Sabra Health Care REIT Inc (SBRA) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT First Quarter 2017 Earnings Conference Call. This call is being recorded. I would now like to turn the conference over to Talya Nevo-Hacohen, Chief Investment Officer. Please go ahead.

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 pending merger with CCP, our other acquisition and investment plans, our expectations regarding our financing plans and our expectations regarding our future results of operations.

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, 2016, and in our Form 10-Q 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 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 those measures to the comparable GAAP results included at the end of our earnings press release and the supplemental information materials included as Exhibits 99.1 and 99.2, respectively, to the Form 8-K we furnished to the SEC earlier yesterday. These materials can also be addressed in the Investor Relations section of our website at sabrahealth.com.

And with that, let me turn the call over to Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Talya, and thanks, everybody, for joining us this morning. And we wanted to honor Chuck Berry, the father of rock 'n roll, with that song, so rest in peace. And so ready to move on.

Now I just wanted to make a couple of comments relative to the potential new reimbursement system from CMS. I made a lot of comments on it or several comments on it yesterday, but a couple of other points I want to make. One of the things that CMS is contemplating in the system, which again is budget-neutral on a revenue basis, is bringing back concurrent therapy. So operators will be allowed to use up to 25% of therapy revenues for concurrent therapy, and that's an important component because concurrent therapy is very efficient, and while the therapy revenue maybe a little bit wider because they will be able to do concurrent therapy again, at least up to 25%, that will enhance margins. So all in all, you're looking at a system that is budget-neutral and can actually be enhancing to margins, both because it's a concurrent therapy and as I mentioned yesterday, with having more complex nursing patients in the facilities, that would be a longer length of stay.

Now we'll move on to the pipeline. Our pipeline currently stands at $1 billion. That's inclusive of the $500 million that we included in 2017 guidance. That 75% of the pipeline is Skilled Nursing/Transitional Care facilities. The other 25% is senior housing. A good chunk of that 75% on the Skilled Nursing side are a couple of large portfolios. All the rest of the assets that we're looking at in the pipeline are more traditional bread-and-butter kind of deals, call it, $20 million to $80 million in price.

The CCP merger is not distracting from our pursuit of these acquisitions, so I want to make that clear. We haven't missed a step, in terms of getting LOIs in by deadline, and we won't miss a step in terms of execution and completion of those deals, assuming that we get awarded the ones that we're most interested in.

I want to comment again on strategy. We talked a little bit about this yesterday but our focus on expanding senior housing doesn't change with this merger. Clearly, and obviously, the merger ticks up our Skilled Nursing exposure from the mid- to high-50 percentile to the low-70 percentile. But as we got our Skilled Nursing portfolio down over the last 6 years, our intent is to do the same going forward. The merger, as we discussed yesterday, just has so many tremendous benefits. And as we saw with the press releases from S&P and Fitch yesterday, we will achieve our goal of having the best-in-grade ratings, so we feel great about that.

And so in addition to that, we've got our pipeline, our proprietary development pipeline, coming in and starting to materialize in the second half of this year. So from our perspective, we're in a better place than we've ever been and we look forward to the merger and look forward to balancing the portfolio and start expanding asset class diversification once again.

Now moving on to operations. Our Skilled Transitional Care EBITDAR coverage improved sequentially to 1.52 -- from 1.52x to 1.54x, again bucking trends in the space. Our occupancy improved sequentially 40 basis points to 88.6%. Our skilled mix was down sequentially 20 basis points to 43.6%. And I will make the same comment here that I believe I made on the last earnings call, and that is our skilled mix is so high at this point, we're just going to fluctuate a little bit up-and-down, up and around the margin so I don't expect a lot more upside there, given length of stay and how high it currently is.

Our Senior Housing EBITDAR coverage went down from 1.22x to 1.18x sequentially. And similarly there, as I -- similar to the comment I made on skilled mix, we expect our Senior Housing coverage to just hover kind of around there, up or down a little bit on the margins so we view it as very stable. Senior Housing occupancy is down 50 basis points to 88.9%. We think we're pretty close to the bottom there, and we believe, over the next couple of years as we see some absorption with development slowing down, that we'll see increases in the Senior Housing portfolio.

As expected, the Genesis fixed charge coverage came down sequentially from 1.24x to 1.19x, and I'd remind everybody that we report a quarter in arrears, and that quarter for Genesis was the quarter that was weak to them and where they missed guidance. They reported it a good quarter this morning, but in terms of meeting guidance, in terms of revenue, in terms of occupancy being up, so we expect their fixed charge coverage to sort of, again, fluctuate kind of around the margin, somewhere around that level and over the next couple of quarters and then expect to see some improvement going forward.

