Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT Second Quarter 2019 Earnings Conference Call. This call is being recorded. I would now like to turn the call over to Michael Costa, EVP Finance. 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 acquisition, disposition, and investment plans, our expectations regarding our financing plans, and our expectations regarding our future financial position and results of operations. 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 31st, 2018, in our Form 10-Q for the quarter ended March 31st, 2019, and June 30th, 2019, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished 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 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 Investors section of our website. With that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.
Thanks, Mike. Appreciate it. Thanks, everybody, for joining us today. We had a productive first quarter, particularly in the context of creating long-term value for our shareholders through the execution of a number of things that improved our balance sheet, including our first high-grade issuance. We're fully committed on a new credit facility, which will lower our cost of debt as well. We've made significant progress on de-levering our balance sheet, and we've kicked off the process to pursue getting a new joint venture partner for our Enlivant joint venture. We hope to conclude that process by year-end. That will mitigate the need for any material equity raise on our part. I know everybody has been expecting us to pull down 100% of the JV, which would require a significant check. That won't be the case.
Harold and Talya, when we get to their sections, will provide more detail on all the aforementioned items. We are reaffirming guidance. Our acquisition pipeline currently stands at about $500 million, primarily senior housing, but we are starting to see some skilled deals now. We had mentioned, I think on the last call, and certainly the last couple of conferences, that we've been exploring opportunities to enter the addiction chemical dependency space. Similar to the behavioral space, we really like it a lot. It's got tailwinds, it's got strong reimbursement, and from a policy perspective, it's viewed as important and getting a lot of support. We've been pursuing potential opportunities there. We'll be closing on our first small deal there. It's not that material, but it'll allow us to get into the space and start developing a reputation as a capital partner there.
We're working on some other deals as well. In addition to that, with our operating tenants, we're looking at repurposing a handful of facilities that can be converted to things like addiction, behavioral services, and the like. We've got a couple of operators that have been very active in that regard. We look forward to doing more of that as well. There aren't very many other uses for skilled nursing facilities. Some others for senior housing, but there's some limitation there as well. This is a perfect avenue to pursue in those markets that lend itself to having those kinds of services rather than the existing services that currently exist. We expect to see from our proprietary development pipeline about $70 million coming in this year from options that we're going to exercise. Those properties will be in at about 7.5% cap rate.
Again, 7.5 cap rate on brand new senior housing product is quite a bit better than we could get buying 25-year-old, older assets at this point. We have about $130 million left in that pipeline that'll be coming in after the end of this year as well. We still have a little bit of ways to go on that. In terms of operations, our triple net senior housing same-store EBITDA was flat sequentially at 1.33. Our same-store senior housing occupancy was up 120 basis points to 86.1%. Our skilled portfolio was stable with EBITDA sequential coverage at 1.76 versus 1.77. Our occupancy and skilled mix were down 20 basis points and 30 basis points to 83% and 39.4% on skilled mix, respectively. We have no tenants remaining that require restructuring and no additional disposition plans beyond what we've already announced.
I do want to comment on a couple of our top 10 tenants that had some reduction in coverage. Avamere and Healthmark, and McGuire all came down, that was primarily due to an exceptionally strong first quarter 2018 that fell off a trailing 12, it just wasn't a good comp. Their current performance is steady. We see no erosion with those operators and expect no changes there. Avamere is going to benefit from a significant rate increase in July from the state of Oregon and also a really nice benefit from a new pharma contract that's going to materially improve their NOI. Washington State, which has really been the problem with that portfolio, is now saying that they are going to have a material Medicaid rate increase, potentially in the first quarter of next year. It's Washington State, we'll believe it when we see it.
There does appear to be some positive momentum there. The other tenant that I want to mention is North American, which drifted slightly down from 109 to 107, but on a current trailing three basis ending May of 2019, they're up over 1.2 and continue to show improvement. That's trending the way we anticipated it would trend. Again, no need from our perspective to contemplate doing anything different with rents or sales of assets. Finally, CMS confirmed the 2.4 market basket for October 1st this year. In conjunction with that, we'll see the implementation finally of PDPM. We recently had our Operator Conference last month.
We had 35 to 40 of our operators there across all asset classes, spent a lot of time sharing best practices, talking about not just PDPM, but other opportunities that are coming into play from a reimbursement perspective, both for skilled nursing and for senior housing. It was very productive, and every one of our operators are reporting really good progress in terms of preparing for PDPM. We don't expect any sort of downturn from the transition going through PDPM, although we think it'll take a little bit of time to get the full benefits of it, particularly on the revenue side. Most people get focused on the cost savings that come along with PDPM, and those are a lot easier to model and calculate. There will be revenue changes as we see some corresponding behavioral changes with the new reimbursement system.
