Earnings Call Transcript - SBRA Q4 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Sabra Health Care REIT Fourth Quarter 2020 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael Costa, Executive Vice President of Finance and Chief Accounting Officer. Thank you. Please go ahead, sir.

Michael Costa, Executive Vice President of Finance and Chief Accounting Officer

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 impacts 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, 2020, that was filed with the SEC yesterday, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during the call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included in the financials page of the Investors section of our website at www.sabrahealth.com. Our Form 10-K, earnings release, and supplement, can also be accessed in the Investor section of our website. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Rick Matros, Chairman and CEO

Thanks, Mike, and good day to everybody and thanks for joining us. I appreciate it. First, let me start by once again thanking our operators, who have just done an amazing job showing resilience and dedication. Here we are a year later; who would have thought? Finally, they are at a point where we really see the light at the end of the tunnel and have some real positivity, which I'll talk about here in a few more minutes. I also want to thank the workforce, all the caregivers and other frontline employees in the facilities who continue to show up every day and execute on the mission of providing care to the elderly. I'd also like to express my continued appreciation to state and federal government for continuing to provide support primarily to the skilled sectors but also to the senior housing sector, the assisted living sector as well. Finally, I want to call out the Texas operators, who, on top of everything else, shouldn't have had to go through what they went through recently with the weather and all the difficulties that caused. Fortunately, all the facilities have emergency backup generators. There was minor to moderate damage, if any. So, fine from a physical plant perspective, only one of our facilities had to evacuate and that was for a very short period of time. A few facilities had short blackouts, but they didn't last very long. The bigger problem really was staff just being able to get in and drive on the roads and all that. But we're past most of that right now, but again, on top of everything else, for them to have dealt with that was really difficult. So I want to express my appreciation to all of our operators and caregivers in Texas. I also want to thank the Sabra staff, who are still working from home almost a year later and they just don't miss a beat; the productivity has been fantastic. We've actually onboarded seven new team members during the pandemic, which was challenging working from home, but we all made it happen. We provided enhanced benefits to our staff and we've done some interesting things to improve connectivity and just really stay in touch with each other and try to maintain the culture that we work so hard to develop here. A couple of other things that pertain just for the company: we've had some significant board changes since December; we've had three new board members, Clif Porter, Ann Kono, and Katie Cusack. This goes to all of our efforts to enhance the diversity of our board and they bring some really unique and interesting skill sets that we were lacking on the board before in the areas of healthcare policy, investment banking, data analytics, and ESG. Last but not least, I want to congratulate Mike Costa for being promoted to Chief Accounting Officer. Mike has been with us since the beginning of Sabra and has always done an amazing job and developed a great team. We couldn't be more pleased having had the opportunity to work with Michael all these years and now to see him get promoted to Chief Accounting Officer. We are going to be releasing in the next few months our inaugural ESG report. We started working on this initiative well before the pandemic. The pandemic certainly threw some things down, but by the next few months, we will have our first report released. Rating agencies are pleased with all the work that we've done through the pandemic to have Fitch affirm our ratings and remove the negative outlook. S&P also affirmed our ratings as well; we feel really great about that and Harold will talk more about that. Now onto some of our tenants. Everybody has seen the announcement on Enlivant that their CEO, Jack Callison, is moving over to become the CEO of Sunrise. Dan Guill is going to be the new CEO of Enlivant. He has been the COO and has been there since the beginning with Jack. We have a fantastic relationship with Dan. Jack did a great job building a really strong culture there, and we feel very confident that Dan is going to do a great job as CEO. We don't expect any noticeable changes to anyone on the outside. He was instrumental in building the culture there, and that will continue along the lines that Jack established. We also expect a resolution to the joint venture this year and it's not really within detail to share at this point, other