Holiday was down from 1.17x to 1.14x. And we talked a little bit about Holiday yesterday, and we noted on our last earnings call that we expected Holiday coverage to split slightly this quarter and probably the next quarter as they're going through the change in their operational model from that live-in model to their executive director model, which is the more traditional model. We think they're doing a great job on execution. Also, as I noted yesterday, their -- the margins for our Holiday portfolio, the EBITDAR margins are at 40%, occupancy is at 90% so they're doing really well.

And with that, I will turn it over to Harold Andrews. After Harold's finished, we'll go to Q&A.

Thanks, Rick. For the 3 months ended March 31, 2017, we recorded revenues of $62.7 million compared to $62.6 million for the first quarter of 2016, flat year-over-year due to the reduced interest income primarily from the exited Forest Park loan investments in 2016, offset by increases in rental income from acquisition activity.

FFO for the quarter was $35.4 million and on a normalized basis was $36.4 million or $0.55 per share, normalized to exclude a $1.7 million provision for doubtful accounts and loan losses, the recognition of a $1.4 million lease termination fee from Genesis and a $0.5 million of CCP merger costs. This normalized FFO compares to $36.9 million or $0.56 per share of normalized FFO for the first quarter of 2016.

AFFO, which excludes from FFO expense acquisition pursuit costs and certain noncash revenues and expenses, was $36.2 million and on a normalized basis was $35.2 million or $0.53 per share, normalized to exclude the $1.4 million lease termination fee described previously and a provision for doubtful cash income related to earnings from a prior period. This compares to AFFO of $34.8 million or $0.53 per share in Q1 2016.

For the recorded -- for the quarter, we recorded net income attributable to common stockholders of $16.3 million compared to a net loss of $18.3 million for the first quarter of 2016. Included in this 2016 loss was an impairment of real estate of $29.8 million associated with the Forest Park-Frisco disposition and a $4.6 million loss on sale of one Genesis asset having a high carryover book value from the split with Sun Healthcare back in 2010.

G&A costs for the quarter totaled $6.9 million and included the following: $2.6 million of stock-based compensation expense; $0.6 million of acquisition pursuit costs, which were primarily associated with the CCP merger; and higher than historically incurred legal costs, which increased over the first quarter of 2016 by approximately $0.7 million. We expect our recurring cash G&A for the balance of 2017 to be approximately $0.032 -- or $0.002 higher than the $3 million we anticipated on our prior earnings call, and that's on a quarterly basis.

During the quarter, we recorded a $1.8 million provision for doubtful accounts and loan losses compared to $2.5 million in the first quarter of 2016. Our interest expense for the quarter totaled $15.8 million compared to $16.9 million in the first quarter of 2016, and included amortization of deferred financing costs of $1.3 million in the first quarter of '17 and $1.2 million in the first quarter of '16.

Based on total outstanding debt as of March 31, 2017, our weighted average interest rate, excluding the borrowings under the unsecured revolving credit facility, was 4.55% and borrowings under the unsecured revolving credit facility have an interest rate of 2.98% as of March 31, 2017.

Our cash flows from operations totaled $31.4 million for the first quarter of 2017. We had very limited investment activity and no capital markets activity during the quarter. As of March 31, 2017, we had total liquidity of $495.8 million, consisting of currently available funds under our revolving credit facility of $483 million and cash and cash equivalents of $12.8 million.

We were in compliance with all of our debt covenants under our senior notes indentures and our secured revolving credit agreements as of March 31, 2017, and continue to maintain the strong credit metrics as follows: net debt-to-adjusted EBITDA, 5.27x; interest coverage, 3.99x; fixed charge coverage, 3.21x; total debt to asset value, 43%; secured debt to asset value, 6%; and unencumbered asset value to unsecured debt of 247%.

On May 8, 2017, our Board of Directors declared a quarterly cash dividend of $0.43 per share of common stock and $0.44 per share of Series A preferred stock. Both dividends will be paid on May 31, 2017, to stockholders of record as of the close of business on May 18, 2017. The common dividend represents 81% of our Q1 2017 normalized AFFO per share.

A quick update on our Genesis asset sales. On April 1, 2017, we sold one of the 35 assets previously targeted for sale for an aggregate sales price of $6.1 million. And on April 27, we executed a nonbinding letter of intent to sell 20 of the remaining 34 assets. We expect to close the sale of 20 assets by the end of the third quarter and the remaining 14 by year's end.

