Sabra Health Care REIT, Inc. Q1 FY2020 Earnings Call

Good day, ladies and gentlemen, and welcome to the Sabra Health Care First Quarter 2020 Earnings Conference Call. I would now like to turn the call over to Michael Costa, Executive Vice President of 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 future financial position and results of operations, including the expected impact of the ongoing COVID-19 pandemic, our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plans. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2019, and in our Form 10-Q that was filed with the SEC yesterday morning, 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 that later in the quarter 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 www.sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the Investor section of our Website. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Mike. On the call with me are Talya and Harold, and as soon as I finish my remarks, I'll pass it over to Talya, and then to Harold, and then we'll go to Q&A. First let me thank you all for joining the call. I hope you and your families are safe and doing well during this tough time. So, I’d first like to start the call by honoring and recognizing the staff in all of our facilities. I have the honor of years of working in facilities as an operator. I started as an activity director at a nursing home, and so I see every day the kind of care that is being delivered and the other services beyond direct care that are being delivered, and how the staff in the facilities, whether they're skilled nursing, assisted living, memory care, or independent living, become second families to the residents and patients that reside there. The hospitals have gotten tremendous attention and support, and the staff are being cautious this year and all of that support is well deserved. Unfortunately, we haven't seen the same from the media as it pertains to skilled nursing and senior housing. In early pandemic, it was identified that the elderly were the most vulnerable population, and those cared for in our facilities are even more vulnerable. So, we’re part of an effort to get some better PR out there because our staff deserves the same level of support and understanding that the hospital workers have. Our facilities have not been prioritized; supplies are still tough; staffing is tough, and they deserve the same level of understanding. I’d also like to remind you that yesterday was National Nurses Day and the beginning of National Nurses Week. Next week, starting on Monday, is National Skilled Care Week, and as I’m sure all of our peers are doing, we’re doing things out in the field to provide support and honor all the workers. Now moving on to business at hand, talking about the acquisition environment, it has come to a complete stop for all intents and purposes. I do think that for the smaller operators, this is tough, and those who don't have good balance sheets or capital partners that can provide them the appropriate support will create opportunities for us as soon as we move past this pandemic and we look to get back to growth at some point later on. We did get a number of deals done this year that came from our development pipeline for senior housing facilities totaling $112.6 million for a blended yield of approximately 7.45%. We don't expect to do any material acquisitions looking forward this year. We'll have a few deals, some more direct from our development pipeline similar to the ones we've closed on this year. Moving on to the Enlivant joint venture option, we're not doing anything about this. We don't feel pressed to do anything. It's a very difficult time right now. Even though we saw some really nice uplifting performance in the fourth quarter, the combination of the flu season, which was much tougher than last year and now the pandemic hitting really in March on the cost side, has ruled out opportunities at this point. The fact that the option we have expires at the end of the year isn't meaningful to us. So we will take our time and see how everything goes. The space is going to recover nicely and we'll talk more about that. In terms of first-quarter numbers and the PDPM impact, based on reported results through February, PDPM had an annualized positive impact of 0.14 on our EBITDA SNF coverage of which 75% was rate related and 25% was cost related. We excluded the market basket and the month of October, so we're talking trailing three months on an annualized basis. We're much better off as a sector having PDPM in place; we still have drugs incentivizing operators to admit short-term rehab patients only. Since we've had PDPM in place, we expanded the types of patients admitted to include many nursing conditions and more complex nursing care. That is helping us by positioning our portfolio to be stronger going into the pandemic, as you all saw in our stats that our coverage improved. If you look at our coverage on a standalone basis, it improved even more in the first quarter. Tenants that some had concerns about like North America and Avamere really showed improvement. Avamere’s first quarter of this year was the strongest quarter it’s had since we acquired it. That has helped us and our operators since they are still admitting. In facilities that have positive COVID-19 patients, admissions stop if there’s a large outbreak. If there hasn’t been a large outbreak and working in conjunction with the Department of Health Services, most of our facilities are still admitting, particularly if they’ve got the capacity to isolate a new admission. There are specific guidelines our facilities are following that have been issued by the CDC and supported by the American Healthcare Association in terms of admitting patients. The cost savings we saw from PDPM prior to the pandemic have mostly disappeared since therapy is now conducted on a one-on-one basis. Everything is being done on a one-on-one basis, including activities and meals. So those cost savings, while they will come back post-pandemic, currently do not exist. For the quarter, as reported, our skilled EBITDARM coverage increased, as did occupancy and skilled mix. Our senior housing triple net rent coverage and occupancy were essentially flat. Our top 10 tenants showed their best quarter yet, with most of our skilled tenants showing improved coverage, benefiting from PDPM. The McGuire Group still had strong coverage over 2 times and showed improved coverage with PDPM on a more current basis. One thing I would point out is that the flu impact really went into the first quarter, and so in March, we started seeing cost increases because of the pandemic with the occupancy hit beginning in early