Earnings Call Transcript - SBRA Q3 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Sabra Health Care Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Michael Costa, Executive Vice President of Finance. Please go ahead, sir.

Michael Costa, Executive Vice President of Finance

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 for the quarter ended March 31, 2020, 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 that 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 Investors section of our Website. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Rick Matros, Chairman and CEO

Thanks, Mike. And welcome everybody to our call, appreciate everybody participating. First, let me start off by thanking all of our caregivers and all our frontline workers. We are nine months into the pandemic and they really haven't had any breaks or any relief, and continue to show up every day. Their commitment to taking care of our patients and residents is just first and foremost in their mind. I'll never be able to express our gratitude adequately. I also want to thank the government for the stimulus funds for skilled nursing space and now the assisted living space as well and their partnership on protocols and standards to address the virus. We are in better shape now than we were several months ago. We'll talk about that more as the call goes on. I also want to note that the majority of states that we’re in made moves to help on FMAP as well. When I finish my remarks, I'll turn it over to Mike Costa, who will take you all through a detailed presentation on everything related to the stimulus and the impact on the facilities and all other related assistance. There is still $30 billion of CARES Act stimulus left. Phase 3 of $20 billion is currently being distributed. We do expect another stimulus package once the election is settled, as well as an additional extension beyond the one recently announced of the PHE Act which extends skilled in place and the FMAP add-on. I also want to note this event for the industry to deal with the government cut with Walgreens and CVS to provide three vaccines for our patients, residents, and employees. We still believe that the path to normalization comes ahead of the vaccine, and that's with more and more testing. We have more testing now than we have obviously had in the past, we still don't have enough. But once we get to really adequate and effective rapid testing, we will begin the path to complete normalization and the facilities will be able to quickly screen people better and have a more normal environment within the facilities because the social isolation component of the pandemic has been extremely tough on our patients, our residents, and their families. I’ve been skeptical about the vaccine and when it's actually going to be distributed. But in the last week, Mark Parkinson, CEO of the American Healthcare Association, and Seema Verma, who runs CMS, both commented that they think the vaccine will be ready for distribution in all of our facilities over January and February. I don't know if that'll be the case, hopefully, it will be. If that does turn out to be true, then it will accelerate the normalization of the business. One of my concerns is that I think the intent is to mandate it for everybody. I'm not sure you can mandate that workers and patients actually take this. Because if they don't, what do you do then, if one-third of the staff decides that they don't want to take the vaccine, they don't want to be first in line, does that mean they can't come to work, and you don't have enough folks to take care of patients and residents? We’ll see how it plays out. I'm cautiously optimistic, but we'll still see. I still have some level of skepticism there and still focus on testing, being the most immediate answer to the challenges that the space is currently facing. Also, the conversation we've all been having is focused on the top-line occupancy recovery. It's important to note that we'll start having margin recovery ahead of occupancy recovery. In fact, we're already seeing that in different areas of the country, as certain areas of the country have been clearer than others with COVID. Number of operators are taking steps to start normalizing the socialization aspects of the facilities and to start having smaller group activities. Recall that, based on protocols, almost everything in facilities is one-on-one. No group dining, no group activities, no group therapy. But as that starts to normalize, we'll see those labor expenses come down. So, we will start seeing margin improvement ahead of occupancy improvement. Similarly, on supplies, specifically in regard to PPE, our operators are starting to have more success building inventory. As they continue to build inventory, those costs will no longer be recurring, and that cost comes down as well. We're already seeing that in several of the operations. I just want to point that out. So we're not solely focused on occupancy as a means to recovery. In terms of our operational trends, our top skilled operators, as shown in the supplemental, showed occupancy gains from the first week of August through the last week of October at 50 basis points. Skilled mix for those operators at the end of October was 190 basis points higher than pre-pandemic levels. From the February average through the month of October average, those operators were down approximately 10% with October 100 basis points higher than our low point in June. In other words, occupancy has been slowly building. It came down a little bit as we started spiking all over the place in the first few weeks of October and then started picking up again at the end of October. The aggregate skilled nursing portfolio is down approximately 800 basis points from the February average through the end of October. Skilled mix is higher in our top operators than in the rest of the portfolio with smaller operators as a whole, but all trends are similar regardless of the operators we are looking at and regardless of their skilled mix. For those operators not in our top 10, they also have higher skilled mix than pre-pandemic levels, just not as high as our top 10 operators. EBITDARM coverage is noted in the PR was up sequentially, thanks to government assistance. Excluding the Provider Relief Fund, we're pleased to note that our skilled portfolio for the trailing three months would have been above 1 times. Senior Housing Triple-Net, which only recently received federal assistance, showed coverage lower than expected. But with the anticipated continuation of assistance, we should see some stability, particularly since the Leased portfolio occupancy, as noted, has held up relatively well, all things considered. The Leased Senior Housing portfolio is at 340 basis points from the February average through October. Talya will provide details on the Managed portfolio. Through the end of October, we had 304 communities impacted by COVID, 209 of those have fully recovered. As noted on the last call, rarely do we see large outbreaks at this point, and an increasing number of facilities with positive tests are now employees-only. We have one or two employees test positive. And the issue is that I'm sure many of you are aware is that the median age for those contracting COVID has dropped dramatically into the 30s. That's a lot of our workforce. Even though these folks are screened before they come to work, they're almost always asymptomatic; however, still infectious. They come into buildings, and they'll infect folks. That said, the operators have done a good job with isolation and protocols and infection control, adhering to all those guidelines that even when an employee who is asymptomatic and has COVID comes in and they infect other residents or patients, we're still not seeing any major outbreaks. Out of all of our buildings, we've had three outbreaks of, say, 8 or 9 or 10 or more. In almost every other building, it's three or less. They've done a really good job with that. Given the situation we're seeing all these spikes all over the country, we're still seeing those results, we feel pretty good about minimizing disruption to the business as compared to what we saw in March and April when we were all trying to figure this out. Let me move now to acquisitions. We completed $154 million in investments at a blended yield of just under 8%. With the exception of one of those acquisitions, a preferred investment, that all came through our development pipeline. Our acquisition pipeline is currently active at approximately $600 million. It's primarily Senior Housing. Although we are seeing interesting skill deals, there's still a disconnect between buyers and sellers in both asset classes. We anticipate some shift after year-end as banks that have been forgiving defaults, specifically in Senior Housing and with smaller operators. We believe that after year-end they'll start exercising legal remedies, so there may be some opportunities at the start of the year. It remains to be seen. But that's how things look right now. And with that, I will turn it over to Mike Costa. Talya will follow Mike, and then Harold will follow Talya, and then we'll go to Q&A. Mike?