Finally, a few comments on our 2017 guidance. We expect 2017 full year amounts to fall within the following per share ranges: net income attributable to common stockholders, $2.15 to $2.19; FFO and normalized FFO, $2.24 to $2.28; AFFO, $2.22 to $2.26; normalized AFFO, $2.19 to $2.23. This guidance assumes approximately $500 million of future investment activity and an average annual lease yield of 8% during 2017, and assumes the completion of the previously announced dispositions of the 34 Genesis-operated facilities that will be completed in the second half of 2017. These dispositions are expected to reduce 2017 normalized FFO by $0.07 per share and normalized AFFO by $0.04 per share as compared to not disposing of those facilities during 2017. This guidance excludes the impact of closing the merger with CCP or any merger costs we may incur after the first quarter of 2017. Should the merger close as expected, we expect immediate annual accretion in excess of the 2017 outlook for normalized FFO and normalized AFFO of 14% to 16%. We also expect to provide an updated 2017 outlook after the closing of the merger.

With that, I guess we can go ahead and open it up to Q&A.

Yes. Let's do Q&A. Thanks, Harold.

(Operator Instructions) We'll take our first question from Smedes Rose from Citi.

I wanted to ask you something you mentioned yesterday, and specifically, if you were to include the leases that have corporate guarantees, what would your facility level coverage be versus what you show here without the facilities that have corporate guarantees?

Are you talking about the merged company?

Well, if you have it both ways, that would be interesting.

I mean, if you're just talking about Sabra, as you know, we -- when it comes to Genesis, we just -- and Holiday, we just report the corporate guarantees because that's what has got the most meaning. We don't provide facility-level coverage for Genesis and Holiday. We haven't done that and don't intend on doing that.

Yes. And just to add some clarification around that, when you're talking about an organization like Genesis which is a very large organization with significant overhead structure, just trying to isolate the asset level coverage when there's a lot of cost in the return at the corporate level, a lot of costs that are pushed down to the facility level, it's very difficult. And that's another reason why we just don't put it out there because it's not necessarily indicative of what those assets would -- of operations would look like on a standalone basis than outside of being a part of a larger organization.

And not consistent with how we would present facility P&Ls, which isn't a knock on them. Everybody's got different points of view, in terms of what they want to book at corporate and what they want to book at the facilities. But it's certainly, if I look back on the operational companies I ran, (inaudible) that would show up at the facilities level. So it's a little bit of an unfair presentation.

Okay. And then going forward, would you continue to, I guess, to present the weighted average fixed charge coverage, which I think you put in your -- at 1.14x in yesterday's presentation?

Yes. I think that's right. I mean, we may break that out at some level of detail. We haven't made that decision completely yet. I think for the purposes of where we're at today, we thought it was important to demonstrate to everybody what that was on an aggregated basis, combining the 2 companies together, including their assets and our assets that have significant fixed charge coverages. So I'm not going to commit to exactly how we're going present it going forward because we have some more work we need to do there, but we thought it was important to at least get that out at this point.

And I just want to ask you one other sort of bigger picture question. What are your -- what are the reasons for acquiring CCP? You talked about a lower cost of capital, specifically moving to an investment-grade rating on the debt side. But given the negative reaction in your shares over the course of yesterday and today, I mean, what do you think -- how do you think your cost of equity is changing here? At the end of the day, are you going to be at the same cost of capital all-in? Or do you think it could even be going up at this point versus where you were before you made this announcement?

Yes. So I'd say a couple of things. I mean, yesterday's activity was all ours. And you see that in these kind of deals. It was all our activity. We don't know exactly what the cause of today's activity is and maybe I'm a bit jaded from having been running publicly held companies for 25 years, but I'm not going to get bent over 1.5 days of trading because it was all ours yesterday. We have a lot more outreach to do and a lot more education and a lot of things to absorb here. So I'm not going to come to a conclusion based on this short period of time as to what the reception to the deal was. I think that's really premature. And I think if I was to do that, it would be a knee-jerk reaction and I don't make strategic decisions in that fashion. So we think that this is a really fantastic deal for all the reasons that we articulated yesterday. Those reasons are all tangible. And I think the market will get it, given some period of time. And particularly, the one issue that seems to, I guess, raise the biggest concern is that the CCP rent coverage, as we said yesterday, which had made pretty dramatic moves there and still have AFFO accretion of close to 10%, and that's assuming that we make the most sort of extreme -- take the most extreme actions just based on that, that we would take to get the coverage up to the point where no one would really be concerned about it. So we have a lot of cushion there. And again, I just think we'll execute and the market will see it and it will absorb this, and I think we'll be fine.

Moving on, we'll take our next question from Chad Vanacore from Stifel.