April. Regarding COVID-19 specifically, I first want to cover what we received from our operators and how we're monitoring the business. On a weekly basis, we receive a census tracker from our sources. Every two weeks we receive census data for all our operators at the portfolio level. We don’t ask for it at the facility level. We’re walking a fine line between asking our operators for information we think is critical and not causing an undue burden on them. But we receive weekly reports on facilities with COVID-19 positive test results and weekly data about every county and province where we have facilities. This approach has provided us with a sense of how things might progress in the counties where we operate. Our asset management teams talk with our operators continuously, not just to determine the status of operations but where we can assist. We refer to the impact of COVID-19 by using February as the demarcation point. We're comparing March, April, and May to February averages. Since the February month-to-date average, occupancies are down 160 basis points as of the last week of April. The first week of April saw the largest drop, but that rate hasn’t continued at the same degree. Our triple net senior housing occupancy fell 130 basis points from the February average to the last week of April. Senior housing has held up pretty well; while admissions slowed down, residents leaving has also slowed. Many residents feel more secure remaining in the facilities as they simply cannot provide the care they need outside. When looking at occupancy on a year-over-year basis, both triple net senior housing and shop have larger drops, reflecting the flu's impact. The first quarter of 2019 had a lighter flu season, while this season has been tougher, similar to patterns we saw a couple of years ago. The facilities must recover from both the flu and the pandemic. If we measure how we’re doing since the pandemic started, I think we’ve held up well; I’ll provide more specifics on that later. Our skilled nursing occupancy is down 460 basis points from February month-to-date through the last week of April. However, our skilled mix is declining about one-third of the rate that occupancy is. Skilled mix has held up fairly well, and it has gone from declining to flat, with an actual increase as of the last week of April. This positive trend is partly due to the larger population focused on nursing needs, with those individuals also having longer stays. The suspension of the three-day hospital stay requirement means patients can be skilled in place. For instance, a Medicaid patient whose condition worsens can remain in the facility without being discharged if they still qualify for Medicare. This is a significant shift, allowing us to see enhanced metrics. There are examples of facilities experiencing larger drops in occupancy due to high COVID outbreaks, yet they've managed to care for most patients on-site, successfully transitioning many from Medicaid to Medicare without the need for hospitals. Regarding mitigation from various relief packages, we’re tracking what each of our operators accesses from the different programs. I’ll use aggregate numbers now. We have a total of $320 million that our operators can access, broken down as follows: $100 billion from the public health care and social emergency fund providers, of which only $60 million is being used; $10 million from sequestration suspension; $20 million from FMAP which we expect will improve; and $150 million from the advanced Medicare payment program. Some operators have chosen not to access that because it has to be repaid relatively soon, and some lenders are asking providers to repay lines when accessing that money. Lenders are providing some flexibility, which we greatly appreciate, but it limits the number of operators that have access to the advanced Medicare payment program. Additionally, we have $50 million from the employer payroll tax rate delay, $30 million on PPE, and while the three-day hospital stay provides benefits, it's hard to quantify its full effect. We're cautiously optimistic for more assistance, particularly in Medicaid, but we must wait and see what happens as this unfolds. Currently, we have 80 facilities with positive COVID-19 patients or residents and 22 of our 70 tenants. We've seen different patterns across asset classes; resilient conditions exist in assisted living and even independent living due to their healthier population. In skilled nursing, there hasn’t been a clear pattern; some facilities have experienced larger outbreaks while others have only a few patients. When facilities record positive cases, everyone is tested, but the pattern of infection varies. Testing adequacy and capacity continue to be challenges, but we remain cautiously optimistic, evidenced by our slowing census decline in skilled nursing. I mentioned earlier, our skilled mix held up better than overall occupancy and is now rising. Counties with our facilities aren't showing significant increases in cases compared to other areas. Every patient is treated according to CDC guidelines as if they have COVID-19, ensuring proper protocols are in place. Telehealth services for our residents have yielded positive results, providing connectivity and support. For example, Enlivant, which has done extensive testing, is showing a low positive rate due to following strict protocols. Initially, I was more concerned about the senior housing sector due to lack of experience with infections, especially in independent living. Nevertheless, providers are implementing guidelines promptly, resulting in positive impacts. We strive to support our operators through sharing best practices, sourcing supplies, and providing access to resources. Although supply availability is still a concern, masks are more accessible than before, whereas gowns remain a significant challenge. Looking at costs going forward, I think many of the COVID-related costs in skilled nursing will dissipate, although there will be a slight rise in needed inventory. Senior housing operators typically carry less stock, so we anticipate an increase in preparations for future incidents. Infection control costs will increase, especially for senior housing operators. Labor costs, however, are the largest driver in skilled nursing and I believe the overall impact will amount to reasonable rates post-COVID. Before I turn it over to Talya, I want to address our specialty hospital portfolio, primarily behavioral facilities, which contributes 10% of our NOI and has remained remarkably stable through this period thus far. I see no substantial impacts to that segment at this time. And with that, I will turn the call over to Talya.