than TPG has let us know they would like to wrap it up this year. We'll be working with TPG and making a decision on whether we retain or buy their 51% stake or exit the portfolio. We really like the portfolio, we like the assets. The team is great, but it's taken a hit during the pandemic. It will take time to recover and it just has to work for us economically. We're not going to do it just to do it. Whether we can get there with TPG and have a transaction that is beneficial to our shareholders remains to be seen. So stay tuned for more on that, and Harold will talk a little bit more about that as well. Regarding the stimulus, I want to point out that there is still $33 billion left in the HHS fund that hasn't been distributed, and that's a GAO number, a very specific accurate number. The $33 billion is actually going to increase because there are several hospital providers in the process of returning funds that were not needed back to HHS, so the $33 billion is actually going to increase significantly. There are ongoing discussions, but we don't know what's going to happen with allocation yet, but it certainly makes it feel good that there's that level of money still available. As you probably know, the public health emergency act was extended for another quarter. We're optimistic that it will be extended through the year, but it can only be extended in quarterly increments. There has been dialogue on this, which carries with it sequestration, continued waiver of the three-day stay, and FMAP. I'm pleased with President Biden's nominations of Xavier Becerra for HHS Secretary and Chiquita Brooks-LaSure for CMS Administrator, and we look forward to having a productive relationship with them, assuming that their nominations are confirmed. Moving on to vaccine updates: since vaccines started at the end of December, the numbers have improved dramatically. In aggregate, we're close to 80% of our patients and residents having received at least one, if not two shots of the vaccine. If they have only received one, they're scheduled to receive the second. Staff, which was 40%, is now up to about 60%. We're seeing with staff what we expected as they see residents and colleagues getting vaccinated; it increases their confidence. Those numbers have picked up dramatically, and we continue to expect improvements. Many operators have over 90% of residents, patients, and employees vaccinated. That’s all good news. As cohort restrictions for facilities are eased due to vaccine rollout, it will provide additional impetus for occupancy improvement. Restrictions on admissions due to limited bed availability and isolation protocols have hampered occupancy. We have focused on surgeries being at capacity, but cohort restrictions have been very significant as well. Normalization should accelerate as vaccination of staff and patients continues; it should start improving margins ahead of occupancy improvement. Communities impacted by COVID have improved dramatically since early January. Only two new facilities had positive COVID tests last week and only two the week before, showing a dramatic improvement. Mortality rates and cases have come down dramatically in long-term care facilities and we see the same in our portfolio. Now I just want to mention home health because it's come up frequently on earnings calls and part of the narrative. There are home health impacts on skilled nursing and senior housing. This narrative has been around for decades, though home health has benefited during the pandemic with hospitals admitting lighter care patients. We think it's good that home health can take more patients because we have a demographic crisis looming. However, the paradigm isn't going to change; skilled nursing is intense and it's 24/7 care. We expect normalization as the pandemic concludes. On guidance, Harold will discuss in detail, but we feel it was best to only provide Q1 primarily because of managed portfolio uncertainties. Based on recent statistics, we are close to the bottom on managed occupancy. We configured $168.4 million in investment activity in 2020 with a blended cash yield of just under 8%. Our acquisition pipeline is currently at about $1.5 billion, primarily in senior housing, but we are starting to see opportunities in behavioral and skilled nursing. Moving to operating statistics: skilled occupancy dropped about 1,200 basis points from February 2020 through the end of 2020. Skilled mix, however, improved 530 basis points during that time, which was a significant mitigant for our operators. Our top seven operators bottomed out at the end of December and they're up 210 basis points through the second week of February. The skilled nursing industry is recovering; we projected skill would be back by early 2022. Our senior housing lease portfolio performed well during that period, with occupancy dropping only 220 basis points. Our operators have not required any permanent rent restructurings at this point, and rent collections have been 99.9% of forecasted rents. I want to point out that our specialty hospital coverage and occupancy has been unaffected by the pandemic and contribute meaningfully to NOI. With that, I'll turn it over to Talya.

