Sabra Health Care REIT, Inc. Q1 FY2023 Earnings Call

Good day, everyone. My name is Lisa 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 2023 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. I would now like to turn the call over to Lukas Hartwich, SVP, Finance. Please go ahead, Mr. 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 our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plan. 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, 2022, 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.

Thanks, Lukas, and good day everybody. Thanks for joining us. We're continuing to see traction in operational recovery. Occupancy in our skilled nursing portfolio has now improved every month in the fourth quarter and continued through January. Occupancy from October through January in our skilled nursing portfolio improved to 130 basis points. Our skilled mix jumped up dramatically in the first quarter as well. Labor trends are improving, but it's still tough, and it's going to be a bit of a slog there, I think, for a while, but we're certainly off our highs in terms of inflationary increases and agency utilization. So, we feel good about the progress that has been made there as well. EBITDARM coverage without PRF, and that's really the only way we think everyone should be looking at it at this point, has improved sequentially on a trailing 12-month basis and even more so on a trailing three-month basis. I want to comment on a couple of specific operators. I think everybody saw I noted Signature Health coverage declined. Signature Health had a tough second half. They sold 24 facilities and right-sized their corporate infrastructure to accommodate a leaner company. And so that was quite distracting for them. However, their first quarter rebounded dramatically, and I went back over a year and a half to find a quarter that was as strong as the first quarter for Signature Health, and I wasn't able to find one. So, we feel really good about where Sig Health is on a current basis. Similarly, Avamere, while their coverage was fine as reported. They also had a strong first quarter as well. Comment quickly on the transition from the old North American portfolio, and that's going well for Avamere and it's going well for Ensign, as Ensign noted on their earnings call; they are ahead of schedule even though there's still a lot of upside to be had there. So, in terms of our three largest operators, Sig Health and Avamere and Ensign, we feel like we're in a really good place with all three of those operators right now. We're pleased with the proposed 3.7% market basket and we do expect better than historical Medicaid rate increases. Most of those rate increases for our portfolio will be effective on July 1st. We'll have some more clarity probably over the next several weeks on what those rates will be. Our expectation, though, is that some states will be extending COVID rate add-ons and some will update the cost report base year to reflect more current data, and that's a reflection of the fact that many states do acknowledge the impact of COVID on the industry and the lack of viability of some of the Medicaid rate increases in certain states. So, as we saw last summer, we're seeing some of the same things this summer, and states are being more generous with their Medicaid rates. Investment activity is light and will remain so in the near term. Competitive landscape has changed with lender loans and liquidity needs driving sales. Pricing uncertainty exists and I'm sure Talya will talk more about that as well. On Enlivant, as noted in the press release, we have terminated our position in the JV. There was no impact on earnings or any other ramifications to the company other than the fact that there are a number of folks out there, rating agencies, and others who still look at the debt carried by the JV. And so that obviously is gone. So from that perspective, for those that looked at the JV that it's a delevering event for us. We're now focused on transitioning the 11 wholly-owned facilities to a new operator. I would note on the 11 wholly owned facilities, they are different than the JV portfolio. The JV portfolio was part of the original ALC acquisition. The 11 facilities that we own came afterwards. And these are large facilities in larger markets that are primarily a combination of assisted living and memory care patients or residents.