Michael Costa, Executive Vice President of Finance

Thanks, Rick. I'll be giving an overview of the various federal government relief packages enacted in response to the COVID-19 pandemic, as well as providing details and recent developments for the major components of these relief packages. The Federal relief packages generally fall into three categories: direct funding to providers; temporary regulatory suspensions and administrative waivers; and lastly, loans and referrals. Starting with the direct funding category, these are direct disbursements of funds to operators to help mitigate some of the financial impact of COVID-19 and include the Provider Relief Fund and a temporary increase to the state's Federal Medical Assistance Percentages or FMAP. The temporary regulatory suspensions and administrative waivers include the temporary suspension of a 2% Medicare sequestration cut, and the waiver of the three-day hospital stay requirement for Medicare coverage at a skilled nursing facility. As the benefits from these two categories are utilized to offset increased costs and lost revenues related to the pandemic, the negative impact to our operators’ earnings and coverage will be reduced. These benefits will also help our operators by providing important liquidity. Loans and deferrals include the accelerated and advanced Medicare payments, employer payroll tax delay, and Paycheck Protection Program or PPP loans. While these loans and deferrals provide liquidity to our operators, the first two must be repaid in full, while the PPP loans must be repaid if the borrowers do not meet certain criteria. Therefore, these loans and deferrals largely have no impact on the earnings and coverage of our operators. A breakdown of how much our operators have received or qualified to receive from the various relief packages is included on Page 7 of our third-quarter supplemental as well as in our third-quarter earnings release. The most significant of the aforementioned packages is the $175 billion Provider Relief Fund, which was funded by the enactment of the March 27, 2020 CARES Act Law. The Provider Relief Fund has provided support for our skilled nursing and hospital tenants throughout the pandemic. Recently, the support has been extended to certain operators in our Senior Housing portfolios. On September 1st, HHS announced that eligible assisted living and memory care facility operators may apply for funding through the CARES Act. We view the inclusion of assisted living and memory care facilities under the CARES Act as an important acknowledgment by the federal government of the sector's contribution to the delivery of healthcare in this country. To date, two general distributions to healthcare providers have occurred, and a third general distribution has been announced but has not yet been distributed. The total of these three general distributions is $98 billion. Additionally, two targeted distributions specifically for skilled nursing operators have been announced totaling $9.9 billion. Let me break down the targeted SNF distributions made thus far as well as what remains to be distributed. On May 21st, the first targeted distribution of $4.9 billion was released to nursing homes using a formula of $50,000 per facility plus $2,500 per bed, resulting in a distribution to our facilities of $97 million, or about $330,000 per facility. On July 22nd, HHS announced an additional $5 billion of targeted distributions specifically related to nursing home infection control and quality, of which $2.5 billion was released on August 27th, using a formula of $10,000 per facility plus $1,450 per bed. This resulted in a distribution to our facilities of approximately $15 million or about $170,000 per facility. The payments were made to nursing homes to help with upfront COVID-19 related expenses for testing, staffing, and PPE needs. Of the remaining $2.5 billion of targeted distributions, $2 billion will be distributed in five installments, with the first four installments being paid out monthly as performance-based incentives determined by the nursing homes’ relative infection and mortality rate, with a final payment to be made in 2021 based on the same metrics over the cumulative timeframe. The first of these five installments was made over the last week based on September performance. Finally, the remaining $500 million of targeted distributions is expected to be used to address COVID hotspots and educational collaboratives. In total, roughly $145 billion of the $175 billion Provider Relief Fund has been announced to date, leaving an estimated $30 billion in the relief fund to be spent. As of September 30, 2020, our tenants have received or qualified to receive approximately $210 million in total distributions from the Provider Relief Fund, and our Senior Housing Managed operators have qualified for approximately $4 million through the second general distribution from the Provider Relief Fund. Operators are taking varied approaches to recognizing these amounts of earnings, ranging from some recognizing 100% immediately to others not recognizing any until they are certain that the amounts won't be recouped. This has resulted in only about $50 million of the aforementioned $210 million received by our tenants being reflected in their reported EBITDARM for the trailing 12-month period ended June 30, 2020. Recently, the reporting requirements for the use of monies received from the Provider Relief Fund will be revised and clarified and we expect this to result in most, if not all, of the roughly $150 million balance of these funds to be recognized in EBITDARM as they are utilized to offset costs and lost revenues related to the pandemic. Another important source of funds to skilled nursing tenants is a temporary FMAP increase. On March 18, a 6.2% FMAP increase was enacted to assist states with COVID-related Medicaid costs. There was no requirement for states to pass any portion of this increase onto providers, and in fact, some states chose not to pass any of it along. In our portfolio, 27 of the 37 states where we own SNFs passed along some of the FMAP increase, benefiting 236 of our 287 SNFs or 82%. These states all have varying methods of distributing these funds to SNFs from targeted funding for COVID units in Kentucky to a temporary 10% Medicaid rate add-on in California. All-in, we estimate that our SNF tenants received approximately $30 million in additional funds through June 30th because of this FMAP increase. Recently, HHS announced the extension of the public health emergency declaration for COVID-19 for another 90 days, extending through January 20, 2021. The extension of this declaration is critical as it extends the three-day hospital fee waiver through January 20, 2021 and ensures the increase in FMAP funding provided to states will continue to the end of Q1 2021. Lastly, operators who received advanced and accelerated Medicare payments earlier this year received the much-needed breathing room on the repayment terms. Repayment which was originally scheduled to occur by the end of this year was delayed and more gradual repayment terms were enacted. Specifically, no repayment is due for a year from when the monies were initially distributed. Then gradual repayment begins with up to 25% of claims paid for the following 11 months, up to 50% of claims paid over the next six months, and the remainder being repaid in a lump sum. In total, the repayment period has been extended to 29 months. The past 8 months have proven to be one of the more challenging times for the long-term post-acute care industry, both from a clinical and business perspective. Sufficed to say that the tremendous amount of financial support provided to the industry by federal, state, and local governments continues to provide our operators with not only a bridge to the other side of this pandemic but also the resources to protect their employees and patients. We are grateful for the support and the implicit acknowledgment of the long-term post-acute care industry's importance. And with that, let me turn the call over to Talya Nevo-Hacohen, Sabra's Chief Investment Officer.