Thank you, Rick. In my remarks, I will provide the first quarter operating results of our managed portfolio. The first quarter reflects mostly the pre-pandemic environment, setting the stage for the broader impact that followed. In Q1 2020, approximately 17% of Sabra's annualized cash net operating income was generated by our managed senior housing portfolio. About 52% of that relates to communities managed by Enlivant, and 33% pertains to our Holiday-managed communities. The balance includes our Canadian portfolio and five assisted living and memory care communities in the U.S. On a same-store year-over-year basis, our managed portfolio showed favorable top-line results compared to Q1 2019, with revenue increasing by 2.1%. Revenue per occupied room (RevPOR), excluding non-stabilized assets, was up 3.8%, despite occupancy declining from 85.1% to 83%. However, cash net operating income fell by 10.1% from $14.9 million to $13.4 million, partly due to COVID-19 preparedness costs incurred in March by our operators. Occupancy remained consistent during the quarter, but late in Q1 operators began incurring unbudgeted costs for PPE and changes to the delivery of resident services, which negatively impacted cash net operating income and margin. I want to detail what has transpired for operators and senior housing over the last 45 to 60 days, providing context for our managed portfolio. In the face of COVID-19, operators had to retool nearly everything quickly and effectively. They created virtual tours since in-person tours were not allowed and developed rules to ensure incoming residents were infection-free. Clinical assessments were done virtually, and dining had to shift to interim-only options, meaning meals had to be prepared, packaged, and delivered to each resident multiple times a day. Group activities were replaced with socially distant activities. Staff had to be screened before every shift, including temperature logging. Sufficient masks, gloves, gowns, and even face shields must be stocked for adequate protection. Our portfolio includes a national assisted living and memory care operator with smaller communities and secondary and tertiary locations at a middle market price point. Staff at each community includes healthcare professionals to support residents' daily medical needs. Holiday Retirement primarily operates independent living, focusing on creating a social environment without healthcare professionals on staff. Our Sienna portfolio operates both nursing homes and retirement homes in Canada. Regardless, all operators are on the frontline protecting residents from a healthcare threat, assessed, planned, and implemented changes immediately. The Enlivant joint venture portfolio of 168 properties, owning 49% of Sabra, showed top-line improvement in Q1 2020 on a same-store year-over-year basis but faced costs related to pandemic preparation late in the quarter. Average occupancy for Q1 was 81.5%, down 1.5% on a stabilized same-store year-over-year basis, influenced by flu impacts from November to January. On the same-store year-over-year basis, RevPOR was $4,340, up 2.7%. Overall revenue increased 1%, but cash net operating income margin was 22.1%, down 4.2% from last year on a same-store basis. This includes $482,000 of Sabra’s share of the COVID-19-related costs, mainly medical supplies and dining materials. For April, average occupancy declined by about 130 basis points compared to February, primarily due to fewer new move-ins early in the month, although somewhat offset by fewer expected move-outs. Housing collection rates have remained normal. Enlivant estimates Sabra’s share of continued expenditures on PPE and related programs will be about $425,000 monthly. In total, 10 Enlivant JV properties had a resident test positive for COVID-19, but as of a couple of days ago, only four communities had a resident with a positive test. In late April, Enlivant began experiencing an increase in leads and virtual tours, indicating that potential residents are delaying moves but suggest pent-up demand exists. Enlivant's ability to manage resident and staff safety during this period, combined with the backlog of delayed move-ins, makes us cautiously optimistic about occupancy levels. Sabra’s wholly-owned Enlivant portfolio of 11 communities continues to experience strong rate growth. However, as discussed in last quarter's earnings call, occupancy and margin were affected due to the early flu onset last year. Q1 occupancy was 86.1%, down 3.4% compared to the previous quarter. However, RevPOR remained consistent with $5,799, which was 8.1% higher than last year. Revenue increased 2.5% YoY but fell 3.9% QoQ, with cash NOI margin at 26.2%, down 3.7% from the previous quarter, due to occupancy declines and related COVID-19 costs of $80,000. In April, occupancy