Thank you, Rick. I'll first turn to the results of our managed senior housing portfolio and then provide a brief update on our investment activity in Behavioral Health. Our wholly owned managed senior housing portfolio continued its recovery throughout 2022 and was essentially flat in the first quarter of 2023. Having worked to manage and overcome labor and wage challenges for nearly two years, operators are now focused on building occupancy by bringing in new residents in numbers that materially exceed departing residents, who for the most part are not leaving out by choice. Expenses are continuing to moderate, which is positive, and the continued evolution of an investment in customer acquisition strategies is now seen as foundational. Our operators first became attuned to this when the pandemic began and they were forced to pivot to virtual sales, and they have embraced this change. The headline numbers for the wholly owned managed portfolio on a same-store basis excluding non-stabilized assets and government stimulus are as follows: Occupancy for the first quarter of 2023 was 80.7%, a 140 basis point increase over the first quarter of 2022 and a 100 basis point decrease over the prior quarter. REVPOR in the first quarter of 2023 increased by 7.3% over the first quarter of 2022 driven by nearly 10% annual rate increases achieved in our Holiday and Enlivant, wholly owned Enlivant portfolios. REVPOR for the first quarter was $6,484 in our assisted living portfolio, flat to the prior quarter and $2,771 in our independent living portfolio, a 110 basis points higher than the prior quarter. Excluding government stimulus funds, cash NOI for the quarter was slightly off the prior quarter, but nearly 33% higher than in the first quarter of 2022 driven by continued margin recovery, particularly in our wholly-owned Enlivant portfolio, demonstrating the benefit and challenges of operating leverage. We continue to see strong rate growth and seasonal occupancy gains across our senior housing portfolio. Our net leased stabilized senior housing portfolio has seen consistent occupancy increases since the low in February of 2021. As of February of 2023, occupancy recovered to 88.2%, which is equal to the occupancy level immediately before the pandemic and 11.5 percentage points above the pandemic lows. Our leased portfolio SKUs to assisted living and memory care, which have had more robust occupancy recoveries than independent living as they are needs-based. In addition, we have transitioned some poorly-performing leased communities to the managed portfolio, allowing us to participate in their financial recovery. Move-out rates driven mostly by higher care needs and deaths seem to be stabilizing, but at an elevated rate relative to pre-pandemic averages. This may be a temporary phenomenon, as we are seeing average length of stay reverting to pre-pandemic levels after spiking in early 2021. We speculate that residents who moved in during the first rounds of COVID vaccine clinics at communities that we then characterize as pent-up demand are driving higher move-outs now 18 months later. As mentioned in prior calls, high-yielding, time-efficient and cost-effective customer acquisition strategies have become critical to filling communities. Larger operators who benefit from scale and capital are successfully using digital marketing to generate qualified leads that have a high rate of conversion to leases. Although the conversion rate from personal referral sources is higher, the absolute number of move-ins that are sourced through operators' digital presence far exceeds those from other lead sources. We are still in the early stages of the evolution of customer acquisition in senior housing and expect to see further changes as the target customer also evolves. Comparing the first quarter of 2023 results of our wholly owned managed portfolio by country, excluding government stimulus, we see that our Canadian assets have slightly outperformed our US communities compared with the prior quarter. In Canada, we see a similar phenomenon as we described in the US of higher move-out rates offsetting occupancy gains likely for the same reason. The labor cost and availability in Canada that we noted in last quarter's earnings call also seems to be resolving. As an example, in the first quarter of 2023, our Canadian joint venture reduced agency costs by 85% compared to the prior quarter. Turning briefly to our Behavioral Health portfolio. At the end of the first quarter, Sabra's investment in Behavioral Health included 17 properties and two mortgages with a total investment of $793 million at the end of the first quarter, which is expected to total $837 million once the balance of cap committed capital is deployed. We have identified additional properties within our owned portfolio as candidates for conversion and are in active discussions with potential operators regarding those locations.