Talya Nevo-Hacohen, Chief Investment Officer

Thank you, Mike. This morning, I'll provide you with third-quarter operating results of our Managed portfolio. This is the second consecutive quarter where operating results have been materially affected by the global pandemic and the first where federal government funding to the CARES Act, that Mike just described, has provided assisted living operators some relief. I will also share some statistics for the month of October in order to provide additional visibility into operating trends as Senior Housing continues to find its way during these challenging times. As of the end of the third quarter of 2020, approximately 15% of Sabra's annualized cash net operating income was generated by our Managed Senior Housing portfolio. Approximately 51% of that relates to communities that are managed by Enlivant and 34% relates to our Holiday managed communities. The balance includes our Canadian portfolio and five assisted living and memory care communities in the United States. Senior Housing operators have now transitioned into a phase where operating during a pandemic is the new normal. They have operationalized protocols, focused on infection control and prevention, and created ways to relax restrictions which can be flexed as warranted by circumstances and location. At the same time, consumers have transitioned from pandemic fear to pandemic fatigue. The results have been that while our Senior Housing operators have data and evidence that living in our communities is safer than staying at home, prospective residents worry that they will never embrace their families again as they move in. To start, I will provide highlights of the operating results of our Managed portfolio on the same-store quarter-over-quarter basis to illustrate the trends in the industry. These results will exclude two recent acquisitions and one transitioned community in our wholly-owned portfolio, consistent with the presentation and our supplemental information package. Revenue increased 4.2% in the third quarter compared to the second quarter of 2020 and included $4 million from the Provider Relief Fund Phase 2 general distribution that was made available to eligible assisted living facilities in the third quarter through the CARES Act. If we exclude this grant, then same-store revenue declined 1.5%. If we look at revenue for those facilities that were eligible for the grant and exclude those funds, then same-store revenue declined 1.4% on a quarter-over-quarter basis. Revenue per occupied room, REVPOR, excluding the non-stabilized asset and the CARES Act grant, rose 1.7%. While occupancy, also excluding non-stabilized assets, declined 270 basis points to 79.3% from 82% in the second quarter. Cash net operating income increased by 20.6% to $19.7 million from $16.3 million. Without the federal grant, cash net operating income would have declined by 4.1%. If we look at the cash net operating income for our eligible facilities and exclude those funds, then same-store cash net operating income without government funding would have declined 2.2% on a quarter-over-quarter basis. Cash NOI margins increased to 26.8% from 23.1% in the preceding quarter. Again, excluding the government grant, cash NOI would have been 22.5%. While REVPOR has remained robust, occupancy has continued to decline during the third quarter. As the pandemic has continued to affect our hemisphere in varying degrees, we have seen changes in behavior of residents and their families. Pandemic fatigue to both residents and their families is contributing to higher discretionary move-outs and deferral of move-ins. In contrast to that, rates continue to be strong in our portfolio, indicating that residents appreciate the value operators are delivering to them. Senior Housing is a high operating leverage business. Operators have scrutinized their cost structure, but there is a limit to expense cutting given the fixed costs inherent in the business model. For this reason, a decline in revenue attributable to lower occupancy or an increase in revenue from CARES Act funds have a disproportionate impact on cash net operating income and cash NOI margin. The Enlivant joint venture portfolio, of which Sabra owns 49%, posted stronger third quarter results bolstered by the receipt of approximately $3 million in CARES Act funds. Average occupancy for the quarter was 75.8%, reflecting a 3.1% decline on a same-store quarter-over-quarter basis and a 5.6% decline on a same-store year-over-year basis. REVPOR, excluding CARES Act funding was 4,411 compared with 4,302 or 2.5% higher on a same-store quarter-over-quarter basis, and 2.4% higher on a same-store year-over-year basis. Revenue was 7% higher on a same-store quarter-over-quarter basis and 3.6% higher on a same-store year-over-year basis, driven by the federal grant receipt. Excluding those funds, revenue decreased by 1.6% on a same-store quarter-over-quarter basis and 4.7% on a same-store year-over-year basis. Same-store cash net operating income was $9.1 million, a 37.3% increase on a sequential basis driven by CARES Act funds. Without those funds, same-store cash NOI would have declined 8.7%. Same-store cash NOI margin was 24% compared with 18.7% for the prior quarter or 5.3% higher on a same-store quarter-over-quarter basis. Again, excluding the federal grant, cash NOI margin would have been 17.4% and more in line with the prior quarter's results. Subsequently, after the end of the quarter, October occupancy was 72.8%, 890 basis points lower than February occupancy before the impact of COVID-19. Rate increases occurred on October 1st for eligible residents. Rather than increase rates by 5%, as has been done in the past, Enlivant chose to increase rates by 4%. As a side note, Enlivant was not allowed to increase rates in the State of Washington because of the Governor's order. We have 12 Enlivant communities in Washington and the impact of this