding during the second half of twenty twenty one as compared to the first half along with lower cash rental revenues due to the transition of 1 operator's assets discussed on our Q1's earnings call, which represents approximately $0.01 of the decline. These declines are partially offset by higher earnings expectations for the managed portfolio in the second half of twenty twenty one as compared to the first half. And with that, I'll open it
up to Q and A.
Thank
Our first question comes from Rich Anderson with SMBC. Your line is open.
Hey, thanks. Good morning. Still out there. So, Harold, you talked about the new carry, implies the previous carry on the JV was $278,000,000 I think I have my math right. And full value of $5.67 at 49%.
I recall talking about the 51% being kind of a $400,000,000 type of nut. Can you just sort of connect the dots to how the value of the Enlivant portfolio in the JV has changed over time, and 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 the 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 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 it's 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 rightsizing 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 that was very informative for our valuation calculations. We utilized a professional firm to help us with that calculation. And certainly, the recent deals provide 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 that we built into it to be conservative. But I don't view it as a stress valuation at this point. I think it's a conservative valuation. But I think when you factor in adjustments to the management fee, you factor in the amount of debt that's on the portfolio, it gives 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, Can you describe the sort of the lack not lack, the motivation of TPG to get it done? I mean, you're still 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 QPG and they've done pretty well on it. And I think they were willing to hang in there pre pandemic for a while as the company was starting to really do well. And as I stated in my opening remarks, we were really getting closer to wanting to do something with that 51%. But the pandemic changed everything, including changing everything for the fund in terms of 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 twenty twenty two, simply because if it takes a few months to find a buyer, it's going to take another up to 6 months to close the transaction.
So yes, it's going to 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, as people have questions. But 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 in line with JV as being deleveraging, that's clear very clear. But maybe you could talk a little bit more about you said the assumption that you think it's also an accretive transaction for you?
Sure. Yes.
I think the way to think about that is we can't stand pat with where we're at with the joint venture. 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 the money to acquire, it would be extremely dilutive 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 dilutive or sell it, which would be accretive to that on that comparative basis. Does that make sense?
Okay. Got it. All right. The other question was, in terms of the guidance, I know you did mention the cash basis tenant last quarter. And I thought the annual rent for that was less than $4,000,000 And yet the guidance now is a little bit higher than that in terms of the cash basis tenant impact.
So is there am I missing something? Is there another tenant that is creating an issue?
So just to get a little bit into the weeds about it, that portfolio that you're right, it's just under $4,000,000 in cash revenues and they paid rent basically through the end of June. That's $2,000,000 in the first half of the year and we're not expecting to get any rents in the guidance for the second half of the year. It's going to take months to get that portfolio transition and the new operator up and running. So that $2,000,000 is that $0.01 I referenced in my comments around the decline. As it relates to comparing first half to the second half, we also had received 100% of the rents from Genesis.
And in our previous guidance numbers, we had assumed Genesis would at some point, we would strike a deal with those guys and reduce rents 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 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 seeing that $2,000,000 decline from that 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 picking up rent again. So that's really just a New York issue. So it's just 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 maybe coming back?
Because it sounds like the move in activity, everything else, Tylio was pointing to earlier was pointing in the right direction.
No, 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 Tali 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, Rick.
Yes.
Thank you. Our next question comes from Juan Sanabria with BMO Capital. Your line is open.
Hi, guys. I'm 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 is there 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?
Thanks, Juan. So we believe TPG is going to start talking to folks after Labor Day. So I'm not sure that they've exactly formulated and settled on that, but that's our understanding. In terms of OpCo, it really goes back to what I said earlier and that is the platform was built to support a company that was going to continue to get larger. TPG continued 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 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 remember, these are smaller facilities.
And so you can't the smaller facilities are more dependent upon corporate support than say larger facilities where you can actually have more infrastructure in place. Our wholly owned portfolio, for example, those are larger facilities. Those aren't the original ALC facilities. They also happen to have quite a bit more memory care as well. So it's really a combination of those things.