Thanks, Talya. For the first quarter of 2023, we recognized normalized FFO per share of $0.33 and normalized AFFO per share of $0.34. These results are consistent with the normalized FFO and normalized AFFO run rate we articulated on our fourth quarter earnings call and are in line with our expectations. As of March 31st, 2023, approximately 5% of our NOI was below one times EBITDARM coverage, which is consistent with previous quarters. Also, as of March 31st, 2023, our annualized cash NOI was $451.4 million and our SNF exposure represented 56.7% of our annualized cash NOI, down 140 basis points from the fourth quarter of 2022 and down 500 basis points from a year ago. We expect this percentage to continue moving lower throughout 2023 as a result of further earnings recovery in our senior housing managed portfolio and through any future SNF dispositions. G&A costs for the quarter totaled $10.5 million compared to $10.9 million in the fourth quarter of 2022. Excluding stock-based compensation expense, cash G&A for the quarter was $8.3 million compared to $8.8 million for the fourth quarter of 2022. Now turning to the balance sheet. Our balance sheet continues to be a source of strength for Sabra, allowing us to confidently withstand the market headwinds of tightening credit and high interest rates. As of March 31st, 2023, we are in compliance with all of our debt covenants and have ample liquidity of nearly $1 billion consisting of unrestricted cash and cash equivalents of $34 million and available borrowings of $920 million under our revolving credit facility. We have no material near-term debt maturities. Our next material debt maturity is in 2026 and our weighted average debt maturity is currently at 6.3 years. Our net debt to adjusted EBITDA ratio was 5.52 times as of March 31st, 2023 and in line with our expectations. We expect our leverage to decrease in future periods, as our portfolio continues its operational recovery and through proceeds from any future disposition activity. Excluding our revolving credit facility, which makes up just 3.3% of our total debt, we have no floating rate debt exposure and our cost of permanent debt is 3.93% as of March 31st, 2023. The combination of a low leverage, fixed-rate balance sheet with meaningful liquidity and no near-term maturities affords us the luxury of not needing to access the capital markets in the foreseeable future. On May 3rd, 2023, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on May 31st, 2023 to common stockholders of record as of the close of business on May 16th, 2023. The dividend represents a payout of 88% of our normalized AFFO per share. Lastly, we did not issue earnings guidance this quarter, but we are hopeful to be in that position to do so sometime in 2023. Until then, we still believe that the $0.33 to $0.34 quarterly run rate of normalized FFO per share and normalized AFFO per share that we provided on our fourth quarter call is still appropriate. And with that, we'll open up the lines for Q&A.

Thank you. Your first question comes from the line of Michael Griffin with Citi. Please go ahead.

Thank you. I'd like to revisit the fundamentals regarding skilled nursing facilities. Rick, what are your assumptions for the remainder of the year? How are you evaluating expectations for agency and labor costs potentially decreasing? If we were to quantify this, perhaps at the beginning of the year you expected agency utilization to remain flat. What are your thoughts on where that might stand by the end of the year, and have your views on this changed?

So, my perspective remains the same. I believe we can still achieve a 30 to 40 basis point improvement in occupancy each month. While we would like to see more progress, we recognize that labor issues continue to be a hurdle. For instance, Signature Health experienced a 5% reduction in labor costs sequentially during the first quarter. I don’t mean to imply that this trend will persist, but it was a significant decrease, coinciding with a noteworthy increase in occupancy within that portfolio, where occupancy rose nearly 300 basis points over sequential quarters. I expect improvement to be gradual. There will continue to be a trend moving from agency to in-house staff, alongside increased wages. However, the rate of inflation for those wages appears to be slowing down, which I anticipate will continue, especially considering the considerable wage increases implemented in the second half of last year for staffing facilities. If further adjustments are necessary, I believe there is positive news on the reimbursement side regarding Medicaid this summer and the Medicare market basket, which will help enhance margins and provide additional cash for hiring incentives.

And then just one clarification on the coverage. I think you said ex-PRF, which is probably the right way to think about it as well. 155 this quarter versus 148 last quarter. If we go back to December of '21, like you have laid out in your deck, would that number be lower than the 155 this quarter or should we be thinking about it on a year-over-year improvement basis?

We have to dig that one up. So I don't have that at my fingertips, but certainly it's higher on a year-over-year basis, but we'd have to go back and look at that quarter specifically. If we can find it while we're still on the call, we'll let everybody know.

Great. That's it for me. I appreciate the time.

Our next question comes from Tayo Okusanya with Credit Suisse. Please go ahead.

Hi. Yes, good morning, over there. Two questions from me. First of all, senior housing on the leased side, again EBITDARM coverage of 1.14, I believe. Again that kind of suggests EBITDA is still probably less than one. So, just kind of wondering how do we think about that portfolio, again what's happening fundamentally that suggests coverage ultimately improves over time? Is there some risk of tenants within that pool possibly needing some assistance going forward?