I feel good about that as well, and look forward to having a good solid base now with a much stronger balance sheet and look for a good growth as we go into 2020. With that, I'll turn the call over to Harold. I mean Talya, rather. After Talya and Harold are done, we'll go to Q&A. Talya?
Thank you, Rick. I'll provide an update on our managed portfolio. In the second quarter of 2019, approximately 16.4% of Sabra's cash net operating income was generated by our managed senior housing portfolio. Approximately 56% of that relates to communities that are managed by Enlivant, and 33% relates to our Holiday managed communities. The balance includes our Canadian portfolio and three small communities in the U.S. On a same-store, year-over-year basis, the managed portfolio, which excludes the Holiday assets, had solid results in the second quarter compared with the second quarter of 2018. Revenues increased by 3.1%, cash net operating income increased by 3.6%, and revenue per occupied unit, excluding the non-stabilized assets, was up 4.7%.
I remind you that last quarter, the story was very similar when we reported same-store results with a 3.9% increase in revenue, 2.4% increase in cash net operating income, and a 4.6% increase in revenue per occupied unit. Our operators are successfully balancing occupancy versus rate and improving profitability in spite of the industry headwinds that we all hear about. For some details. The Enlivant joint venture portfolio, which is 170 properties as two communities were sold in the second quarter, of which Sabra owns 49%, showed steady improvement. Average occupancy for the quarter was 81.8%, which is 0.9% higher on a same-store, year-over-year basis. Revenue per occupied unit was $4,272, 5.2% higher on a same-store, year-over-year basis. This is the highest rev per achieved during our hold period. Importantly, cash NOI margin was 24.9%, up from 24% on a same-store, year-over-year basis.
For the first half of 2019, the Enlivant joint venture's cash net operating income was 6% higher than in the first half of 2018. Sabra's initial minority investment in the Enlivant joint venture was always viewed as the first step towards making a long-term investment in the portfolio. With this in mind, Sabra negotiated an option to buy out TPG, its partner in the joint venture, exercisable through January 2021. This allows us to own or control the joint venture long term while providing liquidity for our partner by either buying out TPG or taking a controlling interest in the JV by bringing in a minority partner.
We have now started the process to identify an investor, preferably with a long-term investment horizon and an appreciation of the strength of the Enlivant platform, who would be interested in co-investing with Sabra in the joint venture. This would allow Sabra to take a controlling interest in the joint venture with minimal additional capital and retain optionality for Sabra to own 100% of the portfolio at some point in the future. Both TPG and Enlivant are supportive and actively involved as partners in our process. To the results of the wholly owned managed portfolio. Sabra's wholly owned Enlivant portfolio of 11 communities gave back some of the outsized gains that were made in 2018. Occupancy was nearly flat to the prior quarter at 90.7%, but declined on a year-over-year basis by 3.4%, reflective of lower move-in volume.
Revenue per occupied unit rose to $5,431, a 1.3% increase over the prior quarter and 6.7% over the prior year. Cash NOI was down 5.6% on a year-over-year basis, driven by certain one-time expenses such as insurance claims. For the first half of 2019, the cash net operating income was 4.6% higher than in the first half of 2018. We transitioned our Holiday portfolio from our net lease to managed portfolio at the start of the second quarter. This is the first time that we are reporting community-level statistics. Portfolio occupancy was 89.1% in the quarter, slightly higher than 89 flat in the prior quarter, nearly one point higher than in the second quarter of 2018. RevPOR was $2,459, which is even year-over-year. The Holiday team has maintained its focus on operations despite the distraction of negotiating with each of its landlords over the past year.
Since the transition was completed, we have worked with Holiday to explore acquisitions of independent living communities catering to the middle market, a product type where we believe a company excels. Sienna Senior Living manages eight retirement homes for us in Ontario and British Columbia. In the second quarter of 2019, the eight properties managed by Sienna showed steady operating and financial results with 89.6% occupancy, slightly down relative to the prior quarter. RevPOR was $2,191, which was even with the prior quarter and 3.2% higher on a year-over-year basis, and cash net operating income was up 4.2% on a year-over-year basis and flat sequentially. We continue to reinvest in our Canadian portfolio and work with our partners closely to ensure that the communities are competitive and profitable in their markets. With that, I will now turn over the call to Harold Andrews, Sabra's Chief Financial Officer.