temporary rate freeze on the portfolio is negligible. Since the pandemic began until the start of this week, 98 of our Enlivant JV communities have had a resident or staff member test positive for COVID-19. As of the beginning of this week, 33 communities had a resident or staff member with a positive test. And of those, 20 are located in Texas, Ohio, Indiana, and Wisconsin. To put these numbers into context, Enlivant just had approximately 2% of its residents test positive for COVID-19 since the start of the pandemic. This compares to an industry average of between 5% and 7% in assisted living and memory care communities. The third quarter operating results for Sabra's wholly-owned portfolio of 11 communities had a similar theme in its performance. Third quarter occupancy was 81.2%, a 2.1% decline compared to the prior quarter and a 7.6% decline on a year-over-year basis. REVPOR in the third quarter excluding CARES Act funding of $797,000 was 5,761, essentially flat from the prior quarter and 4.2% higher than the prior year. Revenue was 6% higher on a quarter-over-quarter basis and 3.9% higher on a year-over-year basis. Excluding the federal grant, revenue declined 2.7% on a quarter-over-quarter basis and 4.7% on a year-over-year basis. Cash net operating income was $2.8 million, a 42.4% increase on a sequential basis, driven by CARES Act funds. Without those funds, same-store cash NOI would have increased 2.1% for the same period. Cash net operating income margin was 29.2%, 7.5% higher on a quarter-over-quarter basis. Excluding the federal grant, cash NOI margin would have been 22.8%, 1.1% higher than the prior quarter. More recently, October occupancy was 78.9%, 710 basis points below February's pre-pandemic occupancy level. As in the joint venture rate, increases occurred on October 1st for eligible residents at 4%. Seven of our wholly-owned Enlivant communities have had a resident or staff member test positive for COVID-19. As of earlier this week, only 2 communities had not yet recovered. Enlivant has made a strategic decision to maintain a 6 to 9-month inventory of personal protective equipment such as gowns, masks and gloves in order to avoid potential shortages in months ahead. This has given them some latitude and timing of purchases in order to achieve better pricing. Since occupancy is the key to improving financial results, Enlivant has been focused on lead generation and moving in new residents. Lead generation has rebounded since April and is in line with prior year leads. Move-in volume while recovering since April is about 74% of pre-pandemic results, driven by potential residents and families concerned over possible restrictions on visitation, quarantine, etc. Regulations on indoor visitation vary by state and may be tied to county infection rates and local regulation. These limitations currently impacting half of the states in which Enlivant operates tend to dampen move-ins and accelerate move-outs. Enlivant has planned to mitigate these concerns including offering testing for new residents so that they can avoid 14-day isolation and incentivize move-in and testing employees to prevent the infection from entering the building to mitigate pandemic fatigue. Holiday Retirement operates 22 independent living communities for Sabra, one of which was transitioned to Holiday in the fourth quarter of 2019. Since healthcare services are not provided in these independent living communities, these properties were not eligible to receive CARES Act funds allocated to assisted living providers. All of the following operating results are presented on a same-store basis and exclude the transitioned property. The Holiday portfolio occupancy was at 82.5% in the quarter, 2.5% lower on a sequential basis and 6.1% lower on a year-over-year basis. REVPOR was 2,519, slightly higher than both 2,499 on a sequential basis and 2,483 on a year-over-year basis. On a quarter-over-quarter basis, the Holiday portfolio experienced a 2.2% decline in revenue and a 5.6% decline on a year-over-year basis. Cash net operating income was $5.9 million, a 7.4% decline on a sequential basis and an 18.6% decline on a year-over-year basis. Cash net operating income margin was 33.2% compared with 35.1% in the prior quarter and 38.5% in the third quarter of 2019. Nearly the entire difference in margin is a result of lost revenue due to occupancy decline, with the balance being an increase in expenses associated with the pandemic. Subsequent to the end of the quarter, excluding the one transitioned community, October occupancy was 80.6% compared to 86.8% in February, a 620 basis point decline. Of the 22 properties Holiday manages for Sabra, 18 have had a resident, staff member, or private home health aide test positive for COVID-19 and 12 communities have recovered. 16 properties are now in various stages of lifting restrictions such as dining room use at reduced capacity, limited visitors, and reopening of the beauty salon. Holiday has been focused on ensuring that its residents are kept safe, which has been made easier because of the lower acuity in independent living and fewer staff. Testing and implementing safety protocols have been the cornerstone of these efforts. Holiday residents have had an infection rate of less than 1%, which is 64% below the infection rate among individuals 75 years and older in the U.S., made all the more impressive because more than one-third of residents and staff COVID cases have been asymptomatic. After having fewer move-outs in the second quarter, Holiday saw an increase in voluntary move-outs starting in July. Move-outs are trending down since quarter-end. The excess move-outs, those above normal levels, are a result of COVID-related restrictions. At the same time, the number of move-ins per community rose to near pre-pandemic levels in July and August before turning down in September due to concerns over the COVID-19 surge and resident concerns about