Sabra Health Care REIT Inc (SBRA) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Sabra Health Care Third Quarter 2020 Earnings Conference Call. (Operator Instructions) As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Michael Costa, Executive Vice President of Finance. Please go ahead, sir.

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 to differ materially including the risks listed in our Form 10-K for the year ended December 31, 2019, and in our Form 10-Q for the quarter ended March 31, 2020, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments that we make today are still valid.

In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at www.sabrahealth.com. Our Form 10-Q earnings release and supplement can also be accessed in the Investors section of our website. And with that, let me turn the call over to Mr. Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Thanks, Mike, and welcome, everybody, to our call. Appreciate everybody participating. First, let me just start off by thanking all of our caregivers and all our front-line workers. We're 9 months in now to the pandemic, and they really haven't had any breaks or any relief and continue to show up every day, and it's just that we just look at that with awe, that they continue to do that. Their commitment to taking care of our patients and residents is just, first and foremost, in their mind. So we'll never be able to express our gratitude adequately.

I also want to thank the government for the stimulus funds for the skilled nursing space and now the assisted living space as well and their partnership on protocols and standards to address the virus. We are in better shape now than we were several months ago. We'll talk about that more as the call goes on.

I also want to note that the majority of the states that we're in made moves to help on FMAP as well. When I finish my remarks, I'll turn it over to Mike Costa, who will take you all through a detailed presentation on everything related to the stimulus and the impact on the facilities and all other related assistance. There is still $30 billion of CARES Act stimulus left.

There's Phase III $20 billion is already -- is in the process of currently being distributed. We do expect another stimulus package once the election gets settled as well as an additional extension beyond the one recently announced of the PHE Act, which extends skilling in place and the FMAP add-on.

I also want to note, and this was an important event for the industry, the deal that the government cut with Walgreens and CVS to provide free vaccines for our patients, residents and employees. We still believe that the path to normalization comes ahead of the vaccine, and that's with more and more testing. Once -- we have more testing now than we have obviously had in the past. We still don't have enough. But once we get to really adequate and effective rapid testing, we'll begin the path to complete normalization in the facilities.

We'll be able to test quickly, screen people better and have a more normal environment within the facilities because the social isolation component of dealing with the pandemic has been extremely tough on our patients, our residents and their families.

I've been skeptical, as a lot of you know, about the vaccine and when it's actually going to be distributed. In the last week, Mark Parkinson, the CEO of the American Healthcare Association; and Seema Verma, who runs CMS, both commented that they think the vaccine will be ready for distribution in all of our facilities over January and February. I don't know if that will be the case. Hopefully, it will be the case. If that does turn out to be true, then it will accelerate the normalization of the business.

One of the questions that I have about that is I think the intent is to mandate it for everybody. And I'm not sure you can mandate that, our workers and patients can actually have to take this because if they don't, what do you do then? If 1/3 of the staff decide that they don't want to take the vaccine, they don't want to be first in line, does mean they can't come to work and you don't have enough folks to take care of patients and residents.

So we'll kind of see how -- we'll see, obviously, how it plays out. So -- but I'm cautiously optimistic, but we'll still see. So I still have some level of skepticism there and still focus on testing as being the most immediate answer to the challenges that the space is currently facing.

I would also note that a lot of the conversation that we've all been having is focused on the top line and occupancy recovery. But it's important to note that we'll start having margin recovery ahead of occupancy recovery and, in fact, are already seeing that in different areas of the country.

As certain areas of the country have been clearer than others with COVID, there are steps being taken by a number of operators to start normalizing the socialization aspects of the facilities and to start having smaller group activities and recall that, based on protocols, almost everything, not almost everything, everything is really one-on-one in the facilities.

No group dining, or group activities, no group therapy. But as that -- if that starts to normalize, we'll see those labor expenses come down. So we will start seeing margin improvement ahead of occupancy improvement. Similarly, on supplies, and specifically in regard to PPE, our operators are starting to have more success building inventory. And as they continue to build inventory, those costs will no longer be recurring, and so then that cost comes down as well. We're already seeing that in a number of the operations as well. So I just want to point that out. So we're not solely focused on occupancy as a means to recovery.

In terms of our operational trends, our top skilled operators, as shown in the supplemental, share occupancy gains from the first week of August through the last week of October were 50 basis points. Skilled mix for those operators at the end of October was 190 basis points higher than pre pandemic levels. From the February average through the month of October average, those operators were down approximately 10% with October, 100 basis points higher than our low point in June.

So in other words, occupancy has been slowly building. It came down a little bit as we started spiking all over the place in the first weeks of October and then started picking up again at the end of October. The aggregate skilled nursing portfolio is down approximately 800 basis points from the February average through the end of October.

Skilled mix is higher in our top operators' than in the rest of the portfolio with the smaller operators as a whole, but all the trends are similar regardless of the operators that we're looking at and regardless of what their skilled mix is. So for those operators not in our top 10, they also have higher skilled mix than pre pandemic levels, just not as high as our top 10 operators.

EBITDARM coverage, as noted in the PR, was up sequentially, thanks to government assistance. Excluding the provider relief fund, we are pleased to note that our skilled portfolio for the trailing 3 months would have been above 1x. Senior housing triple-net, which only recently received federal assistance saw coverage lower as expected, but with the anticipated continuation of assistance, we should see some stability, particularly since the lease portfolio occupancy, as noted, has held up relatively well, all things considered. The leased senior housing portfolio is down 340 basis points from the February average through October. Talya will provide details on the managed portfolio.