Thank you, Talya. This quarter was marked by significant progress towards improving our balance sheet, including our stated goal of lowering leverage to below 5.5 times by year-end. Our efforts resulted in an improved cost of debt and significant improvements in other key credit metrics. First, we completed the issuance of $300 million of 4.8% senior notes due 2024. Our first issuance since the completion of our merger with Care Capital Properties, Inc., allowing us to take advantage of the investment-grade bond rating that merger provided. The net proceeds from the offering, together with borrowings on our revolver, were used to redeem all $500 million of our outstanding 5.5% senior notes that were due 2021, improving both our debt maturities, schedule, and our cost of debt. We also sold 11.1 million shares of common stock under our ATM program during the quarter, generating net proceeds of $214 million.
These proceeds, together with the proceeds from real estate sales, were used to reduce total consolidated debt by $545 million from $3.2 billion as of March 31st, 2019, to $2.7 billion as of June 30th, 2019. These transactions combined to lower our cost of permanent debt by 19 basis points to 4.09% as of June 30th, 2019, and to reduce our net debt to adjusted EBITDA ratio, including our unconsolidated joint venture, from 6.08 times as of March 31st, 2019, to 5.76 times as of June 30th, 2019. This 32 basis point reduction in leverage takes us more than halfway to our year-end goal of leverage below 5.5 times. In addition, these activities improved our credit metrics compared to the first quarter of 2019. Our interest coverage improved 4.43 times, increasing to 4.62 times.
Our fixed charge coverage improved 0.4 times, increasing to 4.46 times, and our total debt to asset value improved 9%, decreasing to 39%. Finally, we recently kicked off the process of amending and extending our $2.2 billion credit facility, and as of today, have received commitments from our key lending relationships for the full amount of the amendment facility. Closing on this amendment is expected to occur in the coming few weeks, and we expect strong participation from our important banking relationships. This amendment will improve our interest rate spreads on the term loans in revolver by 20 and 15 basis points respectively based on our current credit rating, saving over $2.8 million of annual interest expense using our current revolver balance.
Furthermore, it will improve our debt maturity laddering by extending the maturity of the revolver by two years to August 2023 and creating additional laddering of our term loans with various maturities through August 2024. Along with this amendment, we took advantage of the recent interest rate environment and extended our interest rate protection for the vast majority of our variable rate term loan borrowings through their new maturity dates using a mix of forward interest rate swaps and collars. These steps have put us in an excellent position going forward to fund future growth opportunities while eliminating a significant amount of interest rate and refinancing risks. Now a few comments about the financial performance for the quarter.
For the three months ended June 30, 2019, we recorded revenues and NOI of $219.4 million and $198.2 million respectively, compared to $136.8 million and $129.3 million for the first quarter of 2019. These increases are primarily due to $66.9 million of lease termination income recognized in the current quarter related to the transition of the Holiday communities to our senior housing managed portfolio, of which $57.2 million was a cash payment received and $9.7 million was related to net assets obtained in the transition. In addition, resident fees and services revenues increased $19 million, and senior housing managed portfolio operating expense increased $12.2 million, primarily due to the Holiday transition from a triple net lease structure to our managed portfolio. Our same-store triple net skilled nursing portfolio cash NOI increased $3.8 million or 5.3% over the first quarter.
This increase is primarily due to the adoption of the new lease accounting standard in the first quarter, which we discussed last quarter and detailed in our filings. Specifically, under the new standard, we began recognizing revenues for certain leases on a cash basis, and in the first quarter, we saw a reduction in earned cash rents of $2.2 million due to timing of collections. This quarter, cash rents paid were higher for those tenants than last quarter, resulting in this same-store NOI increase. There were no changes during the second quarter to the group of tenants accounted for on a cash basis, and we expect some continued variability in cash collections for these cash-basis tenants at least through the rest of 2019, as they are generally operations in some phase of transition. Most notably, the NMS portfolio transitioned to one of our strongest operating partners.
FFO for the quarter was in line with our expectations at $139.4 million and on a normalized basis was $84.7 million or $0.46 per share. FFO was normalized to exclude the $66.9 million of lease termination income, $10.1 million loss on extinguishment of debt due to the $500 million senior note redemption, and a $1.3 million of unreimbursed triple net operating expenses. AFFO, which excludes from FFO merger and acquisition costs and certain non-cash revenues and expenses, was also in line with our expectations at $132.4 million and on a normalized basis was $83.9 million or $0.46 per share. AFFO was normalized to exclude $57.2 million of cash lease termination income, $6.9 million of cash loss on extinguishment of debt, and $1.3 million of unreimbursed triple net operating expenses. This compares to normalized AFFO of $84.3 million or $0.47 per share in the first quarter of 2019.