restrictions after move-in. Holiday continues to be proactive in maintaining its reputation for safe communities. In anticipation of the regular flu season, Holiday partnered with CVS Health to arrange for flu vaccine clinics on-site, with more than 10,000 vaccinations delivered to residents and staff. Sienna Senior Living manages 8 retirement homes in Ontario and British Columbia for Sabra. In the third quarter of 2020, the 8 properties managed by Sienna achieved 79.5% occupancy, 3.2% lower on a sequential basis and 10.3% lower on a year-over-year basis. REVPOR was $2,495, flat to the prior quarter and 1.1% higher on a year-over-year basis. Third-quarter revenue was $4.5 million, 4% lower than the prior quarter and 10.4% lower on a year-over-year basis driven by occupancy declines. In the third quarter, cash net operating income was just over $1 million, a 17% decline on a sequential basis and a 46.7% decline on a year-over-year basis. As in Holiday’s case, nearly the entire difference in cash net operating income is a result of occupancy loss. Cash net operating income margin was 23.8%, lower than both 27.5% in the prior quarter and 39.9% in the third quarter of 2019. More recently, October occupancy was 80.2%, 400 basis points below February occupancy. There have been no confirmed cases of COVID-19 in our Sienna portfolio. The number of cases is very low in the interior of British Columbia where four of our retirement homes are located, with a total in the province of 777 cases and fewer than 80,000 cases in the entire province of Ontario. While the more populated provinces in Canada have managed to flatten the curve, a surge in COVID cases triggered by Canadian Thanksgiving is causing the government to tighten restrictions. Sienna has seen similar dynamics in move-ins and move-outs as Holiday and Enlivant. Seniors have been interested in moving in but fear the imposition of restrictions or waiting on the sidelines to see what happens. In the second quarter, move-outs in Ontario had slowed down because there were no available long-term care beds, which are paid for by the provincial health system, by the way. Once beds became available, there was a slight uptick in move-outs from the Sienna portfolio, which now seems to be reverting to normal levels. Between February and October of this year, our total Senior Housing Managed portfolio inclusive of non-stabilized assets lost 687 basis points in occupancy. That change in occupancy is the key variable driving the operating results of our Senior Housing Managed portfolio. Pandemic-related operating costs have become more routine, as operators have acquired PPE inventory, operationalized infection prevention protocols, and managed delivery of services to residents. Our operators in the reporting reduced agency use; key role pays decreased significantly since the summer, and Enlivant has even seen an increase in employee retention over the last few months. These expenses are not driving the ongoing pressure on net operating income. It is the decline in revenue from the erosion in occupancy. In order to be a desirable alternative to home, senior housing has always needed to offer a multi-faceted value proposition to residents and their families. Senior housing has needed to provide a pleasant living arrangement, tasty food, engaging activity, social life, and delivery of care. COVID-19 has added a significant new facet, infection protection. The challenge has been to do this without infringing on residents’ lives. Our Managed communities, located mostly in secondary and tertiary markets, targeting a middle market price point, were somewhat shielded from COVID-19 outbreaks during the early months of the pandemic. Now, after seven months, COVID has spread across all markets, infecting people at nearly identical rates per capita from urban to rural markets and everything in between. The advantage of Sabra's Senior Housing portfolio market location has now become a timing advantage. The operators in our Managed portfolio had more time to prepare. They were able to be more tactical in their approach, and implement infection control, stockpile PPE and other inventory, develop testing protocols, and address staffing concerns. This has allowed them to maintain low infection rates by limiting community spread from entering the building. Potential residents making decisions about whether to move into a senior housing community today are faced with a difficult choice. And that choice is increasingly being skewed by need rather than want. The pent-up demand that we talk about are those people still in the want category who will move into the need category. That timeframe is measured in months, not years. Enlivant has already noted that they are seeing higher acuity residents moving in. Higher care may result in higher revenue, but it may also result in shortened average length of stay which will drive greater turnover in the near term. Until an effective vaccine is available and administered to residents and staff, Senior Housing operators are walking the fine line of keeping residents safe while keeping them engaged and fulfilled. That is why our operators are so intently focused on creating testing programs that are effective at stopping potentially infected individuals from entering the building, regardless of their symptoms or lack thereof. The better our operators can insulate residents from community spread, the freer our residents can be within the building. This gives our operators the opportunity to sway the people who want to move in that now is the time. In prior earnings calls, we've spoken about the importance of our Senior Housing operators in the healthcare continuum. We saw that recognized by the Federal Government in September. We believe that the pandemic will be seen as a period where operators’ reputations will be enhanced because they kept their residents and their staff safe, and did so with care.