Tayo, I can provide some insight on that. First, it's important to note that the number we're discussing is somewhat outdated, as it reflects trailing figures over the past 12 months. This means we're still seeing the effects of agency costs and labor issues within that figure, but we anticipate that these will begin to fade. Additionally, we've observed increases in occupancy, as I mentioned earlier, which should continue into the upcoming quarter. Therefore, we're hopeful that coverage will improve, especially as the labor challenges and related expenses in that figure start to diminish.

Let me add that almost all of our inflation is related to labor, and we're not experiencing much inflation in that area. This is beneficial as our operators improve their recruitment and retention efforts, which means we are not overly concerned about other types of inflationary pressures.

Got you. Okay. That's helpful.

There is a provision in the JV documents, JV agreement rather, that allows either side to give notice and just walk. So there is no compensation. It's not like a management agreement or anything like that. A term fee or something like that, you just sort of walk. And the lenders have the assets. They're transitioning assets to other operators. There's nothing there anyway.

Those loans are non-recourse, so there was no obligation to Sabra.

Yeah. Unfortunately, Tayo, the downturn in the debt markets really took away all the obvious potential buyers for the portfolio. So you sort of have the double whammy of the pandemic impact on the business, and then the debt markets turned down and so you sort of wiped out the whole potential audience of buyers.

I appreciate the color. Thank you.

We'll take our next question from Josh Dennerlein with Bank of America.

Yeah, hey guys, thanks for the time. I just wanted to follow up on the Enlivant JV. I get that you can walk away from it, but I would have thought you would get a benefit if there is debt on the portfolio. And now that won't be flowing through your income statement. Is that a correct assumption or?

No. Yeah. Hey, Josh, it's Mike. Yes. So it's not a correct assumption here is why. So that joint venture was accounted for under the equity method. And when we wrote that thing down to zero last quarter, as you recall, we no longer recognize any revenues, any expenses, any FFO, any AFFO from that joint venture. It's zero, not that it was much before we did have, but going forward, because of the way the accounting rules work, it's zero. So there's nothing flowing through our financials as a result of our writing it down to zero, there's nothing flowing through our financials as a result of us exiting that joint venture. The debt since it was an unconsolidated joint venture was not appearing on our balance sheet anyway. So literally, there is no impact to our financial statements as a result of this.

Okay. So the impact is already in the 1Q results and there is nothing on the go forward. Okay.

There was nothing in 1Q results. There were zero FFO, zero earnings, zero everything, zero balance sheet value zero. There's nothing in our first quarter results for the Enlivant Joint Venture.

Okay. That makes sense. I appreciate the clarification. Rick, in your opening remarks, you mentioned expecting better Medicare and Medicaid increases. What are you seeing or hearing that gives you confidence that the increases will be on the positive side?

The discussions taking place with trade associations and state legislatures, particularly regarding budget management, are where our insights are originating. It's important to note that this situation won't involve all 50 states. Last year, when we identified states providing significant rate increases, we shared that information in our second-quarter '22 earnings release. We intend to offer a business update as soon as we have more information. Currently, the most uncertainty lies with Texas. There seems to be a consensus that the Texas Legislature will permanently implement the FMAP add-on and possibly an additional amount. However, with the public health emergency ending on May 11th, Texas has the option to extend the FMAP add-on until the full rate increase is implemented in September, but we still don't know if they will choose to do so. In the worst-case scenario for Texas, there could be a four-month period without the FMAP add-on, but it will be reinstated in September. That's the latest information regarding Texas, but for other states, our expectations are grounded in real conversations and budgetary commitments.

Thank you.

Great. Good morning. I have a question on the $0.33 or $0.34 run rate when you layer in sort of the 25 transition assets you guys highlighted last year. I think they were generating cash rent around the $5 million to $6 million range on an annualized basis with upwards of $15 million upon that ultimately commencing. How much of that has commenced and is captured in that run rate? And then also does the $0.33 or $0.34 assume any acceleration in NOI from the senior housing managed portfolio?