For the quarter, we recorded net income attributable to the common stockholders of $83.7 million or $0.46 per share. G&A costs for the quarter totaled $8.1 million, including $2.8 million of stock-based compensation expense. Recurring cash G&A costs of $5.4 million or 4.1% of NOI for the quarter, excluding the Holiday lease termination income and in line with our prior quarters. We expect quarterly cash G&A costs to average approximately $5.8 million going forward. Our interest expense for the quarter totaled $33.6 million compared to $36.3 million in the first quarter of 2019. Interest expense includes $2.8 million and $2.6 million of non-cash interest for the second and first quarters respectively. Borrowings under the unsecured revolving credit facility bore interest at 3.65% at June 30, 2019, a decrease of nine basis points from the first quarter of 2019.
We sold 28 skilled nursing facilities and seven senior housing communities during the second quarter of 2019, generating net proceeds of $322.7 million and recognized a $2.8 million net gain on sale. In addition, we sold two senior housing communities that were part of our unconsolidated joint venture and recognized a net loss of $1.7 million, which is included in the loss from unconsolidated joint venture line item on the income statement. We were in compliance with all of our debt covenants as of June 30, 2019, and in addition to the metrics I mentioned previously, we saw secured debt to asset value decline from 7% to 2% and unencumbered asset value to unsecured debt increase from 233% to 246% quarter-over-quarter.
As of June 30, 2019, we had total liquidity of $772.4 million, consisting of unrestricted cash and cash equivalents, $47.4 million, and available funds under our credit facility of $725 million. As Rick said, we reaffirm our previously issued 2019 guidance. I would like to highlight a couple of items. Net income and AFFO were positively impacted by the $9.7 million non-cash lease termination income. As such, we expect for 2019 to be near the high end of our guidance range for these measures. AFFO was positively impacted by the classification of certain costs of disposing and transitioning facilities previously operated by Senior Care Centers as an impairment charge. These costs were classified as cash expenses in the original guidance and had the effect of decreasing AFFO.
As such, we expect 2019 AFFO to be near the high end of our guidance range. Normalized FFO and normalized AFFO ranges remain unchanged. However, we expect normalized FFO to be near the low end of the range due to the reduction of straight-line rental revenues associated with certain leases converted to cash basis under the new accounting standard adopted in 2019 that we discussed in the first quarter and that I mentioned above. Straight-line rents were $2 million per quarter prior to the accounting change. As such, this change reduces straight-line rental revenues expected for 2019 by approximately $0.04 per share for the year, but again, does not impact our expected cash rent collections in our guidance and accordingly does not impact our normalized AFFO guidance.
Earnings guidance continues to be based on our expectations of reducing our debt to adjusted EBITDA to below 5.5 times by December 31, 2019. Finally, on August 7, 2019, the company announced that its Board of Directors declared a quarterly cash dividend of $0.45 per share. The dividend will be paid on August 30, 2019 to common stockholders of record on August 20, 2019. In terms of cash flows and the related funding of the dividend, we expect full year 2019 cash flows from operations to fully cover our 2019 dividend payments. Notably, the cash payment from Holiday represents available funds generated from the portfolio for dividend payments in the future, totaling $0.31 per share. With that, I'll turn it back over to the operator to open it up to Q&A.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Trent Trujillo with Scotiabank. Your line is now open.
Hi. Good morning out there. Rick and Talya, I appreciate that you've spoken about some of your year-over-year comps and the benefits you should see in the back half of the year. Regarding same-store NOI guidance, given negative, I think it's 2.7% growth on your wholly owned seniors housing managed portfolio according to the supplemental, how comfortable are you with the 3%-6% range? The results have been better for your unconsolidated portfolio, but in both cases, guidance assumes about 11% growth in the second half of the year. Do the results suggest you're trending toward the low end?
Yes. If you look at 2018 numbers, the flu last year created basically a relatively low bar for year-over-year comp. We expect to have an ability to beat 2018 in the second half in a material way. We also, in our smaller operators, that I didn't spend a lot of time talking about, they had some downward trends in the second half of 2018, and that has turned around. They are trending positive, which will also have a material impact, because we are talking, after all, about fairly small numbers here.
Yeah. The other thing I would add to that is, Harold, is the rate increase that we expected on the wholly owned Enlivant portfolio as well. That'll have a nice impact in the fourth quarter.
Okay.
Yeah, current trends are better as well. Even forgetting about 2018, certainly in 2019, current trends are better.
Okay. That makes sense. Just to, I guess, follow up on that maybe a little bit more, I think on the last call you mentioned, like for the Enlivant JV specifically, you had easy comps in the second and third quarter. There was a lot of discussion about situationally or theoretically, if the first quarter NOI was the run rate for the year, then you could hit your guidance. In the second quarter, that NOI, despite being strong at $7.3, it was not flat quarter-over-quarter, and the margin declined. Even with the favorable comp in third quarter, how much more can that accelerate?