Through the end of October, we had 304 communities that have been impacted by COVID, 209 of those have fully recovered. As noted on the last call, rarely do we see large outbreaks at this point, and an increasing number of facilities with positive tests are now employees only. So we'll have 1 or 2 employees test positive. And the issue is that, I'm sure many of you are aware, is that the median age for those contracting COVID has dropped dramatically into the 30s.

That's a lot of our workforce. And even though these folks are screening before they come to work, they're almost always asymptomatic, however, still infectious until they come into the buildings, and they'll infect folks. So that said, the operators have done such a good job with isolation and protocols and infection control, adhering to all those guidelines that even when an employee who's asymptomatic and has COVID comes in and they infect other residents or patients, we're still not seeing any big breakout.

Out of all of our buildings, we've had 3 outbreaks of, call it, 8 or 9 or 10 or more. In almost every other building, it's 3 or less. So they've done a really good job with that. And given the fact that we're seeing all these spikes all over the country, and we're still seeing those results, we feel pretty good about minimizing the disruption to the business as compared to what we saw in March and April when we were all trying to figure this out.

Let me move now to acquisitions. We've completed $154 million in investments at a blended yield of just under 8% with the exception of one of those acquisitions, a preferred investment, that all came through our development pipeline. Our acquisition pipeline is active, at approximately $600 million. It's primarily senior housing, although we are seeing interesting skilled deals, but there's still a disconnect between buyers and sellers in both asset classes.

We do anticipate some shift after year-end as banks that have been forgiving defaults and specifically, actually, in senior housing and with the smaller operators, we believe, based on what we've heard, that after year-end, they'll start exercising our legal remedies. So there may be some opportunities after the first of the year. So it remains to be seen, but that's the way things look right now.

And with that, I will turn it over to Mike Costa. Talya will follow Mike, and then Harold will follow Talya, and then we'll go to Q&A. Mike?

Thanks, Rick. I'll be giving an overview of the various federal government relief packages enacted in response to the COVID-19 pandemic as well as providing details and recent developments for the major components of these relief packages. The federal relief packages generally fall into 3 categories: direct funding to providers; temporary regulatory suspensions and administrative waivers; and lastly, loans and deferrals.

Starting with the direct funding category, these are direct disbursements of funds to operators to help mitigate some of the financial impact of COVID-19 and includes the provider relief fund and the temporary increase to the state's federal medical assistance percentages, or FMAP. The temporary regulatory suspensions and administrative waivers include the temporary suspension of the 2% Medicare sequestration cut and the waiver of the 3-day hospital stay requirement for Medicare coverage at a skilled nursing facility.

As the benefits from these 2 categories are utilized to offset increased costs and lost revenues related to pandemic, the negative impact to our operators' earnings and coverage will be reduced. These benefits would also help our operators by providing important liquidity.

Loans and deferrals include the accelerated and advanced Medicare payments, employer payroll tax delay and Paycheck Protection Program, or PPP, loans. With these loans and deferrals -- while these loans and deferrals, excuse me, provide liquidity to our operators, the first 2 must be repaid in full, while the PPP loans must be repaid if the borrowers do not meet certain criteria.

Therefore, these loans and deferrals largely have no impact on the earnings and coverage of our operators. A breakdown of how much our operators have received or qualified to receive from the various relief packages is included on Page 7 of our third quarter supplemental as well as in our third quarter earnings release.

The most significant of the aforementioned relief packages is the $175 billion provider relief fund which was funded by the enactment of the March 27, 2020, CARES Act law. The provider relief fund has given support to our skilled nursing and hospital tenants throughout the pandemic, and recently, the support has been extended to certain operators in our senior housing portfolios. On September 1, HHS announced that eligible assisted living and memory care facility operators may apply for funding through the CARES Act.

We view the inclusion of assisted living and memory care facilities under the CARES Act as an important acknowledgment by the federal government of the sector's contribution to the delivery of health care in this country. To date, 2 general distributions to health care providers have occurred and a third general distribution has been announced but has not yet been distributed. The total of these 3 general distributions is $98 billion. Additionally, 2 targeted distributions, specifically to skilled nursing operators, have been announced, totaling $9.9 billion.

Let me break down the targeted SNF distributions made thus far as well as what is left to be distributed. On May 21, the first targeted distribution of $4.9 billion was released to nursing homes using a formula of $50,000 per facility plus $2,500 per bed, resulting in a distribution to our facilities of $97 million or about $330,000 per facility.

On July 22, HHS announced an additional $5 billion of -- $5 billion of targeted distributions, specifically related to nursing home infection control and quality, of which $2.5 billion was released on August 27, using a formula of $10,000 per facility plus $1,450 per bed. This resulted in a distribution to our facilities of $15 million or about $170,000 per facility. The payments were made to nursing homes to help with upfront COVID-19 related expenses for testing, staffing and PPE needs.

Of the remaining $2.5 billion of targeted distributions, $2 billion will be distributed in 5 installments, with the first 4 installments being paid out monthly as performance-based incentives determined by the nursing home's relative infection and mortality rate and a final payment to be made in 2021 based on these same metrics over the cumulative time frame.

The first of these 5 installments was made over the last week based on September performance. Finally, the remaining $500 million of targeted distribution is expected to be used to address COVID hotspots and educational collaboratives. In total, roughly $145 billion of the $175 billion provider relief fund has been announced to date, leaving an estimated $30 billion in the relief fund to be spent.

As of September 30, 2020, our tenants have received or qualified to receive approximately $210 million in total distributions from the provider relief fund and our senior housing managed operators have qualified for approximately $4 million to the second general distribution from the provider relief fund. Operators have taken varied approaches to recognizing these amounts on earnings, ranging from some recognizing 100% immediately to others not recognizing any until they are certain that the amounts won't be recouped.