So Rick, you, I mean, you had mentioned that maybe the price action on the Sabra stock post-CCP merger announcement, that maybe the market's not getting something. So what do you think the market's not getting that you see as value in this transaction?

Well, so yesterday, as I said, yesterday was all our activity, and it was almost what you would expect on the CCP price being pushed up and a bunch of guys shorting our stock. I mean, we traded, on a combined basis, 13 million shares yesterday versus an average daily volume, on a combined basis, of 1.1 million. And so today, we've only had a few hours of trading and we're trying to understand what's causing it. We think it may be just more focus because there are more eyeballs now on the CCP portfolio relative to coverage. But I don't know if that's a fact. So we'll be taking more calls and trying to assess what that is. But I put yesterday aside. Today's a different deal. And we need to figure out what's causing the activity today.

Great. And then just thinking about the Genesis portfolio, we saw a slide in coverage going in the fourth quarter but Genesis reported this morning, it looked like occupancy was better and it looked like coverage was stabilizing. Do you feel like coverage on that portfolio has stabilized here? Or is there some more work to do?

I think it's stabilized. I think Genesis management would say that they expect somewhere around flat performance for 2017. And I think they said that at the last quarter, as well and expect to see some updraft as they go into 2018. And I think all of us expect [mid-] volumes to start improving as we go into 2019, if you look at the supply/demand numbers and 85-plus beneficiary group is growing. I think if the industry pressures haven't sort of bottomed out, I think they're -- I actually think they have bottomed out. So I look for relatively flat performance across most of the space, at least that you guys have visibility to, and then some upswing after that.

All right. And I think that flat is good in this case.

Absolutely.

So I just want to follow up on Harold's comments about the Genesis dispositions. You gave us some timing to expect. But I think you said $0.07 of dilutions expected. Is that net of reinvestments? Or is that just on straight dispositions?

So that would just be, Chad, based on straight dispositions. And the reason I point that out is to help the analysts try to think about the timing of the dispositions and how it affected our guidance because we have those asset sales occurring starting at the end of the third quarter, and then the rest of them being taken care over the balance of the year. And I'm not sure all the analysts have accurately modeled that timing, just based on some of the numbers I've seen out there. So I just want to make sure everybody understands that, that's the impact that's coming out of our guidance numbers. If we didn't sell those at all and they just stayed in our numbers for the rest of the year, that's how much more our guidance numbers would have been for comparison.

So when we reinvest those proceeds, obviously, that number shrinks pretty dramatically, almost close to nothing.

Right. So when you think about -- but when you think about the $500 million of assumed acquisitions, right, that's kind of baked into the numbers in a similar time frame. So the guidance incorporates all of that -- those data points.

Moving on, we'll take our next question from Rich Anderson from Mizuho Securities.

So I guess, part of maybe the market interpretation is when they see big accretion, they think risk. And I think what you're getting is 1,000 basis points lower occupancy with CCP and the coverage issues. You mentioned 20% of the combined portfolio will be below 1 coverage. Is that correct? I just want to make sure I have that right. That was your estimate from yesterday?

That is correct. That is -- if you took the coverage today, let me -- and I'll point something out that I think is important. That 20% assumes that we're using our 5% management fee convention in calculating that number. Previously, CCP used a different -- a 4% convention. And so you can't really compare apples-to-apples. Our numbers are actually worse, if you will, than their numbers were before and it's still just 20% of the combined portfolio that falls below that one time.

As we mentioned yesterday, Rich, it's -- one, it's 2 tenants that are over half that, one that's just about half that. So -- and most of the rest are not material.

Wait. Say that again, Rick? I missed that.

There's one tenant that's approximately half that 20% and then another one that's a couple of percentage points. And after that, the others are pretty -- are really immaterial. So addressing the issues with that one tenant is critical for us and we will be focused on it. And that tenant has other partners in our space, as well. So -- and I think we're all focused on it and I think you all [are getting a handle on it].

Can you give some -- can you quantify it? Is it like 0.99? Or is it 0.6?

It depends on what it is. Sorry, Rich. Is that -- are you talking about a specific tenant? Or are you talking about some...

No, no. I mean, like how below 1 is the -- is this 20%?

Well, it's across the board. Let me describe it this way. I think we could put a little context around it. If you took -- to get all of those tenants back to a 1x coverage, approximately 25 -- it represents about $25 million of rent. So less than 5% of the combined portfolio is rent and now we've put all of those tenants at a 1x coverage.

All right. So then, but you would need more than $25 million of a cut to get to a reasonable level, not just parity, but something more than that?