Harold Andrews, Chief Financial Officer

Thank you, Talya. Before we get into the numbers, a couple of quick updates. First, no COVID-19 related relief has been provided to any of our tenants to date. Second, we collected all of our forecasted rents, without the use of any deposits or other credit enhancements through the end of October, and have seen a normal level of collections through the first few days of November. We have concluded that our leases with subsidiaries in Genesis and Signature will no longer be accounted for on an accrual basis, resulting in a write-off of straight-line rent receivables and above-market lease tangibles totaling $14.3 million. The auditors for these two tenants concluded that absent additional government stimulus, increased occupancy, and/or reduced operating expenses, Genesis and Signature would likely have insufficient liquidity to meet their operating needs over the next 12 months. Both tenants are current on all rental obligations to us and neither have requested rent relief during this pandemic. After moving these two tenants to a cash basis of accounting and assuming we collect all contractual rents due, our AFFO will not be impacted, and our FFO will increase by $3.2 million over the next four quarters. Now for the numbers for the quarter. For the three months ended September 30, 2020, we recorded total revenues, rental revenues, and NOI of $143.3 million or $100.6 million and $119.3 million, respectively. These amounts represent decreases from the second quarter of 2020 of $10.6 million to $12.1 million and $7.6 million respectively. The decreases in rental revenues were primarily due to the $14.3 million Genesis and Signature write-offs noted earlier, offset by a $2.2 million increase in collections related to leases accounted for on a cash basis. In addition, we recognized a total of $4.2 million of CARES Act government grants during the quarter related to our Senior Housing Managed portfolio, and a $1.4 million decrease in COVID-19 related expenses compared to the second quarter, positively impacting our NOI during the quarter. Of the $4.2 million of CARES Act government grants received, $1.2 million are related to our wholly-owned portfolio that we recorded in revenues, and about $3 million related to the Enlivant joint ventures that we recorded as part of income from unconsolidated joint ventures. FFO for the quarter was $84 million and on a normalized basis was $98.8 million or $0.48 per share, the primary normalizing item being the $14.5 million write-offs related to Genesis and Signature. AFFO, which excludes from FFO merger and acquisition costs and certain non-cash revenues and expenses, was $94.8 million, and on a normalized basis was $95.1 million or $0.46 per share. This quarter, we revised our policy on normalizing items to no longer normalize out impact pandemic-related expenses or grant income. When applying this normalization policy to the second-quarter results, our third-quarter normalized FFO and normalized AFFO increased from the second quarter by $9.4 million and $7.5 million respectively, or $0.04 per share for both normalized FFO and normalized AFFO. For the quarter, we recorded net income attributable to common stockholders of $36.5 million, or $0.18 per share. G&A costs for the quarter totaled $7.2 million compared to $8.7 million in the second quarter of 2020. G&A costs included $0.9 million of stock-based compensation expense for the quarter compared to $2.4 million in the second quarter of 2020. This decrease is due to a change in performance-based vesting assumptions on management’s equity compensation. Recurring cash G&A costs totaled $6.3 million or 5.3% of NOI for the quarter and in line with our expectations. Our interest expense for the quarter totaled $24.9 million compared to $25.3 million in the second quarter of 2020. Our cost of permanent debt increased by 2 basis points from the end of the second quarter to the end of this quarter to 3.53%, while our revolver borrowing cost declined by 1 basis point from the end of the second quarter to the end of the quarter to 1.25%. Interest expense increased by $2.1 million of non-cash interest for the quarter compared to $2.2 million for the second quarter of 2020. The income from consolidated joint ventures of $2.8 million includes a one-time $3.1 million net adjustment to our basis difference in the joint venture as a result of the completion of the joint venture strategic program to dispose of 14 senior housing communities, partially offset by loss on sale. In addition, income from unconsolidated joint ventures includes the $3 million in government grants income recognized under the CARES Act as previously noted. During the quarter, we made $27.5 million of investments including a $20 million preferred equity investment in an 180-unit senior housing community with an initial cash yield of 10%. We were able to match fund most of this investment through the issuance of equity under our ATM program. Our year-to-date investment activity totaled $154 million at a blended initial yield of 7.88% with $112.6 million coming from our proprietary development pipeline. In the quarter, we also completed the sale of one skilled nursing transitional care facility which was leased to Genesis for aggregate sales proceeds of $18.4 million, inclusive of the assumption by the buyer of an aggregate $17.6 million of HUD-insured mortgage debt encumbering the facility, and resulted in an aggregate $2.7 million net gain on sale. This sale marks the completion of our strategic program to reduce our exposure to Genesis to the sales and facility transition. Subsequent to the quarter end, we completed the sale of an additional skilled nursing transitional care facility for gross sales proceeds of $9 million. We issued 1.4 million shares of common stock under the ATM program during the quarter at an average price of $15.70 per share, generating gross proceeds of $21.4 million, or $4.3 million of commissions. Our leverage moved down slightly to 4.91 times from 5 times, excluding the JV debt, and to 5.48 times from 5.54 times including shares of Enlivant joint venture debt. We have $315 million available under the ATM program, and we'll continue to monitor the equity markets and utilize the ATM to match fund investment activity and manage leverage as opportunities present themselves. We were compliant with all of our debt covenants as of September 30, 2020, and continue to have very strong and improving credit metrics compared to the prior quarter. Our interest coverage is at 5.41 times, up from 5.36 times; fixed charge coverage is at 5.22 times, up from 5.17 times; total debt to asset value is at 35%, down from 36%; and our unencumbered asset value to unsecured debt is 275%, with secured debt to asset value just at 1%. On November 5, 2020, the company's Board of Directors declared a quarterly cash dividend of $0.30 per share. The dividend will be paid on November 30 to common stockholders of record as of November 16. The dividend represents a payout of approximately 65% of our AFFO and normalized AFFO per share. We're very pleased with the high dividend coverage ratio, and we'll continue to evaluate the dividend payout going forward with a target in the range of 80% of AFFO once we are past the impact of the COVID-19 pandemic. We continue to have a very strong liquidity provision as of September 30, 2020, with over $975 million of cash and availability on our line. Principal payment obligations through the end of 2021 total only $18.3 million and we have significant cushion on our debt covenants. Accordingly, we continue to be very positive about our current financial position and our ability to appropriately address these challenges we may face as we work with operators going forward. And with that, I will open up to Q&A.