Well, it's going to accelerate dramatically in the fourth quarter because we're expecting, again, upwards of 5% rate increases in the fourth quarter.
Yeah.
Similar to what was in 2018.
Right. The trends are better now anyway, so we expect third quarter to be stronger than second quarter, as it currently was. As you just noted, over 7% growth is pretty strong, and the question really is how much sort of outsized growth can we have in the managed portfolio to completely offset
To change an accounting rule that we have no control over. We're not going to mitigate that completely. Again, those current trends and the rate increase that Harold just referred to will get us where we need to be for the year.
Okay. Thank you for that. I guess turning to a different topic, how are you viewing dispositions with respect to both portfolio management and as a source of capital? At the beginning of the year, you had $600 million in guidance, and that's been reduced to effectively about $400 million. From a funding perspective, seems like that could be offset from the equity you've been issuing. How are you looking at your portfolio quality, pruning whatever's non-core, and does that additional $200 million get pushed into 2020, or is that now being retained?
I'll answer the question about what's being pushed and what's being retained. There's a handful of property sales that were being pushed to next year. There's a handful of properties that are not being sold. One particular portfolio that we wanted to hang on to, we were able to negotiate with the buyer who had the right to purchase that portfolio from us this year, hence why it was in our disposition expectations. We're going to be able to hang on to that. As it relates to funding, you're exactly right. We're going to see less de-levering if we're hanging on to some of these portfolios. As we saw the disposition levels drop, it results in a slight increase in leverage, therefore requiring us to raise a little bit more equity.
That's why, while you see maybe a little higher NOI that we're being able to hang on to, if we hang on to these facilities, we have to issue a little more equity to hit our leverage targets. They kind of offset each other, where you kind of end up in the same place, if you will.
That's all baked into the numbers, obviously. In terms of pruning the portfolio more, other than what's been announced, we're pretty much where we want to be. That doesn't mean that there won't be a building here or there that we're going to want to dispose, but for all intents and purposes, we're pretty much done. As I mentioned early in the call, we have a few facilities, primarily with one operator, that they really see some upside to repurposing for different kinds of services other than skilled nursing services, like behavioral services. They won't be dispositioned, and that should provide upside to those existing assets.
Okay, great. Maybe one more for me. The guidance for CapEx increased, but I think you kind of messaged that this would be the case since you'd be responsible for it following the Holiday transition and other moving pieces. As you evaluate those properties, how are you thinking about recurring or maintenance CapEx on a run rate basis? Was there much deferred maintenance that might inflate the near-term CapEx spend and then normalize? How should we think about that?
Since the portfolio has been in our hands since 2014, and we did an extensive review at the time of the acquisition, I don't expect that there's really any deferred CapEx. Whether we choose to undertake projects that are more defensive than offensive to maintain and gain market share, that'll be part of our asset management teams with annual review associated with the budget.
Okay. Thank you.
Thank you. Our next question comes from Nick Joseph with Citi Research. Your line is now open.
Thanks. Maybe just sticking to the equity, I think at the beginning of the year, you had talked about $0.05-$0.08 of dilution from equity issuance. Obviously, you've done some of that and maintained your leverage target, but I'm wondering if that's still the amount of equity you're expecting to raise this year in 2019.
Yeah, Harold, I think the impact on our dilution from raising equity is still within that range.
Okay, thanks. Maybe just on Enlivant, wondering what, maybe a little more color there, what % of ownership would you ideally like to have with the new JV partner? How do you think about overall valuation now versus when you initially did the JV?
In terms of percentage ownership, we'd like to have a controlling stake, so that would suggest we want to be at 51%. That's not a fixed number. I think it'll be really a function of the discussions we have with investors. Our preference is to put in a small amount of additional equity and have a controlling interest and replace the balance with another long-term partner. We'll see what investors say. If there's an interest for some to come in at 30%, we may or may not be interested in that. We'll have to gauge that.
The additional commentary I'd give you is, nothing's changed for us in terms of how we view that portfolio and our desire to own 100% of the portfolio at some point in time. There's no rush for us to do that, and you're getting a bit of a box right now because in addition to the equity we're raising through the ATM, which we're getting to the end of, obviously, but it's a big check to write to take that whole thing down. It's created a significant overhang on the stock, and if there's an overhang on the stock, it prevents the stock from getting to the point where you can do something that's accretive on pulling the whole thing down, right? I think pursuing the JV can bring us a long-term partner, give us controlling interest.
It should alleviate the overhang we have because we're just not going to have to raise a material amount of equity, and it'll limit our downside risk and give the portfolio a little bit more time to mature. I think all of that is going to be beneficial to our shareholders, and that's why we're pursuing it in that light. As Talya said, we'll see how the negotiations go relative to the %, but it's not going to be a big change in all likelihood from where we are now. It's actually a pretty large universe of potential partners out there.