This has resulted in only about $60 million of the aforementioned $210 million received by our tenants being reflected in the reported EBITDARM for the trailing 12-month period ended June 30, 2020. Recently, the reporting requirements for the use of monies received from the provider relies fund were revised and clarify, and we expect this to result in most, if not all, of the roughly $150 million balance of these funds to be recognized in EBITDARM as they are utilized to offset costs and lost revenues related to pandemic.

Another important source of funds to our skilled nursing tenants is the temporary FMAP increase. On March 18, a 6.2% FMAP increase was enacted to assist states with COVID-related Medicaid costs. There was no requirement that states pass any portion of this increase on to providers. And in fact, some states chose not to pass any of it along. In our portfolio, 27 of the 37 states where we own SNFs passed along some of the FMAP increase, benefiting 236 of our 287 SNFs or 82%.

These states all have varying methods of distributing these funds to SNFs from targeted funding for COVID units in Kentucky to a temporary 10% Medicaid rate add on in California. All in, we estimate that our SNF tenants received approximately $30 million in additional funds through June 30 because of this FMAP increase.

Recently, HHS has announced the extension of the public health emergency declaration for COVID-19 for another 90 days, extending through January 20, 2021. The extension of this declaration is critical as it extends the 3-day hospital stay waiver through January 20, 2021, and ensures the increase in FMAP funding provided to states will continue to the end of Q1 2021.

Lastly, operators who received advanced and accelerated Medicare payments earlier this year received some much-needed breathing room on the repayment terms. Repayment, which was originally scheduled to occur by the end of this year, was delayed, and a more gradual repayment terms were enacted. Specifically, no repayment is due for a year from when the monies were initially distributed and then gradual repayment begins with up to 25% of claims paid for the following 11 months, up to 50% of claims paid over the next 6 months and the remainder being repaid in a lump sum. In total, the repayment period has been extended to 29 months.

The past 8 months have proven to be one of the more challenging times for the long-term post-acute care industry, both from a clinical and business perspective. Suffice it to say that the tremendous amount of financial support provided to the industry by federal, state and local governments continue to provide our operators with not only a bridge to the other side of this pandemic but also the resources to protect their employees and patients. We are grateful for the support and the implicit acknowledgment of the long-term post-acute care industry's importance. And with that, let me turn the call over to Talya Nevo-Hacohen, Sabra's Chief Investment Officer.

Thank you, Mike. This morning, I will provide you with third quarter operating results of our managed portfolio. This is the second consecutive quarter where operating results have been materially affected by the global pandemic and the first where federal government funding through the CARES Act that Mike just described has provided assisted living operators some relief. I will also share some statistics for the month of October in order to provide additional visibility into operating trends as senior housing continues to find its way during these challenging times.

As of the end of the third quarter of 2020, approximately 15% of Sabra's annualized cash net operating income was generated by our managed senior housing portfolio. Approximately 51% of that relates to communities that are managed by Enlivant and 34% relates to our Holiday managed communities. The balance includes our Canadian portfolio and 5 assisted living and memory care communities in the United States.

Senior housing operators have now transitioned into a phase where operating during a pandemic is the new normal. They have operationalized protocols, focused on infection control and prevention and created ways to relax restrictions, which can be flexed as warranted by circumstances and location. At the same time, consumers have transitioned from pandemic fear to pandemic fatigue. The result has been that while our senior housing operators have data and evidence that living in their communities is safer than staying at home, prospective residents worry that they will never embrace their families again as they move in.

To start, I will provide highlights of the operating results of our managed portfolio on a same-store quarter-over-quarter basis to illustrate the trends in the industry. These results will exclude 2 recent acquisitions and 1 transition community in our wholly owned portfolio, consistent with the presentation in our supplemental information package.

Revenue increased 4.2% in the third quarter compared with the second quarter of 2020 and included $4 million from the provider relief fund Phase 2 general distribution that was made available to eligible assisted living facilities in the third quarter through the CARES Act. If we exclude this grant, the same-store revenue declined 1.5%. And if we look at revenue for those facilities that were eligible for the grant and exclude those funds, then same-store revenue declined 1.4% on a quarter-over-quarter basis.

Revenue per occupied room, REVPOR, excluding the nonstabilized assets and the CARES Act grant, rose 1.7% while occupancy, also excluding nonstabilized assets, declined 270 basis points to 79.3% from 82% in the second quarter. Cash net operating income increased by 20.6% to $19.7 million from $16.3 million. Without the Federal grant, cash net operating income would have declined by 4.1%.

If we look at the cash net operating income for our eligible facilities and exclude those funds, then same-store cash net operating income without government funding would have declined 2.2% on a quarter-over-quarter basis. Cash NOI margins increased to 26.8% from 23.1% in the preceding quarter. Again, excluding the government grant, cash NOI would have been 22.5%.

While REVPOR has remained robust, occupancy has continued to decline during the third quarter. As the pandemic has continued to affect our hemisphere in varying degrees, we have seen changes in the behavior of residents and their families. Pandemic fatigue of both residents and their families is contributing to higher discretionary move-outs and deferral of move-ins. In contrast to that, rates continue to be strong in our portfolio, indicating that residents appreciate the value operators are delivering to them.

Senior housing is a high operating leverage business. Operators have scrutinized their cost structure, but there is a limit to expense cutting given the fixed cost inherit in the business model. For this reason, a decline in revenue attributable to lower occupancy or an increase in revenue from CARES Act funds had a disproportionate impact on cash net operating income and cash NOI margin.