Talya Nevo-Hacohen, Chief Investment Officer

Thank you, Rick. In the fourth quarter of 2020, our senior housing managed portfolio continued to experience occupancy pressures as a result of the pandemic and the surge following the Thanksgiving and Christmas holiday season. While government funding provided some mitigation from the financial pressures, the adoption of the vaccine is the linchpin to getting the senior housing industry on the road to recovery. All operators have been focused on implementing vaccine clinics at their buildings, educating and incentivizing both residents and staff to maximize participation, and using their clinics and documented safety records to demonstrate the path to a normal lifestyle for prospective residents. CMS data compiled shows that COVID cases in skilled nursing closely tracked cases in the general population from June 2020 until the launch of the Pfizer and then the Moderna vaccine in December 2020. This changed dramatically in January 2021, as cases in skilled nursing began to decline just as cases in the U.S. spiked from the post-holiday surge. By early February, new cases in skilled nursing fell by 83% while cases in the general population fell 47%. Since the launch of the vaccines, deaths in skilled nursing have declined dramatically. As skilled nursing is a leading indicator of the vaccine's impact, we have reason to be optimistic. As of the end of Q4 2020, approximately 14% of Sabra's annual cash net operating income was generated by our senior housing managed portfolio. Approximately 49% of that relates to communities managed by Enlivant and 37% to our holiday-managed communities. I'll provide highlights of the managed portfolio's operating results, which include both the wholly-owned portfolio and Sabra's share of the unconsolidated joint venture, on a same-store sequential quarter basis. These results will exclude two recent acquisitions and one transition community from our wholly-owned portfolio, consistent with our supplemental information package. Occupancy declined 280 basis points to 76.4% in Q4 2020, in line with a decline of 270 basis points in Q3. Revenue per occupied room, REVPOR, excluding government grants, rose 1.6% this quarter, compared with an increase of 1.7% in the previous quarter. Revenues decreased 5.8% in Q4 2020 compared to Q3, including $1.1 million and $4 million respectively of government funds received by eligible assisted living facilities. If we exclude grant revenue, same-store revenue declined by 1.9%. Cash net operating income for the quarter decreased sequentially by 24.9% to $14.8 million from $19.7 million. Excluding government grants, cash net operating income would have declined by 12.5% on a sequential basis. Cash NOI margin decreased to 21.3% from 26.8% in the preceding quarter; excluding government grants, cash NOI margin would have been 20.1% in Q4 and 22.5% in the preceding quarter. In Q4, we saw the same occupancy and rate dynamic observed in Q3: rising rates and a continued decline in occupancy resulting in a decrease in revenue. The government funds received by eligible operators have had a disproportionate impact on cash net operating income, depending on the amount and timing of receipt. The Enlivant joint venture portfolio, of which Sabra owns 49%, had a challenging fourth quarter due to lower occupancy, with average occupancy for the quarter at 71.6%. Overall, Q4 was a 4.2% decline on a same-store sequential basis and a 10.6% decline compared with Q4 2019. REVPOR, excluding government funding, was higher on a same-store sequential basis, up 3.8%. Revenue was 8.6% lower on a same-store sequential quarter basis and 8.5% lower compared to Q4 2019. Excluding government funds, revenue decreased by 1.9% on a same-store sequential basis and 9.8% on a same-store basis compared to Q4 2019. Same-store cash net operating income was $5.2 million, a 43% decrease on a sequential basis, driven by lower government funds in Q4. Without those funds, same-store cash NOI would have declined 22.3%. Subsequently, in January 2021, occupancy was 68.9%, 140 basis points lower than December 2020. Since the pandemic began, nearly all of our Enlivant Joint Venture communities have had a resident or staff member test positive for COVID-19. By late February, only 10 communities had a resident or staff member with a positive test compared with 35 at the end of January—a 70% decline. All communities in the joint venture have completed their first vaccine clinic and 50% have had their second clinic. Data shows that 94% of residents and 64% of staff received the vaccine, significantly higher than the industry average. January 2021 saw a rise in move-ins compared to the prior month, while move-outs remained at a reduced level similar to pre-holiday surge numbers. The gap between move-ins and move-outs started to narrow in January and that momentum has continued. The fourth quarter operating results for Sabra's wholly owned Enlivant portfolio of 11 communities had similar themes. Fourth quarter occupancy was 77%, a 4.2% decline compared to the prior quarter and a 12.5% decline compared with Q4 2019. REVPOR excluding government funding was $6,029, 4.7% higher than the prior