I think as Talya mentioned in her prepared comments, the fact that TPG has explored a lot of these partnerships in the past and is an active partner with us on helping us to make this happen, we really want to express our appreciation to them as well as the Enlivant team for that.
Thanks.
Thank you. Our next question comes from Chad Vanacore with Stifel, Nicolaus & Company. Your line is now open.
Thanks. I apologize if I missed this, but in your press release, you mentioned a $0.04 impact from moving leases to recognize those on a cash basis. Can you give us some more details about what's going on there?
Sure, Chad. Going back to the last quarter when we transitioned certain leases that under the new accounting rules requires a very high level of confidence that you're going to collect virtually all of the rents over the life of a 15-year lease. It required all the REITs to take a look at those leases and determine which ones weren't hitting that threshold and put them on a cash basis. We did that in the second quarter, and we identified properties that had straight-line rents associated with them of about $2 million a quarter. What you're seeing in that $0.04 is basically an $8 million of annualized straight-line rents that was in our original guidance number, that now is out of our guidance number.
That's why we updated our expectations within the range for our FFO number to account for that $0.04 decline that we saw.
All right. Harold, how many properties, how many operators are we talking about there?
There's a couple. The old NMS portfolio is one, and then there's a handful of others. It's probably 10 or 12 total operators.
Two operators account for about half, and the rest are pretty negligible.
Okay.
Both those two operators, by the way, because you'll recall, the Cadia team took over the NMS portfolio. Both those two operators are operators that we consider to be really strong operators.
Okay. I was just thinking about, you were talking about transitioning some properties to behavioral health, and these are skilled nursing properties. Maybe what kind of capital improvements are those going to need to do that? Are you going to need to expand your partnerships somewhere else?
It doesn't really require much capital improvement at all. The physical plant within a skilled nursing facility can pretty much accommodate, for example, any kinds of behavioral services. Historically, for me, in my old operator days, I ran behavioral programs under skilled licenses with facilities that if you walk through them, you wouldn't notice any difference other than who the clients are. Right? There's not going to be a material amount of capital there. To the extent that there is some capital that's required, then we'll be a partner for those operators. As typically happens in those things, once REIT kicks in some additional capital, we usually get our return through increased rents.
We don't necessarily anticipate needing to create new partnerships to do that because we have operators that understand that business and can segue into it, and it's not going to be a huge move in the context of their entire portfolio. As we've said before, we do want to expand our presence in the space. It's just the opportunity is a few and far between. It's still a very fragmented space. It's still a space that's got a limited number of operators that sort of have a tried and true history. It's a little bit tough to find things, but we're working at it. To the addiction space, I'd make similar comments, except to say that it's even younger by a long shot than the behavioral space.
It's taken quite a bit of time on our part to find operating teams that we actually really feel good about going and wrapping our arms around it and making a really an immaterial investment in our first foray into the addiction space is a good way for us to go.
All right. That's it for me. Thanks.
Yeah.
Thank you. Our next question comes from Rich Anderson with SMBC Group. Your line is now open.
Thank you. Good morning.
Good morning.
Back to the Enlivant situation. Could this be structured as almost like a fund to funds, where you get into a joint venture with an investor and that joint venture makes an investment into the existing joint venture? Is that how it's going to work, or will it be more of a direct investor into what is already existing with you and TPG and Enlivant?
Okay, I'm going to explain it the way I think about it, which maybe that'll clarify it for you.
Okay.
Imagine Sabra replaces TPG as one investor, and some new investor comes in and replaces Sabra. Sabra is the new 51% owner.
I see.
Somebody else, TBD, is the new 49% owner.
Yeah.
I gotcha.
You have to take TPG out. The whole thing happens sort of simultaneously.
Yes.
Right. Okay, that's great. Okay, gotcha. From the standpoint of, does the January 2021 exercisable date sort of go poof once this happens? You have no specific timeline to buy out the entirety of it? I guess it would, right? Because TPG would be gone.
That'll go by the wayside, and there'll be a new agreement, however long that agreement is, and there'll be windows within that time period as well, but that all remains to be negotiated.
Okay.
Yes. In the context of a new investor, yes. We also have If we don't exercise our purchase option by that date, just to make sure I cover the question completely, we still have a right of first offer in case TPG wants to do something.
I see.
We're not stopped if we don't get it done by January 2021.
Okay. Very helpful. Thanks for that. Talya, you also mentioned 16.4% is your SHOP portfolio exposure today, including Holiday. A question for anybody. What's the appetite to ramp that up to maybe do some other transitions to RIDEA or to have increasing more of your acquisition activity be structured that way? Is there a magic number? Is it bigger than 16.4%? I'm just curious where you land on that issue.