The Enlivant joint venture portfolio, of which Sabra owns 49%, posted stronger third quarter results, bolstered by the receipt of approximately $3 million in CARES Act funds. Average occupancy for the quarter was 75.8%, reflecting a 3.1% decline on a same-store quarter-over-quarter basis and a 5.6% decline on a same-store year-over-year basis. REVPOR, excluding CARES Act funding, was 4,411 compared with 4,302 or 2.5% higher on a same-store quarter-over-quarter basis and 2.4% higher on a same-store year-over-year basis.

Revenue was 7% higher on a same-store quarter-over-quarter basis and 3.6% higher on a same-store year-over-year basis, driven by the Federal grant receipt. Excluding those funds, revenue decreased by 1.6% on a same-store quarter-over-quarter basis and 4.7% on a same-store year-over-year basis.

Same-store cash net operating income was $9.1 million, a 37.3% increase on a sequential basis, driven by CARES Act funds. Without those funds, same-store cash NOI would have declined 8.7%. Same-store cash NOI margin was 24% compared with 18.7% for the prior quarter or 5.3% higher on a same-store quarter-over-quarter basis. Again, excluding the Federal grant, cash NOI margin would have been 17.4% and more in line with the prior quarter's results.

Subsequent to the end of the quarter, October occupancy was 72.8%, 890 basis points lower than February occupancy before the impact of COVID-19. Rate increases occurred on October 1 for eligible residents. Rather than increase rates by 5%, as has been done in the past, Enlivant chose to increase rates by 4%. As a side note, Enlivant was not allowed to increase rates in the state of Washington because of the governor's order. We had 12 Enlivant communities in Washington, and the impact of this temporary rate freeze on the portfolio is negligible.

Since the pandemic began until start of this week, 98 of our Enlivant JV communities have had a resident or staff member test positive for COVID-19. As of the beginning of this week, 33 communities had a resident or staff member with a positive test. And of those, 20 are located in Texas, Ohio, Indiana and Wisconsin. To put these numbers into context, Enlivant has had approximately 2% of its residents test positive for COVID-19 since the start of the pandemic. This compares to an industry average of between 5% and 7% in assisted living and memory care communities.

The third quarter operating results for Sabra's wholly owned portfolio of 11 communities had a similar theme in its performance. Third quarter occupancy was 81.2%, a 2.1% decline compared to the prior quarter and a 7.6% decline on a year-over-year basis. REVPOR in the third quarter, excluding CARES Act funding of $797,000, was 5,761, essentially flat to the prior quarter and 4.2% higher than the prior year.

Revenue was 6% higher on a quarter-over-quarter basis and 3.9% higher on a year-over-year basis. Excluding the Federal grant, revenue declined 2.7% on a quarter-over-quarter basis and 4.7% on a year-over-year basis. Cash net operating income was $2.8 million, a 42.4% increase on a sequential basis, driven by CARES Act funds. Without those funds, same-store cash NOI would have increased 2.1% for the same period.

Cash net operating income margin was 29.2%, 7.5% higher on a quarter-over-quarter basis. Excluding the Federal grant, cash NOI margin would have been 22.8%, 1.1% higher than the prior quarter. More recently, October occupancy was 78.9%, 710 basis points below February pre-pandemic occupancy level. As in the joint venture, rate increases occurred on October 1 for eligible residents at 4%. 7 of our wholly owned Enlivant communities have had a resident or staff member test positive for COVID-19. And as of earlier this week, only 2 communities have not yet recovered.

Enlivant has made a strategic decision to maintain a 6- to 9-month inventory of personal protective equipment, such as gowns and masks and gloves, in order to avoid potential shortages in the months ahead. This has given them some latitude in timing of purchases in order to achieve better pricing. Since occupancy is the key to improving financial results, Enlivant has been focused on lead generation and moving in new residents.

Lead generation has rebounded since April and is in line with prior year leads. Move-in volume, while recovering since April is about 74% of pre-pandemic results driven by potential residents' and families' concern over possible restrictions on visitation, quarantine, et cetera. Regulations on indoor visitation vary by state and may be tied to county infection rates and local regulation. These limitations currently impacting half of the states in which Enlivant operates tend to dampen move-ins and accelerate move-outs. Enlivant is trying to mitigate these concerns, including offering testing for new residents so that they can avoid 14-day isolation and incentivize move-ins and testing employees to prevent the infection from entering the building to mitigate pandemic fatigue.

Holiday Retirement operates 22 independent living communities for Sabra, one of which was transitioned to Holiday in the fourth quarter of 2019. Since health care services are not provided in these independent living communities, these properties were not eligible to receive CARES Act funds allocated to assisted living providers. All of the following operating results are presented on a same-store basis and exclude the transitioned property.

Holiday portfolio occupancy was 82.5% in the quarter, 2.5% lower on a sequential basis and 6.1% lower on a year-over-year basis. REVPOR was 2,519, slightly higher than both 2,499 on a sequential basis and 2,483 on a year-over-year basis. On a quarter-over-quarter basis, the Holiday portfolio experienced a 2.2% decline in revenue and a 5.6% decline on a year-over-year basis. Cash net operating income was $5.9 million, a 7.4% decline on a sequential basis and 18.6% decline on a year-over-year basis. .

Cash net operating income margin was 33.2% compared with 35.1% in the prior quarter and 38.5% in the third quarter of 2019. Nearly the entire difference in margin is a result of lost revenue due to occupancy decline, with the balance being an increase in expenses associated with the pandemic. Subsequent to the end of the quarter, excluding the 1 transitioned community, October occupancy was 80.6% compared to 86.8% in February, a 620 basis point decline.