So the run rate is based on what we reported this quarter, right, or even based on what we reported in Q4. So it doesn't assume any acceleration in senior housing managed. So that would be incremental to that number. Obviously, we didn't want to bake that into the run rate, because I don't have a crystal ball, but, yes. So if there is improved performance there, which we expect there to be, then I would expect that number to improve as well. In terms of the transition, those are ongoing, as we've talked about for the last several quarters. We expect those to be fully transitioned and NOI pickup that you alluded to be realized by the end of 2024. Again, it's going to vary by situation, it's going to vary by project in terms of when those things roll in, but they're incrementally getting picked up in our earnings and we expect it to still be fully in there by the end of '24.

Understood. Do you have a sense of what those 25 assets are generating in the first quarter on an annualized basis relative to the five to six in the second quarter of last year?

So nothing was impactful on the current run rate.

Got it. Understood. And then just as far as the 11 wholly owned assets leased to Enlivant, where those kept in the same store pool this quarter, just curious how they performed. And then can you shed some light on the timing of a transition whether you have any operators lined up or sort of a shortlist, just any detail around that would be helpful. Thanks.

They are included in the same store pool and have been a significant factor in the performance of the assisted living segment because they have experienced a strong recovery over the past year. To remind you, they were approximately at breakeven about a year ago. Now, they have a solid margin resulting from improved occupancy and notable growth in revenue per occupied room.

Yeah. In terms of the transition, well, we're just trying to work cooperatively with Enlivant and TPG on that. So should happen in the coming months. But I can't give a specific time frame. We know of a number of operators that have initiatives in the portfolio. So identifying the right operator in and of itself is not going to be a concern or an issue for us.

We'll take our next question from Steven Valiquette with Barclays.

All right. Thanks. Couple of really more just kind of housekeeping questions around the supplement. I guess on pages four, five, and six. I guess first on page five, normally, I think that page is normally delineated as the same store data, but this quarter, it was not. I don't know if that is still same store data on page five as far as the EBITDARM coverage ratios that are there and occupancy or exactly which properties are included on that data, so that was kind of housekeeping question number one. And then number two, I guess, sorry, go ahead.

Yeah. I'll answer it as we go through. So the answer to your question is that is not same store; that is for our entire stabilized portfolio and the majority of our portfolio is included at stabilized pool. We took out the same store triple net information this quarter, as you've noted. Just periodically we review our disclosures, we review our peers' disclosures; we took an evaluation of what is helpful disclosure for the market and for investors, and we noticed that not many people present triple net same store information. So we're kind of an outlier in that regard, and we thought the overall portfolio was more indicative and more useful for investors.

And we did seek out some feedback from investors about that as we typically do before we change disclosures.

Okay. That's helpful. And then just to triangulate that then like the footnotes on pages five and six are the same around the sort of stabilized portfolio. Looks like the property count in the stabilized portfolio might be that 356 number. It's on page six. And then on page four, you show 396 total properties in consolidated. So they're basically roughly 40 properties, give or take, that are not in the stabilized set of properties, am I doing that math right? And if you want to do it offline or follow up offline, I am happy to do it too. If it's kind of hard to do it on the live, but hopefully that question makes sense.

Yeah, let's follow up offline on that one. So I could do that math softly.

Okay. All right. Fair enough. Okay, thanks.

Our next question comes from Vikram Malhotra with Mizuho.

Thanks so much for taking the question. So I just wanted to follow up on the ins and outs to the FAD run rate. You talked about the transition in '22 benefiting through the year into '24, but then you also alluded to additional transitions potentially. Can you just walk us through that again? Are there, is there an additional bucket of assets that you will start to transition leaving Enlivant aside that sort of may impact the FAD going into the end of '23, early '24?

