Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT First 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 tenants and operators, 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, and in our Form 10-Q that was filed with the SEC yesterday, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.
We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during 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 a comparable GAAP result, included in the financials page of the investor section of our website at www.sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the investor section of our website. 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 this morning. It's been a quiet first month since we finished all of our restructuring initiatives, and for us, it's a good thing to ease into a more normal operational environment. As it pertains to guidance, we reaffirm our 2019 guidance. There were a couple of notes that presumed we'd have an issue hitting guidance due to the managed portfolio performance. That's not the case, and Talya will be providing some details to give everybody comfort that we are comfortable with where the managed portfolio is going and why we are comfortable that we'll continue to meet guidance throughout 2019. We're also focused now on the debt side of the balance sheet, and Hal will get into that in a little bit more detail.
As most of you know, we've been looking at opportunities on the debt side for a while and just waiting for sort of timing to work out for us. We have that sort of in our sights now. We expect to be engaged in some activity that will improve the balance sheet as well. In terms of our acquisition pipeline, it's currently around $800 million, again, primarily senior housing, but we're starting to see some skilled deals. For us, our focus will be on the deals that we can get done given our current cost of capital, which are skilled deals, behavioral deals to the extent that we can find them. We've also been looking at the addiction space that we like.
There aren't a whole lot of tried and true operators there, but there are some opportunities there that are small that would give us at least the opportunity to get into it a little bit and learn more about it without taking any real risk. It is a space that we expect to see grow and certainly is a nice complement to what we're doing on the behavioral side in our portfolio. In terms of our operating results, 7 of our top 10 are skilled operators. Five showed improved coverage sequentially, so we're continuing to show better strength there. One is flat, and that was North American. Some of the declines we've seen, they've stopped those declines, and we're seeing signs of things improving there. The one skilled operator that we had that came down some in coverage was Signature HealthCARE at 1.25.
Operationally, they're doing fine, we expect things to improve there. They've got a nice Medicaid rate increase coming in Kentucky, about 2.5% in July, and that's their biggest state with us. The primary issue for them has been, as most of you know, they had very high PL/GL, which is what led to the restructuring initiatives that we and others undertook with them. Their experience in PL/GL has come down dramatically, but it's only been about eight months, and so their actuarial results have been really swinging back and forth a little bit as it takes quite a bit of time for the actuaries to settle in with management on what the right accrual rate is to those liabilities. Nothing that we're concerned about. They are good operators, and we don't expect any issues there.
Again, some upside in the short term in terms of rate increase on the Medicaid side, and then, of course, the market basket in October 1st. Relative to the market basket on October 1st, obviously that happens in conjunction with PDPM. That's a better market basket than we've received in years, so that's obviously a good thing for the space. In terms of PDPM, we continue to receive feedback from all of our operators relative to their preparation for PDPM. They continue to be bullish about it, and we've gotten really nothing but positive feedback and expectations relative to implementation of PDPM with all of our skilled operators. The remainder of our same-store triple-net skilled portfolio was uneventful, coming in at 1.29 EBITDA and 1.77 EBITDARM.
Occupancy was essentially flat, skilled mix was slightly down but consistent with the range it's been in and still a strong 39.1%. Skilled mix will always move around more than overall occupancy due to the dynamic nature of those patients.
Our senior housing same-store triple net rent coverage and occupancy were essentially flat as well sequentially. Our specialty hospital same-store rent coverage was flat with occupancy slightly down by a normal variance. With that, I'll turn the call over to Talya.
Thank you, Rick. I will provide an update on our managed portfolio. For the first quarter of 2019, approximately 12% of Sabra's cash net operating income was generated by our managed senior housing communities. Approximately 84% of that relates to assets that are managed by Enlivant, 15% relates to retirement homes in three provinces in Canada, and the balance to three assisted living and memory care communities in the United States. Pro forma for the 21 Holiday communities that were transitioned on April 1st, annualized cash net operating income from our managed senior housing communities would be 16.9%. On a same-store basis, which excludes a property in Canada that we sold in the fourth quarter of 2018, the managed portfolio had solid results in the first quarter compared with first quarter of 2018.