Of the 22 properties of Holiday managed for Sabra, 18 have had a resident staff member or private home health aide test positive for COVID-19 and 12 communities have recovered. 16 properties are now in various stages of lifting restrictions, such as dining or use at reduced capacity, limited visitors and reopening of the beauty salon.

Holiday has been focused on ensuring that its residents are kept safe, which is made easier because of the lower acuity in independent living and fewer staff. Testing and implementing safety protocols have been the cornerstone of these efforts. Holiday residents have had an infection rate of less than 1%, which is 64% below the infection rate among 75-plus-year-olds in the U.S., made all the more impressive because more than 1/3 of resident and staff COVID cases have been asymptomatic.

After having fewer move-outs in the second quarter, Holiday saw an increase in voluntary move-outs starting in July. Move-outs are trending down since quarter end. The excess move-outs, those above normal levels, are a result of COVID-related restrictions. At the same time, the number of move-ins per community rose to near pre-pandemic levels in July and August before trending down in September due to concerns over a COVID-19 surge and resident concerns about restrictions after move-in.

Holiday continues to be proactive in maintaining its reputation for safe communities. In anticipation of the regular flu season, Holiday partnered with CVS Health to arrange for flu vaccine clinics on-site with more than 10,000 vaccinations delivered to residents and staff.

Sienna Senior Living manages 8 retirement homes in Ontario and British Columbia for Sabra. In the third quarter of 2020, the 8 properties managed by Sienna achieved 79.5% occupancy, 3.2% lower on a sequential basis and 10.3% lower on a year-over-year basis. REVPOR was $2,495, flat to the prior quarter and 1.1% higher on a year-over-year basis. Third quarter revenue was $4.5 million, 4% lower than the prior quarter and 10.4% lower on a year-over-year basis, driven by occupancy declines. In the third quarter, cash net operating income was just over $1 million, a 17% decline on a sequential basis and 46.7% decline on a year-over-year basis.

As in Holiday's case, nearly the entire difference in cash net operating income is a result of occupancy loss. Cash and operating income margin was 23.8%, lower than both 27.5% in the prior quarter and 39.9% in the third quarter of 2019. More recently, October occupancy was 80.2%, 400 basis points below February occupancy.

There have been no confirmed cases of COVID-19 in our Sienna portfolio. The number of cases is very low in the interior of British Columbia, where 4 of our retirement homes are located, with a total in the province of 777 cases, and there are fewer than 80,000 cases in the entire province of Ontario. While the more populated provinces in Canada had managed to flatten the curve, a surge in COVID cases triggered by Canadian Thanksgiving is causing the government to tighten restrictions.

Sienna has seen similar dynamics in move-ins and move-outs of Holiday and Enlivant. Seniors have been interested in moving in, but fearing the imposition of restrictions, are waiting on the sideline to see what happens. In the second quarter, move-outs in Ontario had slowed down because there were no available long-term care beds, which are paid for by the provincial health system, by the way. Once beds became available, there was a catch-up in move-outs from the Sienna portfolio, which now seem to be reverting to normal levels.

Between February and October of this year, our total senior housing managed portfolio, inclusive of nonstabilized assets, lost 687 basis points in occupancy. That change in occupancy is the key variable driving the operating results of our senior housing managed portfolio. Pandemic-related operating costs have become more routine as operators have acquired PPE inventory, operationalized infection prevention protocols and manage delivery of services to residents.

Our operators are reporting reduced agency use. Hero Pay has decreased significantly since the summer, and Enlivant has even seen an increase in employee retention over the last few months. These expenses are not driving the ongoing pressure on net operating income. It is the decline in revenue from the erosion in occupancy.

In order to be a desirable alternative to home, senior housing has always needed to offer a multifaceted value proposition to residents and their families. Senior housing is needed to provide a pleasing living arrangement, tasty food, engaging activity, social life and delivery of care. COVID-19 has added a significant new facet: infection protection. The challenge has been to do this without infringing on residents' lives.

Our managed communities, located mostly in secondary and tertiary markets targeting a middle market price point, were somewhat shielded from COVID-19 outbreak during the early months of the pandemic. Now after 7 months, COVID has spread across all markets, infecting people at nearly identical rates per capita from urban to rural markets and everything in between. The advantage of Sabra senior housing portfolio market location has now become a time advantage.

The operators in our managed portfolio had more time to prepare. They were able to be more tactical in their approach and implement infection control, stockpile PPE and other inventory, develop testing protocols and address staffing concerns. This has allowed them to maintain low infection rates by limiting community spread from entering the building. .

Potential residents making a decision about whether to move in to a senior housing community today are faced with a difficult choice, and that choice is increasingly being skewed by need rather than want. The pent-up demand that we talk about are those people still in the want category who will move into the need category. And that time frame is measured in months, not years. Enlivant has already noted that they are seeing higher acuity residents moving in.

Higher care may result in higher revenue, but it may also result in shortened average length of stay, which will drive greater turnover in the near term. Until an effective vaccine is available and administered to residents and staff, senior housing operators are walking the fine line of keeping residents safe while keeping them engaged and fulfilled.

That is why our operators are so intently focused on creating testing programs that are effective at stopping potentially infected individuals from entering the building, regardless of their symptoms or lack thereof. The better our operators can insulate residents from community spread, the freer our residents can be within the building. This gives our operators the opportunity to sway the people who want to move in, the knowledge and time.