Operator, Operator

Our first question comes from Nick Yulico from Scotiabank.

Josh Brown, Analyst

Thanks. This is Josh Brown with Nick. Could you just talk about what you're hearing from your operators about why we really haven't seen occupancy start to increase yet given elective surgeries are picking up?

Rick Matros, Chairman and CEO

Well, elective surgeries are picking up in some areas more than others. We were 100 basis points higher on skilled occupancies than we were at our low point. So we have seen increases, but we see the numbers, we’re having spikes in COVID all over the country. So there's a direct relationship there. We have about 95 facilities currently that still have some level of COVID positive, and so they’re restricted on what they can do. Most of the rest of the facilities are admitting. So the majority of the facilities are admitting. But because of all the spikes in COVID around the country, hospitals are keeping beds open to COVID patients. In some cases, they've already hit or are exceeding capacity. So, there's just a direct relationship there. It's not as if we're not seeing the occupancy increases on the skilled side; we are, but it's definitely mitigated by the impact of our inability to control the virus. I don't know if that answers your question. Are you seeing something different in numbers out there on COVID?

Josh Brown, Analyst

No. You mentioned in your prepared remarks the pandemic fatigue and an increase in discussions and move-outs. How much of an impact is that having on your operator occupancy?

Rick Matros, Chairman and CEO

It’s quite significant. You’ve heard about the occupancy trends across our portfolio, including assisted living, memory care, and independent living. We’re observing a longer delay in residents moving in. This is primarily due to people requiring higher levels of care when they decide to move, rather than moving out of choice. The challenge is that move-outs are still occurring, whether due to higher care needs or residents passing away. Additionally, there are many residents moving out because, in some communities, social distancing measures have limited social interactions. For instance, there have been times when food delivery to rooms was implemented to avoid socialization due to regulatory concerns. As a result, some individuals are hesitant to move from their homes into a senior housing community where they might face a 14-day quarantine and have limited access to common areas. The key element of socialization, which is crucial for making the decision to move in, has been significantly diminished. Let me clarify, the fatigue in terms of staff, in case you're referring to that, yes, the fatigue has been very stressful but that isn't impacting admissions. Everybody is working just as hard within the facility to admit as they always have; you just have those other factors that Talya articulated that create some issues. And in terms of acuity, we’ve been seeing pretty consistently that our peers are seeing it too, because folks have been staying at home longer, whether it was delays on the skilled side, or all the reasons that Talya articulated sound to senior housing side, they are coming in at the same time. I just want to make sure that it's clear that the stress and fatigue is not impacting the desire or the execution on the part of facility management or staff to admit.

Operator, Operator

Thank you. Our next question comes from the line of Nick Joseph from Citi. Your question, please.

Nick Joseph, Analyst

Thanks. You talked about the external growth pipeline. I think you mentioned $600 million. What would be a good assumption for a hit rate on that?

Rick Matros, Chairman and CEO

Well, most of that’s already come in. I think we've got about only about $18 million less through 2021 coming in, and then a small amount in 2022. So, if you look at the schedules that we've always published, most of that, we exercise those options and work that in. This has been the last sort of big year left of the $600 million and then it starts declining.

Nick Joseph, Analyst

Okay. And then how do you think about the ability to backfill that pipeline then?

Rick Matros, Chairman and CEO

Talya, you want to talk about that? It's pretty tough right now.

Talya Nevo-Hacohen, Chief Investment Officer

Sure. It's a really interesting question due to the dynamics in the marketplace. Our operators are feeling pressure on occupancy, and there has been considerable new construction in senior housing over the past three years. Those properties are also experiencing occupancy challenges and are in lease-up mode. We believe there will be interesting opportunities within that segment. As Rick mentioned earlier, some assets have not faced pressure from their lenders, but that may change if they don't get back on track to meet their financial targets. There are assets that will enter the market at an unusual time, during a pandemic, where liquidity or recapitalization is crucial. We view this as an intriguing opportunity.

Operator, Operator

Thank you. Our next question comes from Rich Anderson from SMBC Group. Your question, please.

Rich Anderson, Analyst

So, Harold, you mentioned that you're not going to normalize out stimulus income going forward, I think I heard that right. Do you have an assumption about how we should assume going forward what kind of stimulus money will be in the numbers? Or is it still sort of a choppy thing yet you're still not going to normalize it out?

Harold Andrews, Chief Financial Officer

I think the numbers that are coming in from the revenue side, obviously, are in our Managed portfolio and we've got the 2%. So it's going to require incremental stimulus to be coming in for there to be incremental revenues coming in. We're hopeful that that will happen. But it's impossible to predict the timing or the scale of that. I would just say on the operating cost side, things have come down this quarter compared to last quarter as they've built up inventories. We've seen things become more operationalized. As we start moving through the pandemic, we obviously expect to see labor costs that are impacted from COVID to normalize as well. But again, it's very difficult to predict the timing. So I think we'll see what we saw this quarter. I'm not going to predict that because it's hard to, but I think it's kind of indicative of the level of cost that we're going to see for a while as the pandemic is ongoing, and then it should start to moderate as we get closer to a vaccine and we start to see fewer cases in the buildings.