Revenue increased by 3.9%, cash net operating income increased by 2.4%, revenue per occupied unit, excluding the non-stabilized assets, was up 4.6% despite flat occupancy. This points to our operators' ability to push rates in the current environment, coupled with a focus on expense control. Let me give you some further detail on our joint venture and wholly owned managed portfolios. The Enlivant Joint Venture portfolio, 172 properties located in 18 states across the United States, of which Sabra owns 49%, showed steady improvement. Average occupancy for the quarter was 81.2%, 0.5% higher than the first quarter in 2018, when occupancy was 80.7%. Revenue per occupied unit was $4,159, slightly below the previous quarter and 4% higher than the first quarter of 2018. Importantly, cash net operating income margin was 25.9% compared with 25.8% in the first quarter of 2018.
If the Enlivant Joint Venture's cash net operating income remains flat for the rest of 2019, we would see 7% year-over-year cash NOI growth. That is before the impact of Enlivant's annual rent increase, which occurs on October 1st of each year. For the wholly owned portfolio, Sabra's wholly owned Enlivant portfolio of 11 communities continues to deliver steady results with an emphasis on controlling expenses following significant revenue gains throughout 2018. Average occupancy declined to 90.8% compared with 92.6% in the preceding quarter, reflective of lower move-in volume during the winter months. This follows multiple sequential quarters of occupancy growth in 2018, which materially outpaced everyone's expectations. Revenue per occupied unit rose to $5,363, holding nearly all of the rate gains implemented in the fourth quarter of 2018, 7.6% higher than the first quarter of 2018.
Cash net operating income was 16.2% higher on a year-over-year basis with a margin of 29.5%. Sienna Senior Living manages eight retirement homes in Ontario and British Columbia for Sabra. In the first quarter of 2019, the eight properties managed by Sienna showed steady operating and financial results with 90.3% occupancy, down sequentially from 92.4%. Spot occupancy as of April 30th was 90.5%, the trend is looking good. Portfolio occupancy has ranged from just under 90% up to 93% over the past year or so. This occupancy dip is attributable to seasonality coupled with renovation projects at three of the properties in the residential areas. Rev per growth and expense controls yielded 39.4% cash net operating income margin compared to 38.2% in the preceding quarter. Cash NOI itself was flat on a sequential basis.
Sienna continues to focus on revenue growth in the portfolio, which has a direct impact on net operating income margin at these occupancy levels. We continue to invest additional capital into the properties, maintaining their appeal. We have one operator in our wholly owned managed portfolio who manages two non-stabilized communities. That creates some noise in our totals on the wholly owned managed portfolio. The dollars are small enough that it will not affect guidance. We still expect to achieve 3%-6% cash NOI growth in the wholly owned managed portfolio. Subsequent to the end of the first quarter, Sabra's Holiday portfolio, consisting of 21 independent living communities located across the country, was transitioned from our triple-net portfolio to our managed portfolio. Holiday's portfolio continues to have consistent performance with occupancy as of March 31st at 91%, ranging between 79%-100% across the portfolio.
I will now turn over the call to Harold Andrews, Sabra's Chief Financial Officer.
Thank you, Talya. For the three months ended March 31st, 2019, we recorded revenues and NOI of $136.8 million and $129.3 million respectively, compared to $139.2 million and $136.6 million for the fourth quarter of 2018.
These decreases are attributed to the adoption of the new lease accounting standard, which among other things, impacted the amount of revenues recorded during the quarter for certain assets in transition. This reduction is not expected to impact our full-year financial performance communicated in our previously issued 2019 earnings guidance. FFO for the quarter was $77.2 million, and on a normalized basis was $85.4 million, or $0.48 per share. FFO was normalized to exclude $5.9 million related to the acceleration of above-market lease intangible amortization, $1.2 million of loan loss reserves, and $1.1 million of unreimbursed triple-net operating expenses. This compares to normalized FFO of $90.2 million, or $0.50 per share in the fourth quarter of 2018.
AFFO, which excludes from FFO merger and acquisition costs and certain non-cash revenues and expenses, was $83.2 million, and on a normalized basis was $84.3 million, or $0.47 per share. AFFO was normalized to exclude $1.1 million of unreimbursed triple-net operating expenses. This compares to normalized AFFO of $83.8 million, or $0.47 per share in the fourth quarter of 2018. For the quarter, we recorded a net loss attributable to common stockholders of $77.7 million or $0.44 per share, which includes an impairment of real estate charge of $103.1 million, primarily related to the assets previously leased to Senior Care Centers. G&A costs for the quarter totaled $8.2 million and included the following: $2.8 million of stock-based compensation and $0.1 million of CCP-related transition costs. Our recurring cash G&A costs of $5.1 million were 3.9% of NOI for the quarter, in line with the prior quarter.