averaged 83.9%, down 210 basis points from February. The decline was primarily in early April with fewer new residents moving in, which stabilized due to fewer move-outs later. Collections have been steady. Enlivant estimates Sabra’s ongoing PPE, labor, and employee program expenditures at about $100,000 monthly in this portfolio. Four of our wholly-owned Enlivant communities have had a resident test positive for COVID-19; a couple of days ago, only three communities reported cases. Our Holiday communities transitioned to managed portfolios at the start of Q2 2019, so we don't have year-over-year same-store results yet. Excluding transitioned communities, portfolio occupancy was 87.2% in the quarter, down 0.6% from the previous quarter. RevPOR on a same-store basis, excluding the transition community, was $2,496, slightly above the prior quarter’s $2,486. For the quarter, adjusted cash NOI, including the transition community, was in line with previous quarters with a cash NOI margin of 35.2%. COVID-19-related costs incurred were $139,000 in late March. For April, occupancy averaged 86.4%, only 40 basis points below February's figure. Collections remained consistent, with Holiday applying a 4.5% increase on anniversary dates without pushback, reflecting a positive resident experience. Expected COVID-19-related costs for April total $278,000. Only two Holiday communities have recorded positive tests among residents. The Holiday team has excelled in managing all aspects of the pandemic, as their operating model isn’t tailored for health-related matters. In response to support residents better, Holiday rolled out a free telehealth program for residents to access medical providers while protecting them from potential exposure to the virus. Sienna Senior Living manages eight retirement homes for Sabra in Ontario and British Columbia. In Q1 2020, the eight properties reported 85.3% occupancy, down 3% from the prior quarter and 4.9% year-over-year. RevPOR was $2,227, flat compared to the prior quarter and up 2% from the prior year. First quarter NOI was also flat versus the prior quarter but down 3.7% year-over-year due to revenue decline, including about $20,000 in COVID-19-related costs. Cash NOI margin for the quarter was 38.9%, a 1.1% increase over the prior quarter and down 0.5% year-over-year. In April, occupancy averaged 84%, only 20 basis points below February's average, ending at 83.9%. Occupancy increased in several properties but was offset by declines in two Ontario homes due to competition. So far, we have confirmed no COVID-19 cases in the Sienna portfolio, as infections remain low in British Columbia's interior, where some of our homes are. Many potential residents have deferred moves until the pandemic eases, but many consider retirement home living a safer option amid isolation concerns. Independent living residents in our Holiday and Sienna portfolios are typically healthier and require less care, translating to lower staffing needs and fewer external interactions. This has likely supported occupancy during April. There have been occupancy pressures in April as move-ins fell while move-outs persisted, although at a slower pace than usual. Many residents are hesitant to move to higher levels of care and others lack access to necessary support outside the community. Operators have adapted sales strategies and are often requiring new residents to test COVID-negative and quarantine in their new apartment, which isn't appealing unless absolutely necessary. Operators find that virtual tours are a successful sales tool, generating strong leads, given the pent-up demand within senior housing. Meanwhile, rates remain stable, and collections are healthy. To deliver services, operators are working to procure and stock necessary materials, incurring additional labor and packaging costs due to increased cleaning requirements and staff shortages related to COVID-19. While managed communities are primarily in secondary and tertiary markets focusing on middle market price points, they have proven to be more insulated from the pandemic's impact. Most COVID-19 cases occur within densely populated areas, while our communities are embedded in their localities, offering critical care and consistent employment. In summary, we face occupancy pressure during April and costs incurred for strict adherence to CDC protocols. There were fewer move-ins and varying degrees of occupancy because we transitioned to virtual tours and digital marketing. All of our operators are ramping up digital marketing strategies to generate leads and believe strong responses indicate pent-up demand. Throughout the process, operators faced additional labor costs necessary for cleaning and meal delivery stemming from the pandemic. I will now turn it over to Harold, Sabra's Chief Financial Officer.