Well, if you were to take that cut -- let me put it to you this way. If you were to take that cut and then -- and apply it to those tenants and then look at the overall portfolio coverage, the net -- that coverage for those assets that don't have significant guarantees would go up to the mid-1.3 range, so around 1.35. And then that fixed charge coverage group that was about 1.14 would just come in around 1.2. So -- but when you think about a cut of less than 4%, and again, this is not to indicate that's what we're going to, so I want to be clear on that. I'm trying to put some math around it. If we were to adjust rents or rents were to be adjusted by $25 million, you'd have a portfolio with around 1.35x coverage and you have fixed charge coverage on an aggregated basis of around 1.2x. And let me be clear, that's assuming you kind of resolve the issue with the one tenant because that's an anomaly and we are going to deal with that. But that $25 million rent adjustment would also include getting there at that level coverage to 1x.

I was going to say 1 -- 1 -- and that gets you to 1x. I understand it improves the portfolio overall but you still would want the 1x to be something more than 1x, right, I mean, at the end of the day?

You would, Rich, but remember, it's really one tenant that's driving half of this. So we'll address it with that one tenant. And this isn't just a function of, oh, do you want to give these guys rent cuts. We're not necessarily going to go down that path. There are sales to consider, as well. And when you do those sales, you reinvest those proceeds in operators of your choice. So there are a number of ways to look at it. It's not just looking at it from a rent cut perspective. I think that's way too narrow. We're going to improve the coverage of the portfolio. And as we're doing with Genesis, if that means that we do some sales, then we do some sales. And you guys see what's been happening with us in a standalone basis. As we narrow our exposure to Genesis, we bring more SNF operators into our choice. If you look at our SNF stats, they're really good. So I would apply the same thinking there when you take a look at it. And even if you were to do $25 million in straight cuts, which, again, that is not our intention so I don't think anybody should expect that, that still does leave the deal at close to 10% accretive.

Okay. On Slide 4 of your presentation for CCP, what's the difference between SNF EBITDAR coverage and total EBITDAR coverage, since most of the portfolio is SNF?

No, that's the combined -- on a combined basis. That's Senior Housing, specialty hospitals, the behavioral hospital, all the other assets that are on a combined basis. And there's other -- there are a handful of Senior Housing and the behavioral hospital, obviously, in the CCP standalone portfolio.

(Operator Instructions) Moving on, we'll take our next question from Tayo Okusanya from Jefferies.

Two questions for me. The first one, Rick, just going back to your comments on the proposed change to the CMS reimbursement. Given that, yes, it's meant to be budget-neutral, but again, as you mentioned before, you see a lot of shifting between the boxes especially from physical therapy more towards the nursing care box. I mean, when you kind of see all that, where do you kind of think -- which operators do you think end up in trouble because of that change? Which operators do you think benefit? And what would you say is your exposure to each of those 2 buckets?

Okay. So let me go back a little bit. So on the therapy, one of the things I want to be more specific about here because I think it's a good change in the model, therapies aren't lumped together anymore. PT and OT are going to be separated from speech therapy and that's important because speech therapy has a different cost and revenue component associated with it. PT and OT, they are a little bit more similar. Secondarily, there will be a non-therapy ancillary category and a nursing category. So now to go to your question about so who benefits and who doesn't. One of the problems, if you go back to RUG IV, was that it didn't provide an appropriate incentive on the nursing side and even though they brought down therapy revenues, mostly operators looked at it and said, hey, there's not enough incentive for us in the nursing side, we'll take the rate increase, and there's -- and we still like the therapy margins so we're going to pursue that. So it's all a function of whether they balance it better now and provide the right incentives. Operators always, always follow the money. So the operators that have been focusing on high acuity, even if a lot of that focus has been on rehab, should have no problem expanding their clinical capabilities to provide more complex nursing medical care, whether it's pulmonary, dialysis, whatever the case may be. And we see that with a number of our operators. I think in our portfolio that our operators get that. Some of them are already doing a bunch of the complex medical stuff because they're in states where the state Medicaid system actually supports that kind of strategy. And so I actually am not concerned about our portfolio. I'd say similarly, with the CCP portfolio, their skilled mix is actually really good. Their problem is really their overall occupancy. And I'm just noting that on an aggregate basis. It's obviously different between operators. The losers in this are going to be the more traditional mom-and-pops, the traditional long-term care model and that's a big chunk of the industry. And that should provide some opportunities for other operators who want to grow and can buy assets with a lot of upside potential because they've essentially been under-managed. And now you may hear some say, we still think there's a lot of stability in the long-term -- traditional long-term care model and the Medicaid model. And I would say a couple of things to that. One, it's market-specific. So in a major metro market, I do not think that's a good model in any of the major metro markets and I think that it's going to continue to decline there. In the smaller markets, just the more secondary and rural markets, where there's less competition, there's less facilities, say, within a 10-mile radius, I think those models can exist for a longer period of time. And they are stable because they typically have longer length of stay, higher occupancy and lower labor costs. However, even there, you'd have to be careful because, well, it's different on a state to state basis. On an aggregate basis, the average Medicaid increases annually across the 50 states is 1% or 1.5%. Your costs are still going up more than that. So you've just got declining returns there. So -- and that's why I've always emphasized our focus on skilled mix and our focus on acquiring operators that really know how to deliver high acuity. So that's probably maybe a longer answer than you were looking for, but I wanted to give a broader overview of my view of the changes.