We expect ongoing quarterly cash G&A costs to be approximately $5.5 million. Our interest expense for the quarter totaled $36.3 million compared to $37.2 million in the fourth quarter of 2018. Included in interest expense in each quarter is $2.6 million of non-cash interest. As of March 31st, 2019, our weighted average interest rate, excluding borrowings under the unsecured revolving credit facility and including our share of the Enlivant Joint Venture debt, was 4.28%, consistent with the fourth quarter of 2018. Borrowings under the unsecured revolving credit facility bore interest at 3.74% at March 31st, 2019, a decrease of one basis point from the fourth quarter of 2018. As of March 31st, 2019, we had 30 assets held for sale, which included the 28 Senior Care Centers facilities that we sold on April 1st for gross proceeds of $282.5 million and two additional skilled nursing facilities.
We did sell three skilled nursing facilities during the quarter for net proceeds of $6.9 million and recognized a $1.5 million net loss on sale. Two of these assets were part of the CCP portfolio repositioning plan. We were in compliance with all of our debt covenants as of March 31st, 2019, and continue to maintain a strong balance sheet with the following credit metrics, which include the impact of the Senior Care Centers asset sales and the Holiday conversion, which both occurred on April 1st, 2019. Net debt to adjusted EBITDA, 5.64 times. Net debt to adjusted EBITDA, including unconsolidated joint venture debt, 6.08 times. Interest coverage, 4.19 times. Fixed charge coverage, 4.06 times. Total debt to asset value, 48%. Secured debt to asset value, 7%. Unencumbered asset value to unsecured debt, 233%.
As of March 31st, 2019, we had total liquidity of $402.6 million, consisting of unrestricted cash and cash equivalents of $22.6 million and currently available funds under our revolving credit facility of $380 million. After considering the net proceeds from the Senior Care Centers sales and the Holiday lease termination fee, which aggregated to $338.7 million, our pro forma liquidity increased to $741.3 million. In addition, we set up an ATM program in the first quarter whereby we can sell shares of our common stock having aggregate gross proceeds of up to $500 million. Subsequent to March 31st, 2019, we sold 1.1 million shares of common stock under the ATM program at an average price of $19.57 per share, generating aggregate gross proceeds of $21.2 million, which further increased our liquidity and positively impacted our leverage.
Subject to market conditions, we expect to continue to use the ATM program to reduce our outstanding indebtedness and finance future investment in properties to achieve our stated deleveraging goals. With respect to the balance sheet, we are watching the bank and bond markets to take advantage of opportunities to extend our debt maturities, lower our cost of debt, and increase our financial flexibility with current market covenants. To reiterate what Rick and Talya said, we reaffirm our full-year guidance. Regarding our managed portfolio, if NOI stays flat for the balance of the year, we will hit about 7% growth in the Enlivant Joint Venture NOI, and we'll be about flat year-over-year on the owned portfolio.
Keep in mind, the owned portfolio is so small in absolute dollars that just a couple of hundred thousand dollars per quarter increase in NOI puts us at the midpoint of our guidance range. Finally, on May 8th, 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 May 31st, 2019 to common stockholders of record on May 2nd, 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 dividends payments. With that, I'll open it up to Q&A.
Thanks, Harold.
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star followed by the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, to ask a question, please press star and then one now. Our first question comes from Trent Trujillo from Scotiabank. Your line is open.
Hi. Good morning out there, thanks for the comments to clarify your senior housing managed portfolio. It's very helpful. Looking at other components of guidance, it does include some dilution from equity raises, you mentioned the $500 million ATM program. On the last call, you mentioned you'd be patient and wait until the stock was perhaps at an improved price. It sounds like since that time, the stock has been between $19-$19.50. You executed within that range, subsequent to the quarter end, but that's below where the stock was at the time of your last call. How are you thinking about ATM usage going forward?
Yeah. Thanks for the question. The answer is, with respect to the ATM program and our de-leveraging, certainly we'd love to see the stock price higher than it is, but when we think about issuing equity to de-lever, the impact on the stock price being $20 or $19.50, it's really immaterial. We made the decision in early April, actually, it was at the end of March, to go ahead and issue a little bit of equity at the $19.57 price range.