I mean, I'd say that we're no different than any other company. We're always looking at our portfolio and evaluating the best outcomes for our portfolio. We did that to a significant degree last year, which led us to our conversations around dispositions and transitions, but that doesn't mean it stopped. We're still looking at our portfolio, and there may be opportunities to transition assets to new operators, maybe opportunities to underperforming assets to new operators, there may be opportunities to transition or convert properties to Behavioral Health. That's always going to be something that's in our portfolio. And quite frankly anybody else's portfolio. The material stuff that is impacting our portfolio that will impact our portfolio is what we've talked about since Q2 of last year. So incrementally nothing material.

Okay. So it's not like a similar size bucket as last year. It's a much, much smaller bucket that you'd look to tackle through the year. Over and above Enlivant. Okay. And then just looking at sort of investment opportunities. I know, Rick, you mentioned things are slow and evolving, but can you sort of walk through maybe the broader capital structure in terms of assets, but also potentially additional, say, preferred equity investments or additional loans that you may decide to make as investments given all that's going on in the debt markets around skilled nursing but even broadly senior housing.

Sure. I will try to answer that. We are experiencing a decent flow of assets and opportunities, some of which are intriguing. We assess our cost of capital and explore investment options, which leads us to focus more on preferred equity, higher yield, mezzanine debt, or other investments with greater long-term potential. Currently, we are encountering underperforming assets that seek full pricing, although the definition of full pricing is somewhat ambiguous at this moment. This presents a challenge and is why we continue to explore options; we are interested in understanding pricing dynamics given the current interest rate levels and reduced availability of proceeds. We are observing both liquidity and credit challenges for borrowers and developers, which we hope will create opportunities for us. So far, we haven't identified them, but we are persistent in our search and strive to be innovative. Many assets, particularly in senior housing, are currently recovering well, yet their cost structure and capital stack are quite imbalanced, and values are likely not at their previous levels. There is significant adjustment and recalculation of capital happening, and the interactions and tensions among borrowers, lenders, and investors will unfold over the coming period.

Okay, that's helpful.

Yeah. So we did receive that, we were the first in our space to get that as we discussed last quarter. And the reason why we got that PLR was to enable us to have independent living facilities in a non-lease structure; that was it. Absent that PLR, we could not have, the only way we could own independent living facilities was through a triple net lease, and as you are aware, we have the Holiday portfolio, which is all independent living and it is not under lease structure. So that was the whole reason and the rationale behind getting that PLR.

It also provides optionality for us, which is something that we always strive to maintain in as many aspects of the company as possible so that if at some point in time we choose to approach things differently from an operational perspective, we have the ability to do that. It's not our intent at this point in time because of the quality of the operators that we have in our independent living facilities at this time.

Great. Thank you.

Good morning. One follow-up on the wholly owned Enlivant portfolio and operator transition. I know you mentioned they're performing well, but could you take us through just a reasonable base case in terms of potential degradation? We could see the NOI as a result of the transition?

We don't anticipate a significant decline in performance; there may be some minor costs associated with changing operators, which is typical in such situations. However, considering the distractions that the Enlivant management team has faced during the sale process and the transition of facilities to different operators, we believe that having an operator without those distractions will help mitigate any temporary costs. We actually expect to see improvements in the operational performance of that portfolio.

Okay. That makes sense. And then one quick one on shop expense growth. I know you called out it's been moderate over the past few quarters, how much of that is agency labor just coming back to earth versus a normalization in other expense line items?

It's largely exactly what you said. It's largely driven by labor agency costs.

As I mentioned earlier in the call, we are not experiencing significant inflation in the non-labor category. As the operators manage their labor costs more effectively, the improvements in the top line will flow through more smoothly without any other obstacles.

Great. Thank you. I appreciate the time.

Great. I appreciate the follow-up. I just wanted to touch on Bridge-to-HUD in terms of external growth stuff. I don't think it's been mentioned so far. But if we think back to the low interest rate regime maybe that permanent financing was then called the mid-3s, it's probably moved up since then. Do you have a sense, Talya, maybe when you're underwriting transactions where that might be at that sort of longer term permanent financing? Thank you.