quarter, higher compared to Q4 2019. Revenue was 3.3% lower on a sequential basis and 5.1% lower compared to Q4 2019. Excluding government funds, revenue was nearly flat on a sequential basis and 10.7% lower compared to Q4 2019. Cash net operating income was $1.9 million, a 32.2% decrease on a sequential basis but supported slightly by the government grants. Without those funds, same-store cash NOI would have decreased 32.6%. More recently, January occupancy was 68.4%, 510 basis points below the prior month, while only two of our wholly-owned Enlivant communities currently have a resident or staff member who tested positive for COVID-19, down from six at the end of January. The combination of an increase in resident deaths and move-in restrictions resulting from the surge impacted occupancy significantly. Enlivant incurred higher costs associated with the surge, including labor costs and increased PPE needs. By mid-February, all communities had their first vaccine clinic and already completed their second with 94% of residents and 64% of employees receiving the vaccine. While it will take time to rebuild occupancy to pre-pandemic levels of over 90%, in January, we saw a reduction of about 25% in move-outs along with a 150% increase in move-ins compared to the prior month. This momentum, along with vaccine clinics driving a rapid reduction in infections, lays the groundwork for occupancy to rebuild. Holiday retirement operates 22 independent living communities for Sabra, one of which was transitioned to Holiday in Q4 2019. As these properties were not eligible for government support, all operating results are on a same-store basis. Holiday portfolio occupancy was 80.8% this quarter—a 1.7% decrease on a sequential basis and a 7% decline compared with Q4 2019. REVPOR was flat to the prior quarter and 1.3% higher than Q4 2019. Revenue declined 2.2% sequentially and 6.9% compared with Q4 2019, while cash net operating income decreased 3.4% sequentially and 10.1% compared to Q4 2019. In January, occupancy was 79.8%, a 90 basis point decline compared to December 2020. Over the past year, all 22 properties managed for Sabra have had a resident, staff member, or private home health aide test positive for COVID-19. By mid-February, 17 communities had recovered and are lifting restrictions, such as dining and limited visitors. Holiday is organizing vaccination strategies and currently has 13 communities with confirmed vaccination partners. Five of those communities have held initial clinics for residents and associates, with 78% and 37% vaccinated, respectively. In Q4 2020, Holiday saw a rebound in sales activity, with leads, move-ins, and move-outs tracking 95% to 99% of the fourth quarter of 2019. We see a narrowing gap between move-outs and move-ins, reflecting the same trend we spoke about with Enlivant. Sienna Senior Living manages eight retirement homes in Ontario and British Columbia for Sabra. In Q4, the Sienna portfolio had 79.5% occupancy, flat on a sequential basis and an 8.8% decline compared with Q4 2019. REVPOR was $2,488, 2.5% lower than the prior quarter and 2.2% lower than Q4 2019. Cash net operating income was just over $1 million, a 1.3% decline sequentially and a 44% decline compared to Q4 2019. More recently, January occupancy was 78.5%, a 30 basis point decline. Only one of our retirement homes has had a confirmed COVID case, and while Canada experienced a surge in COVID cases after Thanksgiving, the impact has remained minimal. Both British Columbia and Ontario are rolling out vaccine clinics to retirement homes after having prioritized long-term care residents and staff. Leads have ramped up to nearly double what they were in the fall. We see move-ins increasing to match move-outs, which are still driven by deaths and need for higher care levels. Our operators have consistently maintained rates as the perspective resident's decision to move in is driven by qualitative rather than quantitative factors. While we speak about pent-up demand, it's challenging to convert leads to move-ins when potential residents are concerned about lifestyle changes. Our Senior Housing Managed portfolio lost 10.1 percentage points in occupancy from February 2020 to January 2021. Occupancy drives operating results, but the fourth quarter indicated that the Holiday surge in COVID cases hasn't impacted our managed portfolio uniformly. The largest declines were in assisted living. The process of reversing this trend involves maximizing vaccinations, with our portfolio indicating residents are eager adopters. A COVID case decline should lead to fewer move-outs, therefore assisting in a return to pre-pandemic levels. High vaccine adoption among staff will reduce labor costs, coupled with normalized PPE expenditures, these will stabilize expenses and support net operating income. Rebuilding occupancy will take time, requiring converting leads to leases. A vaccinated population allows for fewer restrictions, letting residents gradually resume the lifestyle that brought them to independent or assisted living in the first place. With evidence of the safety of living in these communities, I will now turn it over to Harold Andrews, Sabra's Chief Financial Officer.