In prior earnings calls, we have spoken about the importance of our senior housing operators in the health care continuum. We saw that recognized by the federal government in September. We also believe that the pandemic will be seen as a period where operators' reputations will be burnished because they kept their residents and their staff safe and did so with care. I will now turn the call over to Harold Andrews, Sabra's Chief Financial Officer.

Thank you, Talya. Before we get into the numbers, a couple of quick updates. First, no COVID-19-related relief has been provided to any of our tenants to date. Second, we collected all of our forecasted rents without the use of any deposits or other credit enhancements through the end of October and have seen a normal level of collections through the first few days of November.

We have concluded that our leases with subsidiaries in Genesis and Signature will no longer be accounted for on an accrual basis, resulting in a write-off of straight-line written receivables and above-market lease intangibles totaling $14.3 million. The auditors for these 2 tenants concluded that absent additional government stimulus, increased occupancy and/or reduced operating expenses, Genesis and signature would likely have insufficient liquidity to meet their operating needs over the next 12 months.

Both tenants are current on all original obligations to us and either have requested rent relief during this pandemic. After moving these 2 tenants to a cash basis of accounting, and assuming we collect all contractual rents due, our AFFO will not be impacted and our FFO will increase by $3.2 million over the next 4 quarters.

Now for the numbers for the quarter. For the 3 months ended September 30, 2020, we recorded total revenues -- rental revenues and NOI of $143.3 million, $100.6 million and $119.3 million, respectively. These amounts represent decreases from the second quarter of 2020 of $10.6 million, $12.1 million and $7.6 million, respectively. The decreases in rental revenues was primarily due to the $14.3 million Genesis and Signature write-offs noted earlier, offset by a $2.2 million increase in collections related to leases accounted for on a cash basis.

In addition, we recognized a total of $4.2 million of CARES Act government grants during the quarter related to our Senior Housing Managed portfolio and a $1.4 million decrease in COVID-19-related expenses compared to the second quarter, positively impacting our NOI during the quarter. Of the $4.2 million of CARES Act government grants received, $1.2 million related to our wholly owned portfolio and we've recorded in revenues, while $3 million related to the Enlivant joint venture and recorded as part of income from unconsolidated joint ventures.

FFO for the quarter was $84 million and, on a normalized basis, was $98.8 million or $0.48 per share, the primary normalizing item being the $14.5 million write-offs related to Genesis and Signature. AFFO, which excludes from FFO merger and acquisition costs and certain noncash revenues and expenses, was $94.8 million and, on a normalized basis, was $95.1 million or $0.46 per share. This quarter, we revised our policy on normalizing items to no longer normalize out the impact of pandemic-related expenses or grant income.

When applying this normalization policy to the second quarter results, our third quarter normalized FFO and normalized AFFO increased from the second quarter by $9.4 million and $7.5 million, respectively, or $0.04 per share for both normalized FFO and normalized AFFO. For the quarter, we recorded net income attributable to common stockholders of $36.5 million or $0.18 per share.

G&A costs for the quarter totaled $7.2 million compared to $8.7 million in the second quarter of 2020. G&A costs included $0.9 million of stock-based compensation expense for the quarter compared to $2.4 million in the second quarter of 2020. This decrease is due to a change in performance-based vesting assumptions on management's equity compensation. Recurring cash G&A costs totaled $6.3 million or 5.3% of NOI for the quarter and in line with our expectations.

Our interest expense for the quarter totaled $24.9 million compared to $25.3 million in the second quarter of 2020. Our cost of permanent debt increased 2 basis points from the end of the second quarter to the end of this quarter to 3.53%, while our revolver borrowing costs declined 1 basis point into the second quarter to the end of the quarter to 1.25%. Interest expense includes $2.1 million of noncash interest for the quarter compared to $2.2 million for the second quarter of 2020.

The income from consolidated joint venture of $2.8 million includes onetime $3.1 million net adjustment to a basis difference in the joint venture as a result of the completion of the joint venture strategic program to dispose of 14 senior housing communities partially offset by loss on sale of $0.5 million and the strategic disposition of one facility. In addition, income from unconsolidated joint venture includes the $3 million of government grant income recognized under the CARES Act, as previously noted.

During the quarter, we made $27.5 million of investments, including a $20 million preferred equity investment in a 186 unit senior housing community, with an initial cash yield of 10%. We were able to match fund most of these investments through the issuance of equity under our ATM Program. Our year-to-date investment activity totaled $154 million and a blended initial yield of 7.88%, with $112.6 million coming from our proprietary development pipeline.

During the quarter, we also completed the sale of 1 skilled nursing transitional care facility, which was leased to Genesis, for an aggregate sales proceeds of $18.4 million, inclusive of the assumption by the buyer of an aggregate $17.6 million of HUD-insured mortgage debt encumbering the facility and resulted in an aggregate $2.7 million in net gain on sale. This sale marks the completion of our strategic program to reduce our exposure to Genesis through the sales and facility transition.

Subsequent to quarter end, we completed the sale of an additional Skilled Nursing/Transitional Care facility for gross sales proceeds of $9 million. We issued 1.4 million shares of common stock under the ATM Program during the quarter at an average price of $15.70 per share, generating gross proceeds of $21.4 million before $4.3 million of commissions.

Our leverage moved down slightly to 4.91x from 5x, excluding the JV debt into 5.48x from 5.54x, including our share of the Enlivant joint venture debt. We have $315 million available under the ATM Program, and we'll continue to monitor the equity markets and utilize the ATM to match fund investment activity and manage leverage as opportunities present.