I wouldn't say definitively that we would issue more equity at a lower price, but I think we're going to be opportunistic. I think that the point I'd like to take away is whether it's $19.50 or $21.50, we're very committed to de-levering the balance sheet this year, and we'll do what it takes and what it needs to take to get the leverage down below that 5.5 times leverage level that we identified. Again, we'll be patient. We're not going to rush out and do it all at this level. At the same time, we think it's prudent to go ahead and get started in that process. You should expect to see us continue to use the ATM over time this year to get the leverage down.
That's very helpful. Yes, it does. I guess following up on the underlying need for equity, there's the future purchase of the Enlivant JV that you don't already own, which you mentioned is a likely possibility in 2020. I guess with the stock where it is, who knows what's going to happen with the price and where you can issue stock. Are you thinking about other ways or structures or approaches besides purely raising equity to make that transaction work?
Yeah, we are. We've got a long way to go before we have to exercise that. Assuming we're kind of in the same place, there are other options that we've discussed internally. One option, for example, that may be a really good option for us is to enter into a new JV, and there's certainly not a shortage of interested parties in doing that with us. That right now may be the best-looking option. Again, we have plenty of time on that.
Okay. If I may, one more. It was very nice to see that five of your seven operators showed improved coverage on the quarter. I guess what happened with those five operators that it improved, what's happening with the rest of the portfolio since the aggregate coverage dropped? I guess specific to one of those operators, rent coverage for North American Health Care. I think on the last call you mentioned in January, the coverage jumped back up to 1.25 after a blip. What exactly happened that they still ended around 1.1? Thanks.
Well, I think on the operators that improved, which carry the majority of our NOI, I think we've been pretty consistent all along that we expected to start to see improvement. Length of stay has flattened out, which has helped. I think they've done a good job on expense control. We also didn't think that preparation for PDPM was going to be an issue that was going to cause any downturn. I think it's consistent with kind of the trends that we've been seeing. On North American, they did have two to three months in the first quarter were good months, but remember that's a quarter in arrears, and we're still reporting trailing 12. Right? You wouldn't see anything. Even with the first quarter, it's not going to make that big of a difference on trailing 12.
I think we need a couple more quarters, January was a better month. March was even a better month. February is never a good month in our space because you got 28 days and fixed expenses. We are seeing improvement there. It's really a function of it being a quarter in arrears, and we were pleased at this point to see that the bleeding had kind of stopped as we expected it to, and we're starting to see an upturn. As for the rest of the portfolio, Signature's actually a big driver in that. It dropped a couple of basis points. It wasn't a big drop for the entire portfolio. We're not seeing anything from a trend perspective that's causing us concerns. I know I tend to look at a lot of these things differently than you all do.
Just as an operator, I just expect things to sort of move a little bit up and down. It's just sort of the vagaries of the business. We're not seeing anything that we're concerned about, and I think we're pretty close to some better times for the space, both in terms of the market basket in October and PDPM. Although I think it's also fair to say that we shouldn't expect that as soon as PDPM hits on October 1st, you're going to see some upturn.
I think it's going to take several months to realize that, we'll probably need to think about in 2020, as we present our numbers on a traditional basis, if we're starting to see positive impact from PDPM, whether we start showing some things on a pro forma basis as well to give the market a better sense of how PDPM is impacting our skilled operators.
That's very helpful. Thank you very much for the time and taking the questions.
Yeah, of course.
Thank you. Our next question comes from Nick Joseph from Citi. Your line is open.
Hey, this is Michael Griffin on for Nick. In terms of fundamentals regarding the SNFs, we see that occupancy is up a pretty decent amount year-over-year. Do you see trends like that continuing into the future, and sort of any color on that would be great.
Yeah, we do. In the skilled space, you've almost got kind of a perfect storm coming. You've got declining supply, which is going to continue. You've got an increasing demographic, and then even though most of the commentary that I think you all have seen around PDPM has been the benefit being primarily on the expense side, I think that's a fair statement to make. Because on the revenue side, we do see opportunities there, but it's much harder to sort of quantify what that may be. For example, if you're moving your focus as a skilled operator from being exclusively on short-term rehab, because that's what the old system designed you to do, and you're focused more on patients that have nursing complexities, those patients are going to tend to have a longer length of stay.