Harold Andrews, Chief Financial Officer

Thanks, Talya. I'll give an overview of the numbers for Q4 and then provide additional insights on our guidance for Q1 2021. For the three months ended December 31, 2020, we recorded total revenues, rental revenues, and NOI of $152.1 million, $110.7 million, and $124 million respectively. These amounts represent increases from the third quarter, primarily due to a third quarter write-off of straight-line rent receivables and above-market lease intangibles for Genesis and Signature as we moved those tenants to a cash basis for revenue recognition. Excluding this write-off, total revenues declined $5.5 million, rental revenue declined $4.2 million, and NOI declined $9.6 million in Q4 compared to Q3. This decline was due to a decrease in collections related to leases accounted for on a cash basis. Note that Q3 had an increase over Q2 in rates collected from cash basis tenants. These fluctuations stem from cash basis tenants that are in various states of transition or stabilization, paying rent based on cash flow available for payment. Tenants with this arrangement represent just 2% of total revenues during Q4. We do not see the reduction in cash collections this quarter as a new trend. Total revenues and NOI were also impacted by a reduction in revenues from our wholly-owned senior housing management portfolio compared to Q3, including a reduction in government grant income, which was further impacted by the results of the Enlivant joint venture compared to Q3, lower by $4 million, including a reduction in government grant income of $2.5 million. We recognized $1.1 million of government grant income during Q4; $0.6 million related to our wholly-owned portfolio recorded in revenues and $0.5 million related to the Enlivant joint venture recorded as part of loss from the unconsolidated joint venture. Finally, COVID-19-related costs in our senior housing managed portfolio totaled $3 million for the quarter, a $0.5 million increase compared to Q3. Of the current quarter's expense, $2 million related to the Enlivant joint venture, while $1 million was incurred in our wholly-owned portfolio. FFO for the quarter was $87.5 million on a normalized basis of $88.4 million, or $0.42 per share. This compared to normalized FFO of $98.8 million, or $0.48 per share, in Q3 2020. AFO, which excludes certain non-cash revenues and expenses, was $87.2 million, normalizing to $86.9 million, or $0.41 per share, which compares to normalized AFFO of $95.1 million, or $0.46 per share, in Q3 2020. These declines in normalized FFO and AFFO are primarily related to the reduction in NOI previously discussed. For the quarter, we recorded net income attributed to common stockholders of $37.1 million, or $0.18 per share. G&A costs for the quarter totaled $8.1 million compared to $7.2 million in Q3, with G&A costs including $2.3 million of stock-based compensation compared to just $0.9 million in Q3. The current cash G&A cost at $5.88 is 4.7% of NOI, in line with expectations. We continue to have a strong liquidity position as of December 31, 2020, with over $1 billion of cash and availability on our line, placing us in an excellent position to seize acquisition opportunities in 2021 and beyond. Maintaining our target leverage of below 5.5 times is a key priority. We're pleased to see recent changes in our Fitch rating go from a negative outlook to stable, alongside reaffirmed ratings from S&P, as maintaining leverage is critical for our ratings. We have continued to manage this through the pandemic and a decline in earnings on our managed portfolio during 2020. To that end, we issued 3.6 million shares of common stock under our ATM Program during the quarter, generating gross proceeds of $60.1 million, less $4.9 million in fees. We utilized the forward feature of the ATM Program preparing to fund upcoming investments. 1.1 million shares with an initial weighted average price of $17.44 net of commissions remain under the forward sale agreements. Our leverage remained below our target at 4.8 times, increasing slightly to 5.49 times when including our share of the Enlivant Joint Venture debt. At the end of 2020, $235 million was available under the ATM Program, and we were compliant with all of our debt covenants. Our interest coverage is at 5.32 times, fixed charge coverage at 5.14 times, total debt-to-asset value at 35%, and unencumbered asset values on secured debt at 283%. The company's board of directors declared a quarterly cash dividend of $0.30 per share on February 2, 2021, payable on February 26 to common stockholders of record as of February 12. The dividend represents a payout of approximately 71% of our AFFO and 73% of our normalized AFFO per share. Our guidance for Q1 2021 is limited due to the COVID-19 pandemic's effects on forecasting our future earnings, particularly within our Senior Housing Managed portfolio. We expect net income for the quarter ended March 31, 2021, to be between $0.16 to $0.17; FFO between $0.39 to $0.40; and AFFO between $0.38 to $0.39. These estimates are based on certain key assumptions outlined in our supplemental. Notably, these estimates do not include any anticipated funds from the provider relief fund for our Senior Housing Managed communities, which we expect, but predicting is challenging. We anticipate average quarterly occupancy for our Senior Housing Managed portfolio to fall within the following ranges: wholly owned at 75.4% to 77.4%, and unconsolidated joint venture at 66% to 68%. We expect to close investments totaling $39 million with a weighted average initial cash yield of 8.2%, and plan to fund investments with the revolver along with matching the equity component in the ATM Program. In total, we expect to issue around $100 million of equity under our ATM Program to fund acquisitions and meet our leverage goals. Our expected annualized adjusted EBITDA is approximately $480 million as of March 31, 2020. I'd like to emphasize that our calculation of net debt to annualized adjusted EBITDA is based on the trailing 12-month adjusted EBITDA. March 2021 will be the 12th month impacted by the pandemic. This is crucial for our leverage management as we continue to replace a quarter of higher pre-pandemic EBITDA with significantly reduced EBITDA, which has been impacted by the pandemic. We expect to issue additional equity in Q1 2021 to maintain net debt-to-annualized adjusted EBITDA below our target of 5.5 times. To summarize the equity issuance impact based on our Q1 2021 guidance, we will have issued around $150 million of equity since the beginning of the pandemic to offset the loss of EBITDA from our managed portfolio, which compared to trailing adjusted EBITDA a year earlier as of March 31, 2020. On a positive note, as we recover occupancy and increase EBITDA, it will bolster our balance sheet and position us for growth in earnings per share as we strive to manage leverage effectively going forward. With that, I will open the floor for Q&A.