Okay. That's actually very helpful. And then the other one is more about the CCP portfolio. Again, they reported but didn't really provide their supplemental, so it's kind of hard to kind of say what's happening with the rent coverage in -- across the portfolio. Is that something that you can discuss with us or not?

So there are only a couple of things that I can say. One is we're going to be having a discussion with them about putting out some additional information because I don't think either one of us wants to think that -- wants the markets to believe that because they didn't put out a supplemental, that implied any deterioration in their rent coverage because that is not the case. So if you look at their rent coverage from their previous earnings announcement, in their supplemental, things did not deteriorate. So that had nothing to do with not issuing the supplemental other than they're the acquired target. And more often than not, as you know, limited information then goes out on the acquired target. So they may make a decision to put out the supplemental just to reassure everybody that there was no deterioration for that, and we'll have that discussion with them. But at the end of the day, it will be their decision. But I can say to all of you with certainty that not putting it out does not indicate that there was deterioration. That's not the case.

Moving on, we'll take our next question from Eric Fleming from SunTrust.

On the $500 million pipeline, does that reflect any of the $100 million plus in development opportunities coming online later this year?

No.

So the additional development would be on top of that?

Correct.

Okay. And then just on the pipeline in general, going from $500 million plus to $1 billion, this would sound like the Senior Housing opportunity didn't change. Is there anything -- obviously, skilled opportunity seems like there's exponential skilled opportunity, but what about the Senior Housing pipeline?

Yes. I mean, the Senior Housing pipeline's been really busy. It's just that it's more sort of our bread-and-butter size, where on the Skilled Nursing side, we just happen to be seeing a couple of pretty sizable portfolios. And I don't necessarily think that's indicative of a trend. I think in the cases that we're looking at, there are specific events relative to the principles in those companies that have triggered a desire to sell as opposed to sort of anything happening business-wise or sector-wise that should portend some new trend. So it's just coincidental, if you will, that we've got a couple of big portfolios in there. So the Senior Housing pipeline has been fine. It's been a steady stream of yields coming in. It's just more bread-and-butter size, so it gets outsized by those 2 large senior -- large SNF portfolios.

Okay. And just one final item on Genesis. You've previously indicated interest that you'd be willing to sell down to 0. Kind of where does that stand now?

That has not changed. And I think the key point there is we want to manage our FFO growth on a year-over-year basis. So in terms of how quickly we can move on that once we finalize the sale of the existing 35 that have already been discussed, we want to make sure that we have kind of enough growth in the bag, if you will, so that we won't have any dilution to earnings. And actually, we'll have net growth as we pursue sales of the Genesis facility. And so the other way to sort of think about that too is to the extent we do more SNF, Skilled Nursing deals in the short run, and again, these would be, obviously, operators of our choice, where we really like their business strategy relative to high acuity, we like their skilled mix. Then you're really just stubbing out SNF exposure with Genesis for SNF exposure with operators of our choice. Maybe there are timing issues there, but so to the extent that some of those deals in Genesis coexist for a while and you've got a spike in Skilled Nursing coverage as the Genesis -- as the additional Genesis sales are consummated, then that skilled coverage will come down.

(Operator Instructions) Moving on, we'll take our next question from Todd Stender from Wells Fargo.

Can we hear just a little bit more detail of what went into the decision to convert the Canadian portfolio to RIDEA? Maybe talk about what the motivation for the operator was and maybe any fundamental upside that you see.