Yeah. There's not really a magic number. Part of the increase is going to be dependent upon how the JV is structured in terms of our ownership.
Right.
If we had pulled out 100%, I think it was going to pop us from 16.5% to 30%, but that's not going to be the case now. Really, outside of Holiday, Enlivant, and Sienna, all the rest of our senior housing operators are minuscule. Any additional growth outside of what happens with the JV on SHOP is going to depend on the acquisition opportunities that we find. If you want to stay in the senior housing space, then you're going to do SHOP deals. You're not going to do triple net deals. The only deals that we've seen that are triple net deals just haven't been attractive to us. For example, there was a facility that we took a look at, and it was almost 40% Medicaid. It was a great cap rate, but it's only a great cap rate if you love Medicaid labor.
We don't, and we certainly don't love it at that level. We chose to pass on bidding on that kind of asset. If you sort of carve out those kinds of things or turnarounds, pricing hasn't improved much yet.
Okay. Last question. Rick, you said you're not in a big rush on Enlivant. I agree that it's a good stepping stone to perhaps not write the big check today. In terms of not being in a rush, the joint venture portfolio is obviously significantly under-occupied relative to what the potential there is. What do you think the timeframe is to get from 82 to 89-ish with Enlivant? I imagine you would like to have a lot of that happening on your watch as much as possible.
Yeah, I think it's going to take several years still for that to happen.
Okay.
There's still some oversupply there. There's absorption that needs to happen. I think we've got a pretty long window there for that to happen. It's speculative, obviously, how long it takes Enlivant to get to industry average. By the time it gets to industry average, industry average should be moving up theoretically, right? You'll be hitting absorption. Even if development starts ticking up again in 2021 or 2022, you've got sort of a three-year window given construction and lease-up, and all that kind of stuff. I think you have a pretty good window where absorption will start paying off, and before new development, even if people don't learn the lessons that they should be learning and there's overdevelopment again, that probably gets you to like 2025.
Okay.
The other advantage that Enlivant has with the Enlivant portfolio is that it's a middle-market product. In today's cost structure for construction and development, it's impossible to build a middle-market product.
The other point I'd make is because most of our properties, not just senior housing, but most of our properties are in secondary markets and not in the top MSAs, we actually aren't seeing some of the same pressures from expense growth and labor growth that you see in the top MSAs. They may not be A properties, although if you live in that community, it's an A property for that community, right? I think it provides a little bit more stable environment.
For sure. Okay, great. Thanks very much.
Thank you. Our next question comes from Lukas Hartwich with Green Street Advisors. Your line is now open.
Thanks. Can you talk a bit about the similarities and differences of the addiction treatment business versus skilled nursing and senior housing?
Yeah. It's a good question, and I'll try to just do it briefly, get really into the weeds on it. Look, first of all, it's completely a service business. A lot more of the focus is on the social aspect and programming than it is on medical care, where the social component of programming and care within senior housing and skilled nursing, and certainly in senior housing now that it's become a medical model and a long-term care model, is really supplemental to the basic care that needs to be provided to those individuals. Here, there's a much stronger emphasis on programming and social things and psychological pieces and all that sort of stuff. Obviously, there's some medication management that's involved with it. The medication management is never successful without appropriate programming on the social, psychological side of things.
Got it. I just have a follow-up, kind of a housekeeping question. On page nine of the supplement, looking at the Enlivant portfolio, RevPOR was up about 5% and occupancy was up about 1%. Revenues were only up 4%. I'm trying to figure out, maybe I'm missing something there, but how do I bridge that gap?
Let us get back to you offline on that.
Sure. That's it for me. Thanks.
Yes.
Thank you. As a reminder, ladies and gentlemen, hit star then one to ask a question. Our next question comes from Todd Stender with Wells Fargo Securities. Your line is now open.
Hi, thanks. Just to kind of go back to the ATM issuance in the quarter. Just on a relative basis, it was kind of big for you guys. How much was that driven by investor demand? How much of that was just you guys maybe wanting to de-lever quicker? Maybe just that push and pull, if you can kind of describe how it played out.
Sure. I will tell you that there was a very strong investor demand. Quite a bit of reverse inquiries coming in to the desk of those running the ATM program. When we were able to kind of settle on a price that made sense for us at the market, and it made sense, we were able to do some larger blocks. It was a mix of just some of that and some of it of us just taking advantage of days when we felt like the price was holding up well, and there was strong demand. Nothing that I would say was really too far outside the norm for any ATM program. We were just appropriately aggressive to raise as much as we did. We could've done a lot more easily, but obviously, we try to manage it.