Operator, Operator

Our first question comes from Josh Brown with Scotiabank. Your line is open.

Josh Brown, Analyst

Hey, thanks. Could you provide some more insight into the current acquisition pipeline and what investment opportunity Sabra sees today? Just looking at Q1 guidance, it looks like you guys are going to raise over $100 million from the ATM program, has some availability under line of credit and $40 million will be used for investment. So is that remaining capital being raised just meant to delever and kind of keep leverage levels where you want them?

Rick Matros, Chairman and CEO

Yes. Most of the raise is to maintain our balance sheet where we want it to be. But it also pre-funds potential acquisitions as well. So, you have to think of it sort of in both ways. If there’s an opportunity to raise money on the ATM now, that’s going to keep our leverage down and give us room for leverage to go up slightly while still being below our target as we prepare for acquisitions that come in. Talya, do you want to note some of the specific types of opportunities we’re looking at in the pipeline?

Talya Nevo-Hacohen, Chief Investment Officer

Sure. We’re looking at senior housing assets that we can buy at reasonable prices. At this time, we’ve spoken in the past about the population of assets that have had their lease-up projections delayed due to COVID. So, there’s an opportunity to acquire newer assets that have some upside. That’s a lot of what we’re seeing, as well as opportunities in other sectors such as behavioral and some in skilled nursing.

Josh Brown, Analyst

Got it. That’s helpful. How are you guys comparing the Enlivant JV, buying up the other portion compared to traditional acquisitions? I know it looked like that portfolio had some more occupancy challenges in Q4, and you guys are also factoring in some more occupancy loss in Q1 versus the wholly-owned portfolio. So how are you guys underwriting that occupancy NOI recovery compared to other acquisition opportunities?

Rick Matros, Chairman and CEO

Yes. So, one really has nothing to do with the other since we're already in the joint venture. That's just going to be a negotiation with TPG. As I mentioned in my opening remarks, it’s going to need to be something that is economically beneficial for us. We’re not going to do a deal just to do it. This is a completely separate perspective from how we look at others and we know that portfolio really well. We have a lot of confidence in the team and everything in place from an infrastructure perspective to rebound. What has been unfortunate for them is, unlike all of our other operators, they have a national footprint, and they’ve faced challenges in every geographic area when it picks up. Over half of their states hadn't lifted restrictions, which really impacted their recovery. So, it’s just a matter of time as we look at individual senior housing opportunities and evaluate their current NOI and recovery potential. We just evaluate if it works.