Thank you, Talya, and thank you all for joining the call. I will begin my comments with an overview of the quarterly results and finish with some discussion around the financial implications of the COVID-19 pandemic going forward. First, I would like to note that COVID-19 began impacting us in March, affecting our managed portfolio. This impact included cost increases and mineral loss of revenues due to lower occupancy. Cost increases consisted of identified direct costs of $0.3 million in our wholly-owned managed portfolio and $0.5 million in our share of encrypted joint venture assets operated by Enlivant. These costs were directly associated with COVID-19, such as incremental personal protection equipment, incentive pay, and operational and cleaning supplies. We have normalized this $0.8 million COVID cost impact out of our FFO and AFFO for the quarter, and we made no normalizing adjustments to revenues. For the three months ended March 31, 2020, we recorded revenues of $149.3 million and NOI of $125.6 million, compared to $155.8 million and $134.8 million for Q4 2019, resulting in declines of $6.5 million and $9.2 million, respectively. Revenue and NOI declines were mainly due to the write-off of straight-line net receivables and above-market lease intangibles, totaling $6.1 million associated with four operators moving to cash basis accounting. These operators represent 3.1% of our total annualized cash NOI. For the quarter, FFO was $86.9 million; on a normalized basis, it was $92.1 million, or $0.45 per share. FFO was normalized primarily to exclude $5.8 million write-off of straight-line rent receivables and above-market and lease intangibles, as well as incremental costs associated with COVID-19. This compares to normalized FFO of $95.6 million or $0.48 per share the previous quarter. AFFO was $91.8 million, and on a normalized basis was $90.5 million, or $0.44 per share. This was normalized mainly to exclude the same $1.9 million settlement from a legacy case and the $0.8 million of pandemic-related expenses normalized out of FFO. This compares to normalized AFFO of $93.2 million or $0.47 per share for Q4 2019. Approximately half the $0.03 per share declines in normalized FFO and AFFO is attributed to the incremental weighted average shares outstanding In Q1 2020 compared to Q4 2019 due to our deleveraging activities. Higher compensation expenses impacted FFO, including $0.7 million of cash compensation and $1.4 million of stock-based compensation, which impacted FFO only. For the quarter, net income attributable to common stockholders was $35.2 million or $0.17 per share. G&A costs for the quarter total $8.8 million, which increased by $2.8 million from the previous quarter. Q1 2020 G&A’s included $2.4 million of stock-based compensation while recurring G&A costs totaled $6.2 million or 4.9% of NOI for the quarter, in line with expectations. Interest expense totaled $25.7 million compared to $27.4 million in Q4 2019. This reduction was primarily driven by debt paydowns in Q4 2019 and lower overall borrowing costs. Our cost of permanent debt declined by 12 basis points from the end of 2019 to 3.67% at the end of this quarter. Our revolver borrowing costs declined by 82 basis points to 2.09%. We also recorded around $2.2 million of non-cash interest in Q1 2020, consistent with Q4 2019. Other income of $2.3 million includes a $1.9 million legal settlement previously mentioned, while our unconsolidated joint venture incurred a $1.7 million loss on selling two assets from that portfolio. During the quarter, we completed the acquisition of two senior housing triple net communities and one managed community from our development pipeline for an aggregate cost of $83.4 million, with a weighted average cash yield of 7.51%. Additionally, we sold three skilled nursing transitional care facilities for an average sales price of $6.8 million, resulting in a $0.2 million loss on sales. As of March 31, 2020, the Company identified two skilled nursing transitional care facilities with an aggregate net value of $11.3 million and a net secured debt balance of $13.8 million to be classified as assets held for sale, included in accounts receivable, prepaid expenses, other assets, accounts payable and accrued liabilities. After March 31, 2020, we completed the sale of the facilities for $14.4 