Yes. So I have a couple of comments. One, traditionally, in Canada, that's how they do deals. It was a little bit different initially with us because they virtually acquired it from -- we were going to transition that portfolio to a large Senior Housing operator from the U.S. who wanted to start having a presence in Canada. And so they had a more traditional triple-net kind of mindset because they were coming from the states. As we were spending more time in the portfolio, we started believing that we were really going to be better off with an operator who's in Canada. We'd like to grow there, someone that really knows and understands those markets. We were getting a little bit concerned about the ability of the operator that we had initially intended to do the deal with to acclimate as quickly enough as we would like to see in Canada, and provide additional growth opportunities. So Sienna is the operator that will be taking on this portfolio for us. And they are a publicly held company in Canada. And we know that a lot of folks on the call know them and everybody thinks really highly of them. They are a very good operator. They execute really well. They had another good earnings quarter. They do long-term care as well as senior housing, although we will not be doing long-term care up there but a little on the private-pay senior housing. So as we spent some time with them, we really thought it was going to be advantageous to us to have one of the top operators in Canada, as highly respected as they are, operating our portfolio wanting to grow and wanting to have a capital partner they can grow with. So the upside opportunity going forward was meaningful, in terms of how we thought about it. Secondarily, even though as a management agreement, it's still not [even rounding into a] portfolio. So we don't have a strategy or goal when it comes to RIDEA. Nothing's changed from what we've always said, and that is we'll do it where it makes sense for both parties. It will never be material. It's not part of our strategy to get heavily invested in RIDEA deals. So it will be very sort of deal-specific and operator-specific. But you shouldn't look at that as an indicator of where we want to go. I spent most of my adult life in operations. I don't need to be doing it again.

How about operating upside or occupancy or rate? Any context about what the upside is?

Yes. All of the above.

Okay. And then I think one of the biggest questions we get is, just to get a sense, just shifting gears, about how deep the buyer pool for Genesis assets is. So maybe can you characterize the folks that you're speaking to? Who's in the market for stuff? I think you mentioned, maybe it was yesterday, you're selling at a 9 cap. And maybe just talk about how deep the pool of buyers is, just for Genesis-type stuff.

Yes. It's a really deep pool. I mean, one of the questions we get is not only is how deep the pool is for Genesis buyers, but are there enough buyers out there to absorb the Genesis assets, the -- both in living assets, the kindred assets. And so one, it's not that many assets when you think about it in the context of 50 states and 15,000 Skilled Nursing facilities on a market-specific basis. It's actually not that much to absorb on a market-specific basis. So that's the first comment. The second comment is there's a, and I've said this before, there's a huge disconnect between the private market and the public market. Unfortunately for you all, you've got very few public data points, whether it's Brookdale or Genesis or all the stuff with Medicare over the last 6 years. Ensign reported a good quarter. They're really good operators but they had a few weak quarters before that. So you've got few data points and the data points you have, have not been very good. And so understandably, you sort of extrapolate from that to how things are going generally. But the private market is different. The private market are operators that are on the ground, that have been in the business forever, that currently have companies they operate, and to pick up from their perspective is under-managed facilities in a particular market, when they already have the infrastructure in place, that's a straight pull-through to their bottom line. And plus, obviously, they think there's upside in -- once they acquire those facilities because it's going to be part of a smaller portfolio that, as in the case of Genesis, a part of the company that's got 500 buildings and there's just only so much you can focus on at any given time. And so in some cases, those operators have the capital resources to acquire it themselves. In other cases, they have finance sources that they've been working with for a while. In some cases, maybe a ton, in some cases, not. We're also seeing a sovereign fund showing a big interest in Skilled Nursing. And so you saw that with the Welltower [Cindat] deal. And there's been -- and there's a lot of interest on the part of others, as well. So that's sort of a new twist of what we've traditionally seen in the private market for the Skilled Nursing assets. So that just makes it even better, in terms of having more opportunities. So when we look at selling Genesis assets, when we think about remaining Genesis assets, there are a number of opportunities available to us. You can sell them to a bunch of different operators in pieces, or potentially, you may even sell bigger chunks to one of the sovereign funds or the other buyers that are involved in JVs with some of the other REITs out there. So just a lot of opportunity, a lot of competition. I think one of the reasons that you haven't seen cap rate expansion on the skilled side, with all the assets that there are for sale, is because there's so much competition for those assets. We have a lot -- so any one asset that we put on the market, there's a lot of competition for that one asset. So I would expect that to be the same because when you think about operators in the ground, they're in the business. They love the business. And there may be some pressures now and again, but over -- and as you know, I've operated every pretty much every kind of health care asset there is. So one of the commonalities over the past 40 years has been Skilled Nursing and it's really been a remarkably stable asset class. And that really how the operators on the ground look at it. And that's why there's been so much hunger for more assets.

Moving on, we'll take a follow-up from Rich Anderson from Mizuho Securities.