Josh Brown, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Juan Sanabria with BMO Capital Markets. Your line is open.

Juan Sanabria, Analyst

Hi. Good morning and thanks for the time. I was just hoping you could talk a little bit, Rick, about the occupancy recovery in skilled nursing and senior housing. You seem to imply a longer recovery in senior housing for the TPG stake, at least it seems they are a bit more optimistic about skilled nursing. If you could just give us some benchmarks, how long until you think you can get back to pre-COVID levels for those two major groups? That’d be great.

Rick Matros, Chairman and CEO

Yes. I think by the first quarter of 2022, we’d be back on skilled nursing to pre-COVID levels or close enough that we feel comfortable. I think it will take until the middle of 2022 for senior housing. The pandemic's surge has certainly complicated that, but the pent-up demand is still very real. A lot of the dynamics that help the skilled space should assist the senior housing space as restrictions ease, allowing for real tours and group activities again. I do believe we have some time ahead, particularly for assisted living, which operates on a more demand-based model. Operator efforts have led to significant increases in acuity over the past number of years, which is leading us to believe that recovery is possible, but it will take time. Moreover, I point out that safety factors in senior housing will play a crucial role in future admissions. Some of our tenants have had excellent safety records. For instance, Enlivant’s infection rate is 2% compared to a cohort average of 47%, and independent living, which you would expect to be healthier, less than 1% at Holidays. Those statistics are critical and will support our portfolio’s recovery.

Juan Sanabria, Analyst

Thank you, Rick. Maybe a quick modeling question for Harold: what’s the assumption regarding cash rent payments from the few tenants that are on a cash basis? What is that assumption in the first quarter guidance versus the fourth quarter?

Harold Andrews, Chief Financial Officer

Yes. It should be pretty consistent with fourth quarter for the vast majority of our cash flow; I’d say all of them, but one or two. I’m actually expecting an uptick in collections in Q1 over Q4 for those two. So my expectations would be slightly up, not dramatically but slightly up from Q4.

Juan Sanabria, Analyst

One last one for Rick. What’s the view on dual-capacity rooms you referenced in skilled nursing coming back? Do you sense any hesitancy from regulators to reduce those due to lessons learned from the pandemic?

Rick Matros, Chairman and CEO

Well, there’s a distinction between semi-private rooms and wards with three or four beds. Over time, states will want to see those go away, and we've seen it happening in areas like Massachusetts. Expect to see that elsewhere along with changes in reimbursement to support operators. Our industry faces challenges that predate the pandemic, like an imminent demographic crisis. Before the pandemic, we projected the industry would be near full by the middle of the decade. Today, the vaccine has changed everything regarding easing restrictions. The decline in cases and mortality has been rapid, and hopefully, discussions are taking place to develop national guidelines as vaccination rates increase.

Juan Sanabria, Analyst

Thanks, Rick.

Operator, Operator

Thank you. Our next question comes from Nick Joseph with Citi. Your line is open.

Nick Joseph, Analyst

Thanks. Just wondering about the timing for a decision regarding Enlivant and expectations for any timing.

Rick Matros, Chairman and CEO

I'm guessing here, as TPG is driving the process. If I were to estimate, I’d say we’d arrive at a decision in the next several months. The closing deal could be around a 180-day period for regulatory approval, whether we buy or exit.

Nick Joseph, Analyst

Thanks, Rick. Regarding pricing for senior housing, especially for a national portfolio like that, how do you view it versus pre-COVID values?

Rick Matros, Chairman and CEO

We all recognize that PEs have driven pricing recently. If we buy before recovery, it has to yield much higher returns than the six handles people are used to. Our assessment must be thoroughly evaluated with a cautious approach to forecast and determine bids.

Nick Joseph, Analyst

Thank you.

Operator, Operator

Thank you. Our next question comes from Rich Anderson with SMBC. Your line is open.