On a % of shares outstanding, there's no restrictions on a quarterly basis, right? It's just if you have availability, you can tap it.
That is correct. Right. There's sort of a daily rule of thumb, 10%-15%, so that it doesn't really impact your stock price. It's not really that noticeable. That's kind of the daily rule of thumb.
Okay. Then when you blend in
You can go a little bit above that on a good day, or you go a little bit below it. It's evaluated every single day. The banks don't like sort of run with things for a week. Decisions are made on a daily basis.
With blackout periods baked in there, the windows can be quite short, right? Maybe that's why the volume, you take it when you can.
That is correct. Yeah. During a period of material non-public information, you have to shut it down. Our window typically closes one or two weeks after each quarter end, and then the window would open back up typically after an earnings call. It's somewhere between seven and a half months out of the year that you can actually be active on an ATM.
Okay. Thank you. Rick, you described your investment pipeline predominantly senior housing, but though you are looking at skilled. When we see that Omega, for example, has a $735 million portfolio under contract, is that something that's too big, whether it's literally too big for your size, or that's too much SNF at once? How are you kind of evaluating looking at large SNF portfolios, particularly with their yields so high?
Yeah, on that portfolio, it's a nice portfolio. We know that portfolio intimately, but we had no interest in it because that is a very big deal for us. I think, as you know, I've made a commitment that we are not going to do anything that's complicated or requires explanation. We've had a lot of noise in the stock price for the last couple of months, for about a year and a half. Doing a deal of that size really puts us on the road to being a skilled REIT, and it becomes harder and harder to come back from that. Again, as I've said before, I think everybody knows we love the asset class. It's got nothing to do with that. But we think we'll benefit in the long run from being a more diversified REIT.
Prior to the announcement of the CCP merger, we saw that reflected in the stock price and multiple. We just want to have more of a balance there, because then you get even more dependent upon whatever investor sentiment is and however right or wrong that sentiment is. We just prefer not to make that big a move.
Got it. Just finally, anything you can share, you hosted the Sabra Operator Conference? I imagine it was post Nareit. Anything to share from how the operators are looking at the world, particularly their revenues, labor costs, new supply, and then anything maybe PDPM is adding some optimism to the SNF folks?
Yeah, I think generally speaking, a lot of the focus was on all the reimbursement opportunities. There was a focus on labor force as well, and we had some presentations there and the introduction of some pretty cool products. For instance, there's a company out there that has sort of taken the Lyft Uber network model and applied it to staffing.
You go on their app, they've got tens of thousands of people signed up to their app, you go on the app, you can access temporary employees that way, which is sort of a brand new concept for the space, because it's basically a virtual network as opposed to a traditional staffing company, even though it may cost you more than having your own staff, it doesn't cost you the same amount as going through a traditional agency, which is typically about 35% higher than your in-house cost. There was a lot of discussion about things like that and some opportunities that are out there with different companies, but a lot of the focus was on reimbursement on the senior housing side.
The new opportunity to partner up with Medicare Advantage on some of the ancillary services in senior housing, we think is a fantastic opportunity, and that was really embraced, and we had some amazing sort of speakers on that. On the skilled, everybody's focused on PDPM, as they should be, but there are other opportunities as well, particularly with the I-SNPs, the special needs program, which essentially allows the provider to become its own insurer, and that is just starting to gain momentum and is a real game changer for the industry, particularly when you look at how much the Medicare Advantage insurer takes off the table profitability-wise. That comes off the back of the skilled nursing facility. This allows them to control that product and control the profitability.
We know a private operator that's been fully up and running with that for quite some time, and it's doing exceptionally well. Our newest board member, Lynn Chapman, is involved in that effort as well with a company called AllyAlign, because a lot of the operators out there aren't large enough to take the initial risk to get that going and the time it takes. They'll be able to partner with any number of providers to do that. There was a lot of conversation about that as well, value-based payments. I thought it was the best conference that we've had. We've done a few of these, and as always, our operators get to know each other.
They follow up after the conference, they do best practices, because we don't have very many operators that would view each other as competitors, so they're pretty open and free with each other about sharing what they all do best. It was really productive. We had a great turnout and we'll continue, obviously, to do these things. There was also a focus on data and the things that we're trying to do with PointRight to provide some opportunities at our cost for our operators to take advantage of some predictive modeling that PointRight does on the regulatory side. Those are some of the main areas that we covered.
Great. Thanks for sharing that, Rick.
Yep.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Rick Matros for any closing remarks.
Thanks, everybody, for joining us. As always, we're available for as much follow-up as you all want to do. Thanks again for your support, and have a great day. Talk to you soon.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.