Good day, ladies and gentlemen, and welcome to the Sabra Health Care First Quarter 2020 Earnings Conference Call. I would now like to turn the call over to Michael Costa, Executive Vice President of Finance. Please go ahead Mr. Costa.

Thank you. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including the expected impact of the ongoing COVID-19 pandemic, our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plans. These forward-looking statements are based on management's current expectations, and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2019 and in our Form 10-Q that was filed with the SEC yesterday morning, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the financials page of the Investors section of our Website at www.sabrahealth.com.Our Form 10-Q, earnings release and supplement, can also be accessed in the Investor section of our Website. And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Mike. On the call with me are Talya and Harold and as soon as I finish my remarks, I'll pass it over to Talya and then to Harold and then we'll go to Q&A. First let me thank you all for joining the call. And I hope you and all your families are safe and doing well during this pretty tough time. So I’d first like to start the call by honoring and recognizing the staff in all of our facilities. I have the honor of years of working in facilities as an operator. I started as an activity director at nursing home. And so I start to see every day the kind of care that was being delivered and the other services beyond direct care that were being delivered, and how the staff in the facilities, whether they're skilled nursing, assisted living, memory care, independent living, become second families to the residents and patients that reside there. And the hospitals have gotten tremendous attention and support, and the staff are being cautious this year, which they are and all of that support is well deserved. And they're also being treated with a very high level of understanding relative to the tough staffing issues and the shortage of the supplies. Unfortunately, we haven't seen that from the media as it pertains to skilled nursing and senior housing. And early on in the pandemic, it was identified that the elderly were the most vulnerable population, while the elderly that are cared for in our facilities are even more vulnerable. And so we’re part of an effort to get some better PR out there, because our staff does deserve the same level of support and understanding that the hospital workers have gotten our facilities have not been prioritized, supplies are still…

Thank you, Rick. In my remarks, I'll provide you with the first quarter operating results of our managed portfolio. The first quarter mostly reflects the pre-pandemic environment and sets the stage for the broader impact of the spread the coronavirus that has followed. I will also provide you with insights into April's results, which will include real time data on senior housing operations amid the pandemic. In the first quarter of 2020, approximately 17% of Sabra's annualized cash net operating income was generated by our managed senior housing portfolio. Approximately 52% of that relates to communities that are managed by Enlivant and 33% relates to our Holiday managed communities. The balance includes our Canadian portfolio and five assisted living and memory care communities in the U.S. On a same store year-over-year basis, the managed portfolio, which excludes the Holiday portfolio and two recent acquisitions, showed favorable top-line results in the first quarter compared with the first quarter 2019. Revenue increased by 2.1%. Revenue per occupied room RevPOR, excluding the non-stabilized assets, was up 3.8% despite occupancy declining from 85.1% to 83%. However, cash net operating income decreased by 10.1% from $14.9 million to $13.4 million in part related to the impact of COVID-19 preparedness costs incurred in March by our operators. Occupancy remained fairly consistent during the quarter. But late in the quarter, operators began to incur unbudgeted costs for PPE and changes to the delivery of resident services, which together had a negative impact on cash net operating income and margin. I wanted to grasp briefly and describe what has transpired for operators and senior housing over the last 45 to 60 days, and provide context for that within our managed portfolio. In the face of the coronavirus, operators have had to retool nearly everything that they do and…