And whether there'll be changes to OpCo as a result of the process, we could all just speculate about that, but that's really what the issue is. Does that make sense?
Yes, it does. Thank you. And then just on 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 dipped there for that. And if you could just remind us how much is under that kind of top up MOU type income and that you're booking quarterly now?
And when does that come off again?
So I'll take the first part and Harold take the last part. We haven't had any discussions with them, really since the new management team has been in place. They're aware of the fact that we have other operators that are prepared to take over those 8 facilities if necessary, but they are paying the rent. And as Harold mentioned, they're paying the base rent plus the excess rent. They're both they're similar amounts and that excess rent, about $10,000,000 burns off at the end of 'twenty 2.
Thank you.
Thank you. Our next question comes from Nick Joseph with Citi. Your line is open.
Thanks. First of all, congratulations to both Harold and Mike. Rick, you mentioned being committed to 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 really fit exactly what you're looking for?
It's Talia. 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 large deals that you've probably heard about that have 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 onesies and twosies. They're going to do it by doing $500,000,000 or more, dollars 3 quarters of a $1,000,000,000 at a time.
So they're gunning for those deals. And frankly, 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 you've seen in 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 accretive.
Thanks. And then just 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 you come out of this, how do you think about kind of positioning the portfolio from a geography perspective? Are there any markets that maybe are 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 dispose of something here or there, if the circumstances call forward in a certain market. But 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. Our next question comes from Steve Valiquette with Barclays. Your line is open.
Thanks. Hello, everyone. Thanks for taking the question. You just touched on a couple of these. But Rick, just on that topic of labor and the interrelated impact on snip occupancy, You provided some useful commentary in your prepared remarks.
We did see that one of your SNF REIT peers talked about some portfolio facilities and operators having self imposed admission bans if they cannot staff at clinically appropriate levels. So I wanted to hear just a little bit more on your characterization of your collective operator partners around that, if that's possible. And also if you just break down the paper between RN versus LPN, any comments on severity of labor shortage when breaking it down that way? Thanks.
Yes. So, one, it's not just skilled, it's assisted living and independent living as well. So just as you're seeing in other industries, it's across everything. So but in terms of the self imposed occupancy bands, we don't have any operators doing that. It may restrict the number of admissions.
So the rate of recovery, the acceleration of recovery may be a little bit slower as a result of that in certain markets or with certain operators. But we don't have operators that are in such a severe state that they're imposing occupancy bans. And really the stress is more on the non nursing and therapy areas than it is on nursing and therapy. Nursing and therapy, we always had a certain level of stress there. We don't see a big difference between stress on RN staffing versus LPN staffing.
It's just I think we've caught everybody a little bit off guard with these benefits is the degree of stress that they're seeing in dietary, laundry and housekeeping. I mean, those are just core functions, obviously, for the facility.
Got it. Okay. All right. Appreciate the color. Thanks.
Yes.
Thank you. Our next question comes from Daniel Bernstein with Capital One. Your line is open.
Hi. Good morning. I wanted to go a little bit into the RevPAR growth, strength of that, that you saw in seniors housing, particularly A and L and maybe the mechanics behind that? Is it more of a function of increasing acuity, in place rent raises, maybe operators holding the line on incoming rent and not discounting as much. Just trying to understand maybe the sustainability of that because it's been a little bit stronger than I expected.
Thanks.
Stronger than you expected is a good thing. Yes. We have seen RevPAR be very consistent throughout the pandemic and it continues. And it's been surprising because you've had such occupancy pressure during the worst of the pandemic and yet RevPAR didn't really move much. It was all about occupancy.
So when we looked at room and board versus care levels, it really you can't tease out an answer like you think like always all in the level of care. Yes, there's probably in some instances a little more level of care, but in that number that I spoke to and that I've spoken to in the past, is also independent living where there's no level of care. It's just held pretty stably because it's not a price sensitivity. That's our conclusion. There has been discounting in the market overall.