million, with the buyer assuming approximately $14.2 million in HUD-insured mortgages. During the quarter, we issued 0.2 million shares under the ATM program at an average price of $20.33, generating $3.9 million in gross proceeds before $58,000 in commissions. Although we expected to issue additional equity to reduce debt further, the sharp decline in equity markets hindered that opportunity. However, we maintained our leverage with a lower target of 5.5 times, including joint venture debt, which stands at 5.74 times, and 4.97 times excluding joint venture debt. We complied with all debt covenants as of March 31, 2020, and maintained strong credit metrics. On May 6, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.30 per share, which will be paid on May 29 to common stockholders of record as of May 18. We reduced the dividend this quarter owing to uncertainty surrounding COVID-19 and set it at a level we believe can be sustained in the future, even amid significant operational disruptions. We will evaluate our dividend payout as we navigate through the pandemic. Regarding the financial implications of COVID-19, I'd like to mention that we have formally withdrawn our 2020 earnings guidance due to considerable uncertainty around its impact on our triple net rental revenues and our managed portfolio performance through 2020. However, we can provide insights into the strength of our balance sheets and liquidity positions that will help us navigate through this challenging period. As of March 31, 2020, we held over $950 million in liquidity. Our principal payment obligations through the end of 2021 totaled only $19.6 million, allowing us significant cushion in our debt covenants. We have suspended all significant investment activity, eliminating any associated liquidity needs for the time being. We expect to maintain this course until our cost of capital provides clear alignment for pursuing investment opportunities sustainably funded through debt and equity. The reduction of our quarterly dividend from $0.45 to $0.30 conserves approximately $30 million in liquidity each quarter. Given these factors, we feel confident about sustaining disruptions in cash flows from operations for a long time, even at levels exceeding our current expectations. As of April, we have not seen disruptions in monthly rent payments tied to COVID-19, having collected our expected rent fully in April and slightly above our usual levels in early May. We have not withdrawn any deposits or credit enhancements to cover rent obligations due to COVID-19 disruptions; however, we do expect some tenants may need relief that will be assessed individually, focusing on operators with clear plans to manage operational and financial challenges while providing quality care. Potential rent relief would involve temporary, not permanent, reductions proportional to cash flow capabilities without extended lease renegotiations. Each situation will dictate the structure and repayment terms of any rent relief provided. We included analysis of available government assistance for our operators in our supplemental report on Page 7, highlighting COVID-19 mitigation opportunities. Three program types can directly bolster EBITDA, providing short-to-medium-term cash flow relief with potential for long-term cash injections through loan forgiveness under SBA guidelines. Although nearly $320 million marks significant potential for mitigation, various limitations influence this impact. For example, the $150 million available through accelerated Medicare payment might not yield the expected liquidity impact, as financial institutions often require reservation of these funds. Broad conclusions about program benefits should be based on individual operator situations, knowing that some tenants will likely need rent relief in addition to benefiting from government programs. Regarding ratings, we remain in regular communication with all three agencies during the pandemic, ensuring we maintain solid visibility into key rating drivers while exercising caution regarding potential downgrades. Despite the uncertain impact of COVID-19 on our EBITDA, we believe we can maintain our net debt to adjusted EBITDA around 5.50 times through 2020 without diving back into equity and debt markets. Rick, would you like to address anything further before returning to Q&A?