Thank you, Talya and thanks everybody for joining the call. I will begin my comments with an overview of the quarterly results and finish with some discussion around the financial implications of the COVID-19 pandemic going forward. First, I would like to note that the COVID-19 began in March, which for our financial performance only impacted our managed portfolio. The impact included cost increases and mineral loss revenues to lower occupancy. The cost increases included certain identified direct cost totaling $0.3 million in our wholly owned managed portfolio and $0.5 million in our share of the joint venture assets operated by Enlivant. These are costs that were directly related to COVID-19, such as incremental personal protection equipment, incentive pay, incremental staffing and incremental operational and cleaning supplies. We have normalized this $0.8 million cost impact out of our FFO and AFFO for the quarter, and we made no normalizing adjustments to revenues. And now for a few comments about the financial performance for the quarter. For the three months ended March 31, 2020, we recorded revenues and NOI of $149.3 million and $125.6 million respectively as compared to $155.8 million and $134.8 million for the fourth quarter of 2019, representing declines of $6.5 million and $9.2 million respectively. The declines in revenue and NOI were primarily due to the write off of straight line net receivables and above market lease intangibles, totaling $6.1 million associated with four operators move to cash basis accounting. These operators represent 3.1% of our total annualized cash NOI. FFO for the quarter was $86.9 million and on a normalized basis was $92.1 million or $0.45 per share. FFO was normalized primarily to exclude $5.8 million of the write off of straight line rent receivables and above market and lease intangibles mentioned a moment ago, and…

Thanks Harold. Why don't we go to Q&A now?

Hi, this is Josh [indiscernible] for Nick. So I was hoping to dig into the $320 million of state and federal assistance available for operators. I know you said not all operators plan to use the accelerated and advanced Medicare payment program. Could you give some sort of estimate on like the average amount of fund that the skilled nursing facility could receive like stripping out the funds that they don't plan to use? And then secondly, how many months do you think that relief could buy operators before they would otherwise need to request rent deferrals?

Yes. So I know and I still wanted to note someone made an attempt to do that, but that doesn't make any sense to us because every operator -- not every operator is accessing all the programs. So it's affecting every operator differently depending on what's happening with their operations, depending on how COVID-19 has affected the business. So if you just look at averages, I don't think there's anything about that that's helpful. Looking at that and trying to say, okay, this is going to help them for two months, depending on how much occupancy drops or whatever. I just don't think it works that way because the decisions the operators made with specific to their own needs and that's going to determine what they accessed or attempted to access and how much time that will give them. So the only thing I'd really say is, if you were told me two months ago that we'd be sitting here today, not having granted any rent relief that I would be surprised. And particularly on the senior housing side, because the senior housing operators don't have these programs to access, and so my, sort of opening comments about how our operators haven't been prioritized within the healthcare system, even less so for senior housing and for skilled nursing, right. And I think in our case, because the pandemic for all the reasons that Talya talked about hasn't impacted our senior housing portfolio, triple net or shop, as we've seen in some other places, it's enabled them to continue to move forward without any, any additional assistance. So I just don't buy the metrics. I mean, I get why people try to do it, just don't buy it.

Okay, thanks. That's helpful. And then just looking at the skilled nursing occupancy, it looks like it declined 460 basis points since February from just all the whole time elective surgeries. Have you gotten any indication of how quickly elective surgeries can bounce back at some of those states that have started to relax restrictions?

Yes, so it's a little bit hard to predict because, well, one thing I'd say, just generally speaking. There'll be a lot of pent up demand. So when it starts, I think the recovery will be much quicker than say, if you bought a facility say that had 20% vacancy rate, there's probably a lot of reasons to that, it's going to take you a long time to resolve that. This is different than a lot of pent up demand. The reason it's hard to predict because there are a number of states that have said they're starting elective surgeries, but if you actually drill down, you're starting elective surgeries for certain conditions. It's not necessarily blanket and all these places. So I think what we're going to see is, it's going to be a very market specific issue where we start seeing things ramp up. I will tell you that all of our operators have been in continual communication with the hospitals that are normally their primary referral sources. And so, they know specifically when they're going to be ready to go and they can take. Now, there may be some facilities that maybe had a big COVID break out, and they're just not ready to do the yet. But so majority of facilities, they will be ready. And I think in some of the geographic areas that really got hit, so Washington State was kind of ground zero, and we had a couple of North American and avenue buildings that got hit with pretty decent size breakouts. But since then, it's going to continuing within spreads to the other facilities that we have in the states. So, there's been a lot of recovery earlier on, when we have larger breakouts that going to enable these operators to start…

Thank you. Our next question is from Nick Joseph with Citi.