We're seeing that come in and ratchet down to be more clear about it. So that it's not quite as much as what we had seen before among all the operators. And we've seen some operators be very aggressive on discounting in or from their regular rates in order to just get heads in the beds. The operators in our portfolio have not been aggressive on discounting. They've really held firm.
Partly, it's a value proposition. And frankly, the cheapest solution is not necessarily the best is often not the best solution in these cases when care is an issue. And so we've seen the continued stability of RevPAR. It just hasn't waned.
Okay. And I guess maybe a related question or combined with occupancy. I don't know if you gave this out earlier, but
do you
have any forecast for what margins might look like the second half of the year? I know that Delta variant could probably monkey wrench into that, but margins were big pickup in margins in the Q2 versus 1Q. And do you have any thoughts on where margins are heading, particularly in light of some of the labor pressures out there?
I'm hesitant to predict. Delta variant aside, if we don't have something major and we don't have next version of the post delta variant, which I heard about this morning. Then I think continued occupancy growth, which is what this is all about and expense expenses coming into control suggest expansion of margins and heading back to trending back to a normal level. Now we've been fairly conservative in terms of our view about when senior housing returns to kind of pre pandemic levels. So I would lay that I would lay margins out along the same timeframe.
And so Dan, another way to think about it is we expect margins to improve, but because of the variant, we're not willing to say that they're going to improve in the next quarter. But at the same time, they just didn't say improve from Q1 to Q2.
Okay. And then one last question. I mean, how do you feel your operators are prepared for the current surge, especially in terms of like PPE, I mean, the masks and gallons, things like that? Are you seeing any shortages or prices going up on that?
Yes. Actually, we're not seeing much in the way of shortages primarily because the December surge really hit inventory and depleted PPE. And so the 1st 6 months of this year has been a concerted effort to rebuild PPE. So it's more normal level stuff now because as I noted earlier, even though the external communities don't seem to think COVID exists in a lot of states, in the facilities, they adhere to protocols. And so they've maintained enough PPE to do what they need to do within the facilities.
And so, yes, I think they from a PPE perspective, I think they are prepared for issues related to this variant and look, we know there are going to be more mutations. So that's sort of whatever comes next. But we also think that I'm not sure it will be to the same extent that we saw last year, but the adherence to protocols should have a positive impact on the flu as well this year. It was great last year, the impact, but it should be helpful this year as well. So, we're guardedly optimistic that the flu season won't sort of do what it normally does because of the protocols they're still being adhered to at the facility level.
I appreciate all the color. Thanks.
Yes.
Sure. Thank you. Our next question comes from Lukas Hartwich with Green Street. Your line is open.
Thanks. Most of my questions have been answered, but I was hoping on the managed senior housing portfolio, can you disclose how 2Q NOI compared to pre COVID levels for that same portfolio?
Well, our supplemental has 2Q 20 20 and on the same store basis. So that gives you some gauge because obviously 2Q 2020, I guess that's the very start of the pandemic.
We can get you more.
I'll have to
get you more. I'll have to get you more. I'll have to get you more. I'll have to get you more. I'll have to get you more.
I'll have to get you more. I'll have to get you more. I'll have to get you more. I'll have to get you more. I'll have to get you more.
I'll have to get you more. I'll have
to get you more. I'll have offline.
So that was a as we've been talking about the manager has operates at a loss and with the pandemic and the impact on lower revenues and therefore lower management fees, they were in a situation where they needed to get shored up a little bit on their cash flow. And so we and TBG is the owners of the portfolio, the JV made the determination to provide them with a $5,000,000 incremental management fee for the quarter to get their cash flow shored up during this time. And so that's what that relates to. It's one time. It will be the only time that we provide that incremental cash payment.
And so we normalize that. If we haven't made the
decision to exit, it might have been a need to do a little bit more, but since we made the decision to exit, it's one time only.
Right. Okay. Thank you.
Thank you, Chris.
Thank you. And there are 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 anything that you want to follow-up on, as always, we're readily available. And take care. Thanks again. Be safe.