Rich Anderson, Analyst

Thanks. Regarding Enlivant, how binary is the decision? Is it in or out or are there multiple options available? Could it involve third parties, or is it straightforward?

Harold Andrews, Chief Financial Officer

The decision will fundamentally be about whether we buy or don't buy, while terms could include earn-outs or other structures. Those options will be on the table, but mostly hinges on what TPG requires.

Rich Anderson, Analyst

Okay. Regarding the occupancy level in the JV compared to the 11 wholly-owned assets, is there a reason the latter wouldn’t ultimately recover to full potential, or is the performance from our wholly-owned assets exceptional?

Talya Nevo-Hacohen, Chief Investment Officer

To start big picture: the 11 wholly-owned assets are concentrated in small geographic areas like Pennsylvania, while the JV spans across many states. Those dynamics change the profile of performance. Additional memory care facilities also impact its COVID spread. With fewer people moving out, the wholly-owned portfolio has remained strong, expecting rebounds to pre-pandemic levels quickly.

Rick Matros, Chairman and CEO

It’s a matter of time; we have no doubts the JV will recover.

Rich Anderson, Analyst

Okay. For you, Harold: the $100 million equity raise in Q1 reflects a cap rate around 80-ish. How quickly do you intend to utilize the ATM? Should a disruption persist, would you reconsider the component of equity raised?

Harold Andrews, Chief Financial Officer

We will execute when it’s strategic for us. Remember, we have room to be flexible with our leverage guidelines. Our goal is to move quickly on this, but we will monitor performance as it may change our timing.

Rich Anderson, Analyst

Okay. Thank you.

Operator, Operator

Next question is from Steven Valiquette with Barclays. Your line is open.

Steven Valiquette, Analyst

Thanks. Regarding COVID in the skilled nursing sector, you mentioned dramatic drops in COVID patients. Can you give qualitative insight on whether SNFs actively seek to treat COVID patients today?

Rick Matros, Chairman and CEO

Only a small percentage are actively pursuing COVID patients—definitely not more than 20%. While the majority are comfortable treating COVID, they aren't all actively seeking partnerships to treat them long-term, but that depends on facility configuration.

Steven Valiquette, Analyst

Okay. That's helpful. Appreciate the extra color.

Operator, Operator

Thank you. Our next question comes from Lukas Hartwich with Green Street. Your line is open.

Lukas Hartwich, Analyst

I’m curious about the acquisition pipeline. Are those opportunities concentrated in specific markets or are they distributed?

Rick Matros, Chairman and CEO

Yes, they are spread out all over, no particular focus.

Lukas Hartwich, Analyst

Thanks. Regarding the coverage metrics, for the unstabilized assets excluded from those figures, do you know the percentage of total NOI or rent not reflected?

Rick Matros, Chairman and CEO

Yes, it’s less than 10%. Non-stabilized assets have been excluded from those figures.

Lukas Hartwich, Analyst

Okay. Lastly, how has the specialty hospitals' occupancy fared over recent quarters—was there COVID-related influence?

Rick Matros, Chairman and CEO

No, they’ve been unaffected by COVID. Their dynamic populations fluctuate greatly with different patient types.

Lukas Hartwich, Analyst

Great. Thank you.

Operator, Operator

Thank you. Our next question comes from Joshua Dennerlein with Bank of America. Your line is open.

Joshua Dennerlein, Analyst

Just curious on the Enlivant JV; have you thought about the option of selling your stake when TPG looks to exit? Is that something you considered?

Rick Matros, Chairman and CEO

They have drag-along rights administrating this discussion; thus, we can't independently make that call without involvement from them. We considered selling our interest before, but not much materialized.

Joshua Dennerlein, Analyst

Got it. So you’ve thought about selling your stake before, and it just didn't work out. Thanks for the insight.

Rick Matros, Chairman and CEO

Our interest remains valid in maintaining our position within development discussions.

Operator, Operator

Thank you. I will now hand the call back over to Rick Matros for closing remarks.

Rick Matros, Chairman and CEO

Thank you all for joining us today. I know it went a little long. We’ll work to shorten up the front-end after Q1 as we start moving past this. We appreciate you sticking around, and we’re available for offline conversations if you have further questions. Have a great day. Thank you very much.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.