Hey, this is Michael Griffin on for Nick. Just circling back to the government assistance programs of your operators, do you have a sense of timeframe of when these loans have to be paid back on average? And how will your operators come up with capital sources to pay them back?

Well, it's different for every program, right. It's not all payback. So, the sequestration suspension, that'll get let say, next year, it looks like, that math isn't a payback. The important task delay, they're going to retain their employers. And the same thing with PPP, those aren't necessarily payback. The payback is with the advanced Medicare payment program and that's why very few of our operators have access to it. They work with their lenders to see if they actually could use it not use all the pay down in line. And so the operators avail themselves of that one piece just because there's enough going on in their company that they have a very high level of confidence that over the next year, which is when they have to pay it back, we'll be able to send it back. And in all likelihood, what will happen is Medicare may just take pieces of it over a period of time. So, there'll be some negotiation. So it's really just the one piece and no for operators having available themselves of that piece. It's just for a decent sized operator getting three months of Medicare in advance of huge numbers. So that's 150 million looks larger than it is in terms of the number of operators it's really impacting. Does that make sense?

Thanks. I appreciate that.

And then just to add to that, real quick, you can look on Slide 7 there's a lot of details in the description of how each one of these works. So as you have more questions, you can look there, and certainly give me a call, if you still have questions about that.

And just one more for me, you obviously done a good job lowering leverage recently, but should you see good external growth opportunities? Are you comfortable increasing your leverage in the near-term?

Harold, do you want to take that?

As I said in my opening remarks, we're actually not prepared to increase leverage beyond the levels that we've identified. There's going to be -- certainly, if there's some disruption and we see some rent relief that we have to provide, there is a chances that our EBITDA numbers will go down, which would naturally increase our leverage to some extent. So we had to be very mindful of that. I would just add that we're extremely focused on maintaining our credit rating. And certainly given what's going on in this environment, there is some risk, if they rating agency could look across the portfolio or I should say look across the whole space and think about downgrading. So we're just being very mindful about. What I said in my remarks, we're really going to be very cautious in our acquisition activity until we can continue to fund it matching funds with both debt and equity. So, we maintain leverage below that level you've identified as our target.

Okay. That's it for me.

Yes, the other thing I would add to that, I think from an asset class perspective. It looks like it'd be quite some time other than our development pipeline that we would be doing deals on the senior housing side. But in terms of skilled nursing, behavioral and addiction, those yields that we can see ourselves doing and work within our weighted average cost of capital.

Our next is from Steven Valiquette with Barclays.

Couple of questions, first of all, I do want to circle back quickly on that comment from a minute ago, I am a little surprised around the comment that SNF operators would not be accessing the advanced payment program. As really every company is just going to be paying that back out their future Medicare receivables and future revenue that they would have received from CMS down the road. So, it's really not even alone, it's just getting revenue early with really no penalty for doing so. Like every household, we spoken to said they're having that whether they need to or not, I am surprised that some of the SNFs are not having that. Just kind of a more of a comment than a question, but if you want to comment on that. Then the other question that I really wanted to ask about was, has to do with the accounting for your operators when they're reporting their EBITDA or back to you. Some companies are excluding COVID-19 operating expenses, some are not, seems like the stimulus federal grants in my mind probably should be counted as EBITDAR, but again these advanced payments probably not counted as EBITDAR. But just curious how you're thinking about any sort of standards for reporting this back to you from your operators quarterly when you're talking about EBITDAR coverage ratios down the road? Thanks.

I'll comment on the first and shift it over to Harold for the second. So on the first, I'd say a couple of things. One, they're determining what they actually need and if they're getting enough assistance from these other programs and they don't have to access the advanced Medicare program, they're not doing it. Secondly, depending on who their lender is, if that lender is requiring a complete paid down the line, which then do for every dollar they get, why would you do that, right. So, that's really why, they're just looking at it individually. If they don't want me to put themselves in that situation, if it were, if they try to be a little bit more cautious on when Medicare occupancy's come back or build up to a level that they think is more normalized. They just don't want to be in a position where they're having to pay that back or have those deducts later on, if the other assistance programs that they've accessed that seems to be meeting their needs, which is the case.