So I was looking back at the transcript from the third -- from the fourth quarter with CCP, and one of the things that they mentioned actually in response to a question of mine was that the 12 or so master leases that were below 1 EBITDAR coverage would -- or 50% of that, in dollar value, would be above 1 by this time 3 months later. I'm just curious if that time line is consistent with the way you're thinking. So in other words, you're going to get maybe some sort of rent adjustment from you guys, you're not committing to that, but what -- some sort of event, plus just the natural recovery, in and of themselves, from these 12 master leases. Is that still the line of thinking? And if so, what's the time line to that recovery because it doesn't look like it's now, like they indicated last quarter?

Yes, so we've never counted on any sort of natural organic recovery when we did our analysis and we decided to do this merger. So that was never part of it. If that were to occur, obviously, that would be great but I think a couple of things are going to happen from our perspective. One, as I mentioned yesterday, we want to -- all this is sort of math. We want to qualitatively understand the operators better and we'll start spending time with them, sort of, sooner than later. And what I mean by qualitative is because we have operating backgrounds here. It's really to understand what their business plans are and see what kind of feedback we can give them on those business plans, if there's any value that we can add there. Our asset management team are all operators. They will be spending time with them, as well. We want to get a better understanding on those operators in the CCP portfolio that do have other sources of revenue, that give us a comfort level on coverage regardless of what the actual facility base coverage is and just their ability to give you the check every month. And so that's the kind of thing that we need to look at so we can have a better qualitative assessment of whether we think that they are going in the right direction. And our conclusions, based on that analysis, will determine the course of action that we take with those tenants.

Okay. Fair enough. And so you said a big chunk of that is a single operator. So a single operator is running a bunch of these master leases. Is that right? Because there were 12 master leases.

Hang on. Hang on 1 second.

I think that's right, Rich. I think a lot of those -- I think that one single tenant has multiple master leases. So I think...

Moving on, we'll take our next question from Jonathan Hughes from Raymond James.

Just one. Rick, you just mentioned earlier that cap rates haven't moved higher due to capital chasing the space but in the release this morning from CCP, they just disclosed they sold $250 million of SNFs at about 9.5 cap. It seems like that indicates they've moved up a little. Can you just square that with your earlier comment, maybe explain the difference with those assets?

Yes. So I don't know those assets well enough to know why they went at a 9.5 cap. Prior to that announcement, we haven't seen really a change. So I don't know if that is indicative of a change or it's specific to those assets. I would tell you that -- I mean, we just signed an LOI for 20 Genesis assets at...

A 9 cap.

9 cap. So that was consistent with what we're seeing, and none of the activity in terms of the bidding process around the other 14 that we still are in the process of finalizing are higher than a 9 cap. So I just don't have enough information, and there hasn't been enough time to better understand that. But we're not seeing that from the Genesis stuff, so I don't know if that's specific to that portfolio or maybe it is the beginning of some cap rate expansion.

Yes. And I would just add to that, Jonathan, that, that portfolio that we signed the LOI for, there were multiple bidders in that same price range. So it wasn't -- it was indicative of that's where the market seems to be shifting for those assets.

Yes. That's really -- that's an important comment. So in this whole process with Genesis, there's been very little differential in pricing between all those bids. It's really been a function of who we thought really had the ability to close, what kind of stuff went into the documents, those kinds of issues as opposed to pricing because pricing's been really tight.

And at this time, I'd like to turn the conference back over to Rick for any additional or closing comments.

Thank you. So just a couple of things. One, we are doing a non-deal roadshow in Boston and New York next week so I look forward to seeing some of you there and at NAREIT in June. The other comment I would make is when it comes to -- because there's been so much focus, it seems, on some of the underperforming assets within the CCP portfolio, so I'd say two things: One, the majority of that portfolio does really well and they've got really good operators. And so in terms of the underperforming assets, we like the challenge of dealing with that. I've dealt -- that's -- my whole career is built on dealing with that, whether it's been turnarounds or the bankruptcies I've done. We've had some challenges here, as we've grown Sabra that we've dealt with expeditiously with positive outcomes. And so that's an upside for us here. And as we've said and really, at the risk of I guess, sounding a little defensive because I don't want to be, there are so many positive attributes to this deal and we've got so much room -- breathing room here to address these issues and still have a deal that's really nicely accretive on top of all the other benefits and some of which have already been realized, when you look at the press releases yesterday from S&P and Fitch. So we're looking forward to it. We're excited about it. And we're excited that we have a management team over at CCP that's just fantastically cooperative, working with us and transparent with us. It's a very friendly, great relationship. So we'll be available for additional calls. Please feel free. I know you guys aren't shy. So I look forward to chatting with you and seeing you on the road. Thanks very much for your time today.

And again, that will conclude today's conference. We do thank you for your participation.