You actually could get some revenue benefit there, and if you have a longer length of stay, then obviously you're going to have better occupancy. You've got this convergence of demographic decline in supply and potential upside on the top line from PDPM, and we'll have to keep an eye on length of stay, because that's probably the only factor that we're going to be able to look at in order for us to differentiate how much of occupancy growth in the future is due to supply issues versus demographic versus PDPM. I think that'll be a good stat for us to keep an eye on. Does that help?
Got you. Yeah, no, that's helpful. I just got one more quick one. Regarding concentration, you mentioned back in April that you decreased the SNF concentration portfolio down to about 60% and meaningfully decreased it in Texas, which obviously isn't that friendly a state for SNFs. Sort of long-term picture, where would you like to see that SNF concentration be?
I think we'd like to get it a little bit lower, just have a little more diversity. If you just take where we are today, and assume modest skilled acquisitions, and then additionally assume the exercise of the joint venture option, you're close to 50%. That's a pretty nice balance. Obviously, it's not just skilled and senior housing because you have behavioral in there as well. I think we're getting it down low enough where we can take advantage of opportunities on the skilled side. For example, between our development pipeline, which is senior housing, and alive at sometime next year, you know you've got more senior housing coming in. Obviously, our cost of capital isn't quite where we'd like it to be.
Frankly, even if we were a few bucks higher, we still wouldn't be paying some of the prices that the PEs are paying for senior housing. Our current cost of capital actually isn't a factor in our determination as to whether we'll do senior housing or not. We just think it's too expensive anyway. We're in a good spot right now where our cost of capital does allow us to pursue skilled opportunities as well as behavioral, if we can find them, and without pushing our exposure back up to where it was, say, at the time that we closed the merger with CCP, where it was 74%. That's just not going to happen.
With everything that we've gone through, I think we're in a pretty good spot to have a little bit more time for our cost of capital to recover and then focus on skilled deals without skewing that exposure too much.
Awesome. Well, that's it for me. Thanks for the time.
Yeah, thank you.
Thank you. Our next question comes from Chad Vanacore from Stifel. Your line is open.
Thanks. Just thinking, the beginning of the year, I think you keyed up about $300 million in dispositions. The majority of that was the Senior Care Centers sale, which took place. But you still got 30 assets held for sale. What is the aggregate proceeds that are remaining from here to the end of the year that we should expect?
Yeah, Chad, it's Harold. First of all, the $300 million that we referenced in our guidance was in addition to the Senior Care Centers sales.
Okay.
We still have a lot of dispositions that will occur this year that are over and above that. A lot of them are toward the latter part of the year. I'm not sure if that answers your question, but there's still a lot to be done. The few that we have held for sale today, in addition to Senior Care Centers, those are ones that we're far enough along the process that it's very close to closing on those transactions. We don't tend to put stuff in held for sale until we've got a contract that's executed, and we're very close to closing because of the way the GAAP rules are required to qualify for held for sale. You'll see more dispositions over the course of the next few quarters.
Those anticipated dispositions, Chad, weren't new dispositions or new issues. They were all contemplated within the context of the merger.
Got it.
There's nothing new that's occurred or tenants that all of a sudden we've had different issues with.
Okay. Rick, beyond what you've already put in for held for sale and what you expect for this year, beyond that, if you had to circle the portion of the portfolio that doesn't fit your strategy any longer, roughly what portion of your portfolio would you estimate that is long term?
I don't think we've got any tenants left that don't fit our strategy or have products within their operations that don't fit our strategy. In fact, we're seeing some different opportunities of strategy now, in the behavioral space where we have a couple of operators who are interested in converting skilled facilities or units of skilled facilities to behavioral use, because that's a growing space. We really don't see anything. There's always going to be facilities, from time to time that you're going to want to divest, because markets change. When we look at our tenants, we just don't see anybody that we kind of want to move on.
On something like those behavior opportunities, would that be more akin to CapEx funding to convert those over to proper facilities? What would that entail?
Chad, it's Talya. I think that's right. It really varies on the situation. If it's to a hospital type setting, then there's more CapEx. If it's something that's not quite that big, it may be a nominal just sort of a reconfiguration potentially. It really varies. Just the transition and CapEx is really the sort of nominal cost to us.
In some cases-
All right.
the operators may not need the CapEx from us. It'll just be situation specific.