Okay. One real quick one, if I missed this. Does you 0.8 million of COVID operating expenses that you've stripped out of FFO for your managed properties, any sense for how much larger that number might be in 2Q and the remainder of 2020, if you're still going to exclude that from FFO, just approximation?

Yes, I think Talya had it in her comments, kind of what we were expecting. I think on an annualized basis for in my event it was about 425,000 per month. Now that's our share. That would be our share for about $5 million on an annualized basis, and then the others would be much smaller than that. I think holiday was quite a bit smaller, but I think it was let's see, 80,000 for the month of April in our live at Holy Oak portfolio and then for holiday is affects about $1.2 million on an annualized basis, about a $100,000 a month and we'll look, we'll scrub that and we would intend to pull it out on a normalizing basis most likely and report that so people can get a sense for what it is without those costs. And specific to reporting coverage’s to finish up on your first question. If you look on our supplemental on page seven we identified that have implications for our EBITDA, which would improve coverage going forward, which is basically the $100 billion program of which we had 60 million available. Obviously, the suspension of sequestration would have an effect on EBITDA and then EFAP, which is the federal medical assistance program that the federal government's giving to the States, and that number is about $20 million. And that's the number that's going to continue, hopefully to go up. We were able to identify 15 States that has made determinations of how they're going to utilize those funds and how they're going to impact, skilled nursing, and so there's a potential for that piece to go up higher. But those three areas do have a positive impact on coverage’s while as you point out the accelerated payment programs, employee payroll tax delay, those two items would not be reporting coverage. It is just short to medium term cash flow so they would not affect our coverage going forward. And then PPP is not a lot of our operators who can access that program given your limitations, but it will depend on whether or not those loans are forgiven whether they will be impacting covered. So initially, we will not include those in coverage until that impact is known impacts EBITDAR.

Thank you. Our next question is from Omotayo Okusanya with Mizuho.

Yes. Good afternoon. Question hi guys. Quick question around just the state of affairs at and various states, I think you're going to hear more and more about states say, their financials are in disarray as a result of COVID-19. They need bailout money or whatever you want to call it from the federal government. I mean, if that doesn't end up happening, how does one kind of start to think about the ability of states to kind of meet their Medicaid budget? So how does one kind of start thinking about Medicaid payments in the next fiscal year?

Yes, that's a good question. I don't really have a good answer. But I think that the question you pose is one of the reasons that when the 6.2% FMAP increase happened, we actually saw the relatively small number states pass that on, frankly, they should have to the providers. They're just keeping it for themselves. So I think, and maybe for all the reasons that you talked about having some money for rainy day or just patting things a little bit on the Medicaid side. In the long-term, I don't have a good answer for that. I mean, you've got a real safety net issue here that I think sort of on the positive side really is going to get re-addressed after we get through this, because it really hasn't been adequate. So how they juggle all those parties, and what roles the Feds play because the Feds play a critical role on their Medicaid piece, because even though, as you point out as a state by state issue, the federal matching huge pieces, how they meet those obligations. I think that kind -- we talked a little bit about this before, because some of it came up in the conversations way back about block Rams and Capita limits on Medicaid spending when you think about what Medicaid was put in place for the blind as already disabled, and since then it's been expanded right to become a community based programs are these waiver programs, I think those are vulnerable. And I think that's going to be something much more vulnerable than say Medicaid rates in skilled facilities, because Medicaid program was really never set up to do that. There were a lot of those things were put in place. I'll date myself, going back into the mid-80s. The policy was long thought that people don't need to be in nursing homes. So, we put reserve the problems in place, occupancy will then in nursing homes. It will pick up in community based program with Medicaid and will actually save money. Well, that never happened because she keeps going up and skilled nursing facilities. It turns out to be just a huge additional expense than it would have been in place before they give that so. So, yes, I'll have a good answer, but that's where I think it can be moved lower on our ability.