Yeah, I don't have it post Fed rate hike yesterday. But figure it's probably in the 7s. I mean, I will tell you that we are seeing other debt quotes non-HUD, non-bridge to HUD but just, like, construction debt and stuff being quoted as a floor of 7.25 currently at about 8.5, and that's at around 50% loan-to-cost. Just to give you scale.

That's great, I appreciate the color.

Hey, Michael. Just a follow-up to your question earlier on where coverage was ex-PRF a year ago. It was basically flat to where it was today. So, exactly flat, 1.55 times on a trailing 12-month basis. And when you consider what happened in that intervening timeframe with labor expense spiking, you have annual rent increases and the like the fact that it has stayed flat and is increasing is pretty encouraging.

Hi, thanks for the time. A couple of questions I guess on the coverage talked about how it's improving and would you be able to give the T3 coverage ex-PRF for the SNF and senior housing portfolio?

We'll say, Juan, that we did not disclose it. It is higher than our trailing 12-month number.

Would that be the case for Signature and Avamere as well?

In the case of Avamere, it might be slightly up. I don't have that at my fingertips. In the case of Signature, they had a tough second and third quarter. So, once they got all those sales and closures behind them and got corporate right-sized to leaner company that they are today, they really refocused and bounced back super dramatically in the first quarter. I'm talking about current first quarter and not quarter over the years.

And yeah the trailing three-month numbers that we're talking about again are trailing three months ended December 31st, there has been four months since then. And as Rick alluded to earlier, the preliminary numbers we've seen come in for the actual first quarter of calendar year '23 are encouraging and headed in the right direction.

Okay. And then on the dispositions you guys completed, curious if you could share the yields or cap rates of the NOI that was booked from a modeling purposes in the first quarter just to help us on a run rate basis?

In terms of the dispositions, we shared the majority of our disposition activity for the quarter back in February. At that time, we mentioned that the yield was in the mid-single digits. Any additional sales we had between that point and the end of the first quarter were minor and did not significantly alter the overall metrics. Therefore, I believe that figure is still a good one to use.

Okay. Thanks. And then like the investments you did make in the quarter were 8%. Is that kind of the new bogey you think for where assets are trading today or are those deals one of them was from the development pipeline? Is that indicative of today's pricing or those are unique situations and not necessarily?

Those are unique situations. The majority stemmed from a development pipeline, and that represented a pre-negotiated yield or cap rate. Additionally, there was a small property that enables us to create a campus with one of our operators, who currently occupies a much larger building nearby. It was an atypical deal, and we didn't see many buyers interested in purchasing a small building located on the campus of a larger property.

Okay. And one last one, if you don't mind. The loan book, anything we should be aware of in terms of potential risks we've had? Some news in the broader healthcare REIT space of some loans going. Parashift just curious how you feel about your current loan book?

I don't think there's any change, and the bulk of it is not really at risk. It's not a large portfolio; it's nothing like the Ventas loan that they had to foreclose.

Yeah. They are not mezzanine loans that we have, Juan.

Thank you.

We'll take our next question from Austin Wurschmidt with KeyBanc Capital Markets.

Yeah. Just one quick follow-up for me. Can you guys remind us what percent of your operators are on a cash basis and what the plan is for those tenants over time, whether you're maybe looking to sell some of those assets or enter into long-term contractual leases with either the current operator or potentially a new operator?

In terms of our cash basis tenant pool, we've previously indicated that we focus on the portion that pays us varying amounts. The payments can differ from month to month. This pool has decreased from about 5% or 6% of our sales or transitions to around 3% of our net operating income. It's on the decline, and the activities we're undertaking in the portfolio, whether through sales or transitions, will significantly address this issue.

Thanks everybody for joining us. It feels good to at least believe that we've gotten the worst behind us and really do feel pretty good about things going forward. So again thanks for the support and thanks for joining us today and have a great day.

And this concludes today's conference. You may now disconnect.