Got it. That brings me to another question. Is now a better time to ramp up your new investments or to delever for Sabra?
Well, we're going to have plenty of proceeds available to do acquisitions if we can find skilled acquisitions that are interesting to us. I don't think The question comes up, but we don't see a conflict between our ATM usage and de-levering the balance sheet and getting some acquisitions done. We're not going to be out there doing billion-dollar acquisitions. We'd like to get some growth going, and I think it'll probably be smaller deals that are more along the lines that you've seen from us in the past. I think if you actually look at the numbers, and the fact that they're not going to be huge numbers, you can do both. We have all that out. We've looked at all that, obviously, in our forecast, and believe that we can accommodate it.
All right. That's it for me. Thanks.
Yep.
Thank you. Our next question comes from John Kim from BMO Capital Markets. Your line is open.
Thank you. Good morning. I just wanted to follow up on the guidance and the managed senior housing portfolio, because it sounds like what you're saying is if you hit sort of cash NOI flat on your joint venture portfolio, you'll hit 7% growth for the year. Also on your own portfolio, if it's flat, it'll be basically flat for the year. Just looking at your last few quarters and as well as some of your peers, it seems like first quarter is the high EBITDA margin point. I'm just wondering what gives you confidence to either retain margins or just retain that level of NOI through the remainder of 2019.
Well, we don't view first quarter as being a high point. With Enlivant, for example, historically, their second and third quarters are their best quarters. That hasn't been our experience.
2018 was an anomaly?
You had the flu that really limited, really impacted the second quarter pretty dramatically. We obviously haven't had that experience this year. Because it impacted the second quarter so dramatically, it took a while to recover from that, so you saw it in the third quarter as well. We weren't the only ones who experienced that.
Right. Specifically Enlivant, because they are the major contributor to our managed portfolio, both on the JV and the wholly-owned. They do an annual rent increase in the fourth quarter. Actually, fourth quarter has tended to be their strongest quarter.
Yeah. They don't wait till January 1st. They do it October 1st, that was 5% last year on the JV and 5.5% on the wholly-owned.
Just back of the envelope, we estimate you need to get about 10% growth for the remainder of the year in the joint venture assets, 7% in your wholly-owned to reach the midpoint of your guidance. Is it fair to say that the midpoint is not likely, and it's more of the lower end of guidance that you're likely to achieve?
This is Harold. I'd have to see your math, because as we said, we don't need any growth in the joint venture to hit 7%, which is close to that midpoint. On the owned portfolio, it's a slight growth in absolute dollars of about, call it $250,000 a quarter to hit the midpoint. I'm not sure how you came up with that math, but that's our math.
We could spend time with you offline, John, because that's just not right.
Yeah, no worries. Okay. Can you confirm what the impact is on NOI from the Holiday portfolio transition?
Yeah. On NOI, if you're just comparing the lease versus a comparison of what the NOI was for the first quarter, it's about $2 million for the quarter. Again, that does not include the benefits for paying down debts from the termination fee. From a pure NOI perspective, it's about $2 million for the quarter.
For the quarter, not annualized.
Correct.
Okay.
Yeah, on an annualized basis, the FFO impact was around $0.05 or $0.06, including the pay down of debt associated with the termination fee. All that, again.
Yeah
fully built into guidance and reflected in our expectations for the year.
Last one for me. The impairment that you took with other charges as well was $103 million. I think last quarter, you provided guidance of $69 million. I'm just wondering what that difference was between the two numbers.
The $69 million was specific to the assets being sold for Senior Care Centers. In our 10-Q, we disclosed $76 million, which included the other assets as well as some amount for assets that were being held. We've made, and I don't want to get into too much detail, but because we're now keeping 3 of the assets, selling 3 of the assets. At the end of last quarter, we weren't exactly sure how many of those assets we were going to keep and how many we were going to sell. We're pretty much committed to selling 3 of the 10, there was some impairment for those assets as well.
You add that in, plus the $10 or so million for the other assets that we're selling that were not part of Senior Care Centers, that's the difference to get to the $100 million.
The impairment, John, was specifically due to, we have Houston facilities that got really damaged by the hurricane last year.
Right.
Got it. Okay. Thank you very much.
You bet.
Thank you. Our next question comes from Rich Anderson from SMBC Group. Your line is open.
Thanks.
Nice to have you back, Rich.