We were in compliance with all of our debt covenants as of September 30, 2020, and continue to have very strong and improving credit metrics compared to the prior quarter as follows: interest coverage, 5.41x, up from 5.36x; fixed charge coverage of 5.23x, up from 5.17x; total debt to asset value of 35%, down from 36%; and then our unencumbered asset value to unsecured debt is 275%; secured debt to asset value, just 1%.

On November 5, 2020, the company's Board of Directors declared a quarterly cash dividend of $0.30 per share. The dividend will be paid on November 30 to common stockholders of record as of November 16. The dividend represents a payout of approximately 65% of of our AFFO and normalized AFFO per share. We are very pleased with the high dividend coverage ratio, and we'll continue to evaluate the dividend payout going forward, with a target in the range of 80% of AFFO once we are past the impact of the COVID-19 pandemic.

We continue to have a very strong liquidity position as of September 30, 2020, with over $975 million of cash and availability on our line. Principal payments obligations through the end of 2021 total only $18.3 million, and we have significant cushion in our debt covenants. Accordingly, we continue to be very positive about our current financial position and our ability to appropriately address any challenges that we may face as we work with operators going forward. And with that, I will open it up to Q&A.

(Operator Instructions) Our first question comes from the line Nick Yulico, Scotiabank.

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

Well, electric surgeries are picking up in some areas more than others. We're 100 basis points higher on skilled occupancy than we were at our low point. So we have seen increases but you see the numbers. We're having spikes in COVID all over the country. So there's a direct relationship there. We have 95 facilities currently that still have some level of COVID positive. So they're restricted in what they can do. Most -- or the rest of the facilities are admitting.

So the majority of the facilities are admitting. But because of all the spikes in COVID around the country, hospitals are keeping beds open to COVID patients. And in some cases, we've got -- they've already -- or exceeded capacity. So there's just a direct relationship there. So it's not as if we're not seeing the occupancy increases on the skill side, we are, but it's definitely mitigated by the impact of our inability to control the virus. And you think -- I don't know if I answered your question. Are you seeing something different numbers out there on COVID?

No. And then just you mentioned in your prepared remarks that the pandemic fatigue and a kind of tick up in discretionary move-outs. I guess, how much of an impact is that having on your operator occupancy?

Talya?

It's quite significant because you heard what the occupancy trends are across the portfolio irrespective of assisted living and memory care, independent living and assisted living, and memory care, I guess. You're seeing just a longer tail to getting residents to move in. And it really is a function, I think, of getting people at a higher acuity when they have to move in as opposed to when it's more of a choice.

So the challenges -- your move-outs are happening, as they always -- there's -- the move-outs that you always have, whether it's higher acuity or people pass or whatever that might be, but then you're also having people move out. There's a whole tranche of people that are moving out because after living in a community that is, at various times, had to maintain social distancing. Sometimes there has been food delivery to the rooms because they've wanted people not to socialize because it's just a concern and that's the regulations in that location, people feel limited.

And so they're reluctant to move from their home, let's say, to a senior housing community where they may be in a 14-day quarantine and then maybe then they're not going to be able to be out of their room much anyhow. And so the whole aspect of socialization, which is the watch part of the equation for moving in. is really, really limited.

Let me clarify. The fatigue in terms of staff, in case you were referring to that, yes, they are fatigued. It's been very stressful. But that isn't impacting admissions. Everybody's work -- within the facility, everybody is working just as hard to admit, as they always have. You just got those other factors that Talya articulated that create some issues.

And in terms of acuity, we've been seeing pretty consistently, and I think our peers are seeing it too, because folks have been staying at home longer whether it was delays on the skilled side or all the reasons that Talya articulates on the senior housing side, they are coming in sicker now. But I just want to make sure that it's clear that stress and fatigue is not impacting the desire or the execution on the part of facility management or staff to admit.

Our next question comes from the line of Nick Joseph from Citi.

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

Well, most of that's already come in. I think we've got about only about $80 million left to 2021 coming in and then a small amount in 2022. So if you look at the schedules that we've always published, most of that, we exercised those options and brought that in. This has been the last sort of big year left of the $600 million and then it starts declining.

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

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

Sure. So it's actually a really interesting question because there's some dynamics, obviously, in the marketplace. So we -- all operators are not unique in the pressure on occupancy. And there's quite a bit of new construction, you may have heard, that's been going -- has been underway for the last 3 years or so in senior housing. You may have heard about it.

And my guess is, in fact, I can say with certainty, that those properties are also having pressure on their occupancy in their lease-up mode. We think that there's going to be some interesting opportunities within that segment. So assets that, as Rick had mentioned earlier, have not had pressure from their lenders, but probably will eventually, if they are not really -- not getting on -- back on track, if you will, to hit their numbers under their covenants. So we think that there are assets out there that are going to be -- come to market at an odd time, right, during a pandemic, but where liquidity is or recapitalization is really important. So we think that's an interesting opportunity.

Our next question comes from the line of Rich Anderson from SMBC Group.

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

Well, I think the numbers that are coming in from the revenue side, obviously, our managed portfolio got to 2%. So it's going to require incremental stimulus to be coming in for there to be incremental revenues coming in, and we're hopeful that, that will happen, but it's impossible to predict the timing or the scale of that. And I would just say on the operating cost side, things are -- have come down this quarter compared to last quarter as they built up inventories. And we've seen things become more operationalized.

And so as we start moving through the pandemic, obviously, we'll see -- we'll expect to see labor costs that are impacted from COVID to normalize as well. But again, that's very difficult to predict the timing. So I think we'll see what we saw this quarter, and I'm not going to predict because it's hard to, but I think it's kind of indicative of the level of cost that we're going to see for a while as the pandemic is ongoing and then we should start to moderate as we get closer to a vaccine and we start to see less cases in the buildings.