Thank you, Harold. Let's now proceed to Q&A.

Hi, this is Josh. I wanted to ask about the $320 million of state and federal assistance available for operators. Some operators are not using the accelerated Medicare payment program. Can you estimate the average funds that a skilled nursing facility might receive after removing those planning to decline the funding? And how much timeframe will this relief provide before operators need to request rent deferrals?

While I understand the attempts to calculate averages, it varies. Every operator is utilizing funds differently based on their specific needs, especially dependent on COVID-19's impact on their operations. If two months ago someone had told me that we'd be discussing no rent relief granted, I would have been surprised, especially in senior housing, where operators lack access to many programs.

Thank you for clarifying. Can you elaborate on the skilled nursing occupancy drop of 460 basis points since February, driven by the halt on elective surgeries? How soon do you expect elective surgeries to resume in states that are starting to lift restrictions?

The recovery will likely happen faster due to pent-up demand. However, knowing that some states are only allowing elective surgeries for specific conditions complicates the prediction. Operators have been closely communicative with their referring hospitals, so they understand when they'll be ready to admit patients.

Thanks again. Regarding the COVID-19 operating expenses of $0.8 million removed from FFO, do you anticipate that cost growing in Q2 or for the remainder of the year? Will you continue excluding it from FFO?

Yes, Talya mentioned estimating ongoing costs, around $425,000 per month. That’s our share, leading to a projected annual total of about $5 million. Smaller amounts apply to Holiday's portfolio, approximating $100,000 per month. We plan to maintain normalizing these costs from FFO to give insights into performance without them.

A final question on Medicaid implications related to potential state financial disarray from COVID-19: How should we assess the viability of states meeting Medicaid budgets?

This is complex; when considering the FMAP increase, many states use it for their budgets. We’ll also likely see states make changes after the pandemic, particularly concerning Medicaid's adequacy. The current environment heightens the need for better support mechanisms in the Medicaid system.

Thank you very much. I appreciate your time. Best wishes for health and safety.

Thank you, again. Please remember our workers during this time. We appreciate your participation and we look forward to speaking again soon. Take care.

Thank you, ladies and gentlemen. This concludes today's call. Thank you for participating and you may now disconnect.