Thanks, Rick. I just want to get back to that Holiday question from John. The $0.05-$0.06 impact inclusive of the $57 million that you collect in the second quarter, is that correct?
It does not include the $57 million as it affects our income statement for the fee itself. What it includes is the impact of being able to pay down debt with that-
I see
$57 million.
All right. The five to six is a good number next year. Hopefully, it gets better than that.
Right
sort of your base case going forward.
That's correct.
Okay.
Again, built into our guidance numbers as well.
Okay. Just a question on Signature HealthCARE. If I'm looking at this correctly, the coverage last quarter was 1.43 times, 1.25 times this quarter. I know you said you're not concerned. There's some noise, sort of legal noise or whatever. At what point do you get concerned when you see sort of a drop of that order of magnitude on a sequential basis?
If the drop was due to operational performance, we'd be concerned. We're seeing steady operational performance there. The drop is specific to just taking longer than you would like for the actuarial to get their arms around what the reserve should actually be and what the run rate should actually be. The other concern would be if there was a change in their experience on those liabilities, that would be concerning, because that would obviously have a run rate effect on the income statement, that's not the case either. The drop-off that we expected in terms of claims with how the environment changed in Kentucky last summer happened, and their experience since then has been consistent with expectations. It's really just an actuarial issue.
Okay. Last one for me. Rick Matros, you kind of spoke swimmingly a little bit about the skilled nursing business with declining supply, demographics in the right direction, PDPM cleansing effect of that and all the other things. Suddenly skilled nursing's starting to sound like a pretty cool asset class. Not to get ahead of ourselves, but is there a time in the future you think that an operating model, I guess a SNP model would apply realistically for skilled nursing? You think that that's just too much to ask at this point?
I think it's probably a little bit too much to ask at this point. However, if you look at everything that CMS is doing, they're actually thinking really strategically, which I think historically hasn't necessarily been the case. Healthcare spaces across the post-acute spectrum and actually acute hospitals too, always operated from a reimbursement perspective in silos. All that's changing now as everything's going to case mix and with CMS openly discussing moving to a neutral site system, which we think would really be good for the skilled sector. I think what you're talking about, when you get to neutral site, I think maybe, yeah, it is a possibility, that's a ways down the line. I think just with the current dynamics that we see changing, probably not. Maybe at that point.
Remember, you're taking on a lot of liability if you do the same thing with skilled that you're doing with senior housing. Even if you had a model that was a lot more reliable in a site-neutral environment, I think the big issue still that would prevent us from wanting to go there is on the liability side. The difference between skilled nursing and senior housing from a liability perspective is that there's a database of everybody in the skilled side called Nursing Home Compare. It allows the plaintiffs' attorneys to just troll, right? They can just go into that database and troll and pick on companies, pick on facilities and just target. That isn't the case with senior housing, nor do I think it ever will be the case with senior housing.
Even if you have a much more reliable model going forward that's fairly predictable, I don't see how you get away from being concerned about those liabilities. With someone who's spent a few decades in skilled nursing amongst other sectors, I just don't think I can get convinced.
Okay. One quick one for Harold, I'm sorry. On the debt and the deleveraging side, over 30% of your debt expiring in 2021 and 2022. I think a big chunk of 2021 is your revolver, is there anything about those chunks of debt that's out there that are unattainable at this point? Is that something that you can go after with minimal penalties?
Yeah, we could absolutely go after the 2021 maturities with very minimal cost.
Yeah. Rick, I would say we can't be that specific right now, but just stay tuned. We feel pretty good.
All right. Sounds good. Thanks.
Yeah.
Thank you. Again, ladies and gentlemen, to ask a question, please press star and then 1 now. Our next question comes from Daniel Bernstein from Capital One. Your line is open.
Hi. Good afternoon. I guess morning out in California. I noticed on the wholly owned Enlivant properties, the 11 properties there, you have about 91% occupancy, 30% margins. It's very different on the JV. Is there any material difference between those assets and the reason why the JV assets can't get up to at least upper 80s, 90% occupancy and close to 30% margins over time?
There is nothing intrinsically different. We're just talking about different pools of assets. We're hopeful that what you just said, in fact, does come true, and it's just a question of time.
Yeah. The wholly owned, we're just further along in the turnaround phase. Plus, they're looking at some assets within the JV that they're in the process of divesting, which will help the overall performance as well.