Rich Anderson, Analyst

Okay. And then Rick, does this environment inform you more about the choice between RIDEA and triple-net? Does it expose some vulnerability, so you want to go more triple-net, or is it like an opportunity in the future with all the fundamental shifts that may happen positively after COVID that you might want to spend more time thinking about an operating model? I'm just curious....

Rick Matros, Chairman and CEO

Thank you, Rich. I appreciate it. Our perspective remains unchanged. Part of this is practical; very few people are interested in triple-net leases anymore. If you want to remain and grow in this space, you'll need to focus on managed deals. There are valuable lessons here. We've all played a role in this situation. The coverage we establish during acquisitions in Senior Housing is quite solid, particularly strong in independent living since they aren't typically seen as healthcare facilities. When we encounter challenges or issues from supply-demand imbalances, as we've experienced, it significantly limits the coverage these facilities have, resulting in an increase in managed deals and the conversion of existing triple-net leases to managed ones. As long as we collaborate with good operators, managed deals can perform well, and we're eager to realize the potential benefits. Initial diligence and analysis are essential to identifying that potential, as managed deals can fluctuate in volume. It's crucial not to engage in a transaction at the peak of an operator's performance. There's a possibility that as demographics shift and more people enter senior housing, there may be renewed interest in triple-nets. Hopefully, lessons have been learned so that instead of expecting a 1.2 times return while delivering 1.1 times in independent living, one will approach it at a higher level. This way, when inevitable challenges arise, there will be a buffer in place. The return of triple-net leases seems possible, depending on how demographics affect occupancy and the ongoing balance of supply and demand, all of which are interrelated.

Operator, Operator

Our next question comes from a line of Lukas Hartwich from Green Street.

John MaGee, Analyst

Hi, this is John MaGee on for Lukas. Thank you for your time and congrats on the quarter. Just a quick one for me. I was just hoping to get some insight into as you look to take advantage of the deals that are kind of manifest over 2021, if you look up to your own portfolio, are there areas where you can see yourself selling into the strong bid out there for Senior Housing assets that you look to recycle capital to take advantage of the deal in the future?

Rick Matros, Chairman and CEO

Talya, do you want to take that?

Talya Nevo-Hacohen, Chief Investment Officer

Sure. So potentially, yes. There's always something in the bottom of the barrel that we're looking to sell. That's inevitable. Everyone does that. It's funny you ask the question because we probably get almost weekly a call from somebody who wants to buy an asset, is looking to buy an asset; they're not even asking about specific assets, they just want to buy, and can they buy something from us. Oftentimes, it's multi-family guys looking at senior housing, particularly independent living, but it’s really quite general. So there's a lot of capital there, looking to find a home. We frankly haven't tested the market to see whether something that we bought at 7% we can sell at 5.5%. We have to make a judgment as to whether long-term that makes sense because we have to measure how we redeploy that capital and how we think about the long-term improvement and the sturdiness of the returns that we can get over time.

Operator, Operator

And our next question comes from Steve Valiquette from Barclays.

Steve Valiquette, Analyst

I was just hoping to get a little more color regarding the Genesis and Signature; growing concern opinion, the Sabra press release from September 25th says that you guys have not received any rent relief requests from either operator as of that date. I'm sure if that was still the case today. What do you expect to be the likely scenarios from here? Just how it might play out or is this more just really an accounting protocol? Just want to get more flavor for kind of this whole situation?

Rick Matros, Chairman and CEO

Let me make a couple of comments and then turn it over to Harold. One, we have not gotten any rent requests. When you make forecasts and exclude for assistance and include a relatively high level of supply expenses related to the pandemic with really no relief, if you apply that kind of analysis to any operator, you may come to the same conclusion. We think it was as much about that, if anything else. But let me just kick it over to Harold.

Harold Andrews, Chief Financial Officer

We don't have detailed insights beyond what the auditors provided. We are in discussions with the operators. Genesis will be holding their call this quarter. They are clearly under pressure, but they indicated that there are no immediate issues for them. However, they need to see continuous relief and improved occupancy over time, or it could become a concern. We are currently in a wait-and-see situation with Genesis and Signature. We restructured Signature's lease some time ago and are pleased with their progress. However, their conclusion was that they could not provide a forecast for funding without increased occupancy or further relief, given the current occupancy levels. Similarly, we believe that Signature's cash flow position is adequate for the short term due to the relief they have received. We are essentially in a wait-and-see mode. I don't have much more to add. Additionally, we have reduced Genesis to a very small percentage, with about $10 million of recurring rent, which amounts to $10 million a year for the next couple of years. Regardless of what happens, it will not significantly impact us. If something adverse occurs, we hope it won't, but the fact that we have reduced it so significantly indicates that it was the right decision for us.

Rick Matros, Chairman and CEO

We've also had internal conversations. We’ve had internal conversations relative to who we can move in those facilities, so it’s only one region. It would be not a difficult move, and it’s in a state that we really like, New Hampshire.

Operator, Operator

Thank you. This concludes the question-and-answer session of today's program. I'd like to hand the program back to Rick Matros for any further remarks.

Rick Matros, Chairman and CEO

Thanks for joining us today. We're available if you have any follow-up questions or additional conversations. For a lot of you, we will be talking to you for a while so I hope you find ways in this environment to enjoy the holidays. Please stay safe out there. Take care.

Operator, Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This concludes the program. You may now disconnect. Good day.