But all the states basically have to address it before their new fiscal year starts July 1st, right, so some decision after the meeting the next few months around this?

Yes, because that's usually when we hear about our state by state Medicaid rate increases and things like that. So, I have no sense of whether even to try to do, we can normally do or take some margin adjustments now that you will, we should have some sense of that whether they think they are going to have more time on their side or fed is going to help them more who knows Tayo.

And then I may have missed this earlier on, but could you just talk specifically about Avamere, again, the second largest tenant, so the rent coverage needs to be stabilizing now we're kind of flat for a quarter. So could you just talk a little bit about what's kind of happening there and kind of what you kind of see for the outlook for that particular tenant?

Yes. So, there on a quarterly standalone basis, they're brought about in the third quarter, they started improving in the fourth quarter and started improving more in the first quarter, they really benefited from PDPM. The whole big IT transition that they went through, which hurt their earnings -- basically last year, now behind them, and it's proven to be really effective for them. So for instance, the home health version of PDPM, PDGM, which is the larger news, as you probably know, is a negative to the home health industry that Avamere invested in is going to actually slight positive for them and their rates. So, we actually feel pretty good about the trajectory that Avamere has now and they've weathered the outbreak in Washington, they did get some help because despite my earlier comments about, not enough states got the help from if not that they got. We got it where we needed it the most. So Washington State was a state where we've been talking about how bad Medicaid rates have been. They already determined, a $29 rate increase effective July 1st. they put an additional $29 rate increase effective March 1st. And if COVID extend into July, they'll keep that. So, they'll have doubled the rate for a while. So that really helped quite a bit, not just Avamere, but we've got North American up there as well. And then Oregon was another state where some help was needed and they had a rate increase coming, but they gave a 10% Medicaid rate increase, effective March 1st. So, just as it turns out and then because the problems were so bad in Northwest even before COVID, there were so many facility closures and things like that, that the states really stepped up there. So, I think for Avamere, it's a combination of their own initiatives while they're executing on PDCM and the help they got on the Medicaid side in Washington and in Oregon.

[Operator Instructions] And our next question is from Daniel Bernstein with Capital One.

Hi, again my best wishes to everybody at your company, at your facilities and your families. So I have just one question. It's important to understand what the -- how much Medicaid is in your seniors housing and whether you think maybe any Medicaid aid from the federal government to the states could filter into senior housing?

We're all hoping for that Medicaid package that we have. And Talya, why don't jump in and we have virtually looking nothing there.

That's right Dan. It's so minimal that there's no one operator has a little bit and is operator with three buildings, not at all meaningful.

Trying to see, if there was a backwards way of getting some aid to the seniors housing folks, but that's all up. We'll chat later. Thanks.

Thank you. And I'm not showing any further questions in the queue, sir.

One of the topics I did want to address because one of the analyst had to jump off and shout us a note. So, there have been questions about telehealth and I would say that, we actually view telehealth as a positive. And Talya mentioned what Holiday was doing, which I think is really going to serve as well in the long run. Because for those I think folks are going to be concerned about entering into facilities like that, because of what's happened with COVID-19. I think anything that the operators can do to provide a greater sense of security is going to go a long way in the fact that how they do that from the get go, I think will work out really well for the long run. But beyond that, a number of our operators have been employing telehealth initiatives for quite some time. Signature health had initiated for several initiatives for several years. Avamere is doing it and a number of operators are doing it because they look at it as a way of providing more comfort, providing greater connection, because physicians don't visit facilities that often either in the skilled nursing side, providing greater connectivity to individual healthcare workers outside and will help provide care in place for a long period of time, particularly on the senior housing side. So -- and with assisted living and memory care and obviously skilled need based business and acuity is just going to continue to increase with all of them. And so, they're not individuals that can be cared for at home and less and less so on a go forward basis, relative to assisted living and memory care. So, we view that as a positive, so I just wanted to make a note that since we got a question right. And with that, I appreciate everybody's time today. Again, very healthier, I hope nothing but the best for you and your families. Please think about all of our workers and keep them in your prayers. Take care.

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