Okay. Then the assets that you're divesting the rest of this year, are you currently getting paid rent on those, or is something we would have to adjust in the model once you sell those assets, or is the rent out of your revenue line at this point?
Well, it's a number of assets, Dan, it's probably a mix of both. I will tell you that all those dispositions are accounted for in our guidance numbers. Any lost rents from those has been dealt with in our full year guidance. Like I said, it's upwards of $300 million over the course of the year, it's a facility here, a facility there. It's kind of all over the board. Frankly, a fair amount of it is towards the latter part of the year, you're going to have a pretty small impact. I think if you want to chat more about it offline, I can kind of give you a little more details.
Okay. That sounds fine. Some of your peers had been talking about value add opportunities. Earlier in this call, you talked about cost of capital maybe being a little bit restrictive on senior housing versus skilled nursing. I think if you found some value add, you could make those accretive. Are you looking for value add? Are you seeing any being brought to you? Are you interested in those?
Let me make one comment and then Talya may want to add on. We've always been interested in value add. I think we're trying to be a little sensitive to our investor base relative to all the restructuring we've done over that 18-month period. Now we've got that behind us. I think if we do look at value add opportunities, it'll be relatively small. We don't want to announce anything that's going to drive the narrative again for the foreseeable future. We don't want to announce anything that's going to require a lot of explanation. We'll look for smaller opportunities like that. Talya?
I think that's right. We have done them over time, as Rick said, here and there. They've always been small. The key aspect of a value add is how much value can you add, and how much time does it take to realize that value? We're always open to looking at things. We just haven't seen any that felt like they were going to go well fairly quickly so far.
Yeah, look, CCP was a value add. That's what's allowed us to get out from under what was happening to us with Genesis. Just really controlling the fate of our company. That goes to the comments I made earlier about us wanting to be just more sensitive now to how we approach those things.
Okay. That's good enough for me. That's all I have. Thank you.
Thanks, Dan.
Thank you. Our next question comes from Lukas Hartwich from Green Street Advisors. Your line is open.
Thanks. I just have one. Can you provide the underlying EBITDAR growth for the Holiday portfolio during the quarter?
You mean quarter-over-quarter?
Year-over-year for the first quarter.
All right. I'd have to get that to you. I don't have it handy.
Yeah. You're talking about their operating performance, not what's in our financials, but their operating performance.
If you look at the other Holiday portfolios, it looks like independent living's had a better environment, you're starting to see NOI growth show up there. I was just curious if we're also seeing that in your Holiday portfolio.
I don't have that number.
We can get it to you.
Yeah, we'll get back to you with that number. Our portfolio is all IL.
Right. Okay, great. Thank you.
Yeah.
Thank you. Our next question comes from Todd Stender from Wells Fargo. Your line is open.
Hi. Thanks. Just to kind of stick with Holiday for a second. What was the EBITDAR coverage at Q1? I know you guys used to list it in your supplemental, but just to get a sense of the starting point, I guess, for the now managed direction.
Yeah. It's been pretty flat. It's still around 0.9 on an EBITDAR basis, that's not really much change from prior quarters. It's been pretty flat. It was there for a long time, Todd.
Okay. How about the CapEx commitment just for Holiday and any comments that there's deferred maintenance and maybe now you'll be responsible for that?
We've always been involved in capital projects and discussions along those lines. I'd have to get back to you what the capital commitment is, but there's nothing unusual that's occurring there. It's status quo.
Yeah. Todd, I would say the way I would characterize it is they don't have deferred maintenance issues in our portfolio. The question is how much more can you do to pretty the facilities up and make them a little bit more competitive, but those won't require material dollars.
Okay. For Harold, have you disclosed, or could you disclose your line balance? It was on the high side as of Q1, you had some senior care disposition proceeds already. Maybe just looking at a $600 million line balance. What is it now?
To your point, it was paid down by the proceeds from Holiday Retirement, the $57 million and the $282 million. When I gave you that pro forma liquidity number of, let me just grab it again, $741 million, that means the liquidity on the revolver is somewhere around $720 million. I think there's about $280 million outstanding on the line today.
Got it. Thank you.
Sure.
Thank you. I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Rick Matros for any closing remarks.
Thanks, everybody, for your time today. We're available for any follow-up, we'll follow up with a couple of you on the items that were specified. Just to make the note again, we're comfortable with guidance. Thanks. Have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a wonderful day.