Sabra Health Care REIT, Inc. (NASDAQ:SBRA) Q1 2024 Earnings Call Transcript May 9, 2024
Sabra Health Care REIT, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day everyone. My name is Katherine and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Now I would like to turn the call over to Lukas Hartwich, SVP Finance. Please go ahead Mr. Hartwich.
Lukas Hartwich: Thank you, and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations including reiterating our earnings guidance for 2024, expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plans. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially including the risks listed in our Form 10-K for the year ended December 31, 2023 as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.
We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at sabrahealth.com. Our Form 10-Q, earnings release and supplement can also be accessed in the Investors section of our website. And with that, let me turn the call over to Rick Matros, CEO, President and Chair of Sabra Health Care REIT.
Rick Matros: Thanks Lukas. Thanks everybody for joining us. Hope you all have a good day. So this quarter is really just a continuation of the last couple of quarters. Our operating performance continues to improve. Our balance sheet strength has us in a position to grow. Our skilled nursing EBITDA and coverage continues to nut job exceeding pre-pandemic coverage. Our senior housing triple net lease coverage continues to improve that is near pre-pandemic levels. Our top 10 is stronger than it's ever been. Our skilled occupancy is up 110 basis points sequentially and our skilled mix is higher than it's been in several quarters. Our senior housing triple net occupancy is higher than pre-pandemic occupancy. Our SHOP growth continues with occupancy higher than it's been since the early months of the pandemic.
Contract labor continues to improve dropping to where we were three years ago, well-below peak levels although still higher than we want to see. Our deal flow is improving and notes primarily SHOP we are finally starting to see some skilled nursing opportunities. In both Skilled and SHOP sales pricing has moved towards buyers. While we don't have new investments to announce this quarter based on current activity, we expect to be in a position to announce new deals on our second quarter earnings call. We are running better than anticipated on our forecast including our SHOP performance. But since it's still very early in the year we're going to wait until Q2 to reassess our guidance. And with that, I'll turn the call over to Talya.
Talya Nevo-Hacohen: Thank you, Rick. Sabra's managed senior housing portfolio including joint ventures at share continues to perform well. The portfolio grew by five communities during the quarter and seven communities year-over-year, which were all properties previously leased to other operators and I underscore leased. While the added community has had a limited contribution to the total, Sabra's managed portfolio saw a 16.5% quarterly revenue growth and just over 26% quarterly cash net operating income growth on a year-over-year basis. This was driven by the trends that we've been noting for the past several quarters. Growing demand at driving occupancy and REVPOR gains and moderating expenses. Wage growth has decelerated as open positions are filling together, reducing overtime needs and even eliminating agency usage.
Sabra's same-store manage the inner housing portfolio including joint ventures at Chair [ph] includes 64 properties, 43 of which are in the US and the balance in Canada. Excluding non-stabilized assets and government stimulus, the headline numbers are same-store portfolio revenue for the quarter grew 5.8% year-over-year with our Canadian communities growing revenue by 9.2%. Cash NOI for the quarter grew 9.5% over the first quarter of 2023, skewed down by a lower than usual expense item in the first quarter of 2023. Cash NOI for the quarter increased 16.7% in our Canadian communities. REVPOR's first quarter of 2024 increased by 3.4% year-over-year with REVPOR in our Canadian portfolio growing by 5.1% in the period. The senior housing recovery in Canada has been lacked in the US and is now catching up.
A senior couple walking hand-in-hand in a senior housing facility.
Drivers of revenue growth in our Canadian community outpaced our US communities this past quarter on a year-over-year basis while expense growth has come into line with our US community particularly on a sequential quarter basis. Our net lease stabilized senior housing portfolio continues to thrive with occupancy for the past quarter at about 90% as Rick said above pre-pandemic levels and steadily improving rent coverage. Sabra's total investment in behavioral health remained approximately $800 million as we provide time for our assets to complete conversion and lease up and reach stabilization. You will note that we have combined specialty hospitals and behavioral health in our coverage disclosure in our supplemental because combined these categories represent 21 stabilized properties contributing about 10.5% of Sabra's NOI with only six behavioral properties in there.
And with that I will turn the call over to Michael Costa Sabra's Chief Financial Officer.
Michael Costa: Thanks, Talya. For the first quarter of 2024, we recognized normalized FFO per share of $0.34 and a normalized AFFO per share of $0.35 both up $0.02 from our fourth quarter 2023 results. Year-over-year both normalized FFO per share and normalized AFFO per share increased 3% representing the first year-over-year increase in both since before the pandemic. This sequential increase was driven by the following: a $1.8 million sequential increase in cash rents received with the majority coming from stronger collections from cash basis tenants compared to the fourth quarter. A $1.3 million reduction in normalized cash G&A expense primarily related to performance-based compensation true-ups that occurred in the fourth quarter.
$900,000 of business interruption insurance income related to a property that suffered fire damage last year and a $600,000 improvement in NOI from our managed senior housing portfolio due to improved performance as well as the transition of five facilities to our managed portfolio that were previously leased on a triple-net basis. This was partially offset by a $500,000 increase in cash interest expense due to higher outstanding borrowings under our revolving credit facility. As Rick noted earlier, our first quarter performance came in slightly better than what we had forecast in our 2024 guidance estimate. While we are pleased with this out performance given that it's early in the year, we feel it's most prudent to reaffirm our full year 2024 guidance ranges at this time and we will revisit these ranges for our second quarter earnings call.
Our full year 2024 guidance ranges on a diluted per share basis are as follows: net income $0.53 to $0.57 FFO $1.33 to $1.37 Normalized FFO $1.34 to $1.38 Adjusted FFO $1.38 to $1.42 normalized adjusted FFO of $1.39 to $1.43. As a reminder our guidance does not assume any acquisition or disposition activity. Now briefly turning to our balance sheet. Our net debt to adjusted EBITDA ratio was 5.55x as of March 31, 2024. As our portfolio continues its recovery from the pandemic, we expect this to result in improvements to both our earnings as well as our leverage. As of March 31, 2024, we are in compliance with all of our debt covenants and have ample liquidity of $914 million consisting of unrestricted cash and cash equivalents of $60 million and available borrowings of $854 million under our revolving credit facility.
Finally, on May 8, 2024, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on May 31 2024 to common stockholders of record as of the close of business on May 20, 2024. The dividend is adequately covered and represents a payout of 86% of our first quarter normalized AFFO per share and this payout percentage is expected to improve over the course of 2024. And with that, we'll open up the lines for Q&A.
Operator: [Operator Instructions] Your first question comes from the line of Austin Wurschmidt from KeyBanc. Please go ahead.