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

Thanks, Rich. I appreciate it. So it doesn't really affect our thinking. Part of the answer to that is it's just practical. There's hardly anybody out there that wants to do triple-net anymore. So you've got sort of that practical consideration. If you want to stay in the space and grow in the space, you're going to do managed deals. And I think there's lessons to be learned. And we -- and I've said this before, we've all been complicit in this.

The coverage that we put in place when we do acquisitions on the senior housing side are pretty thin, certainly extremely thin on the independent living side because they're not viewed as really health care facilities. And so when you hit any sort of headwinds or hard times or pre-pandemic, the supply demand-equation creating issues as we've seen, it really depresses the amount of breathing room those folks have on coverage, which led to not just more managed deals being done but the conversion of existing triple-net deals to managed deals.

So we think if we do -- as long as we continue to partner with good operators, the managed deals are fine, and we're happy to ride the upside. The initial diligence and analysis is critical to determine that there is upside because, as we all know, with the managed deal, you're buying both upside and downside. And so you don't want to do any transaction where you're buying that particular operator at a peak level. Now it's possible that over the next couple of years as the demographic really starts making its way into the occupancy of senior housing facilities, that folks might be interested in doing triple-nets again. And if that's the case, hopefully, everybody has learned their lesson instead of underwriting at 1.2x versus assisted living at 1.1x.

With independent living, you're going to go in there with a higher level, whether it's 1.3%, whatever it happens to be, so that when there are inevitable headwinds, and headwinds are always inevitable at some point for whatever reason, that you've got cushion there. So it's possible that the triple-net can come back, but I think that, that's a function of the demographic really impacting occupancy and then sort of the state of the dynamic between supply and demand. Obviously, all that's interconnected.

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

This is John Guy on for Lukas. Just really a quick one for me. I was just hoping to get some insight into as you look to take advantage of the deals that are kind of manifesting over 2021, if you look at your own portfolio, there are areas where you can see yourself selling into the strong bid out there for senior housing assets as you look to recycle capital to take advantage of the deals in the future?

Talya, do you want to take that?

Sure. So potentially, yes. We -- there's always something in the bottom of the barrel that we're looking to sell. That's inevitable. Everyone does that. It's funny you asked the question because we probably get, almost weekly, a call from somebody who wants to buy an asset, is looking to buy an asset. They're not even asking about specific assets. They just want to buy and can they buy something from us.

Oftentimes, multifamily guys are looking at senior housing, particularly independent living, but it's really quite general. So there's a lot of capital there looking to find a home. And we, frankly, haven't tested the market to see whether something that we bought it at 7, we can sell it at 5.5, and then you have to make a judgment as to whether, long term, that makes sense because we'd have to measure what we -- how we redeploy that capital and how we think about the long-term improvement in the sturdiness of the returns that we gained out over time.

(Operator Instructions) Our next question comes from the line of Steven Valiquette from Barclays.

Just hoping to get a little more color regarding the Genesis and Signature going concern opinions. The Sabra press release from September 25 said that you guys have not received any rent relief request from either operator as of that date. I wasn't sure if that was still the case today.

And I'm not sure if you can even talk about this, but what do you expect to be the likely scenarios from here, how this might play out? Or is this more just really an accounting protocol? I just want to get more flavor for kind of this whole situation.

Let me make a couple of comments and then turn it over to Harold. I think that one, we have not gotten any rent requests. And when you make -- when you're forecasting and you exclude all assistance and include a relatively high level of supply expenses related to the pandemic with really no relief in sight, if you applied that kind of analysis to any operator, you may come to the same conclusion. So we think it was much about that as anything else. But let me just kick it over to Harold.

Yes. Thanks, Rick. I don't -- we don't have any detailed insights into more than that from their auditors. We have conversations, obviously, with the operators, and obviously, Genesis will be having their call here at some point for this quarter. And they're clearly under pressure. They've told us that this is not an imminent issue for them as far as having problems, but they've got to see relief continue to come in, and they got to see occupancies improve over time, or it would be a problem for them.

So we're just kind of in a wait-and-see mode on Genesis, Signature. Signature has been one that we restructured that lease a while back. We've been very pleased with the progress that they've made and what they've done. But as Rick said, their conclusion was they could not provide a forecast that showed things being able to be funded absent increased occupancy or more relief, given the occupancy levels they're at today. But similarly, given all the relief that has been received by Signature, we feel like their cash flow position in the short term is fine. So we're basically in a wait-and-see mode. And I think there's not a whole lot more I can say about it than that.

Okay. That's helpful. I appreciate the color.

I want to add just real quickly too. We have gotten Genesis down to such a small percentage too and those -- we've got -- it's about $10 million of recurring rent and then $10 million a year for the next couple of years. So whatever happens there, it's not going to be a significant impact for us if something negative happens. Hopefully, that won't be the case.

But I think the fact that we've gotten them down so dramatically, this just really, obviously, is an indication that it was the right move for us to do. And we've also had internal conversations that if it came to that, we've had internal conversations relative to who we can move those facilities to. There all in one region. So it would be not a difficult move, and it's in a state that we really like, New Hampshire.

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Rick Matros for any further remarks.

Thanks for joining us today. We're available if you all have any follow-up questions, and want to have additional conversations. For a lot of you, we won't be talking to you for a while, so I hope you find ways in this environment to enjoy the holidays. And please stay safe out there. Take care.

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