Sabra Health Care REIT Inc (SBRA) 2021 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sabra Health Care REIT Fourth Quarter 2021 Earnings Call.

I would now like to turn the call over to Lukas Hartwich, SVP, Finance. Please go ahead, Mr. Hartwich.

Thank you, and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including the expected impacts of the ongoing COVID-19 pandemic, our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plans. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2021, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC this morning. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid.

In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at sabrahealth.com. Our Form 10-K, earnings release and supplement can also be accessed in the Investors section of our website.

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

Thanks, Lukas, and thanks, everybody, for joining us today. Our opening song Heroes is dedicated to the staff at the facilities.

Let me start with updating everybody on our current trends. In terms of vaccination uptake, the workforce is now up to 87% vaccinated, which is really fantastic. Residents are at about 92%. Approximately half of our operators have mandated vaccines.

And moving on to occupancy, for occupancy, 25.5% of our operators are now at pre-COVID occupancy levels. The last week of January, about 41% of the staff returned to work and being out due to Omicron. We have just huge numbers of staff out that was really impacting occupancy. So with staff coming back really in droves, it's having a direct impact on occupancy. The last 2 weeks, our managed portfolio showed improved occupancy of 46 basis points, and our top 7 skilled operators have shown improved occupancy of 149 basis points in the last 2 weeks, which is as big a jump in that time frame, as we've seen since the pandemic started. Additionally, I would note that while there was obviously a lot of concern over coverage and things like that as Omicron hit, skilled mix from the first of the year was up 360 basis points due to acuity and skilling in place, and that really helped mitigate some of the financial impact of Omicron.

Moving on to reimbursement. Phase IV funding, that money is still coming in, so we don't have solid numbers yet on what the total is. We'll update as soon as we have that. I do want to spend some time today though on Medicaid because most of the focus, understandably, has been on all the assistance from the federal government, but there's really been tremendous assistance from the states, which is going to go beyond the federal government, and so I was just going to highlight a few things there. We took a look at 14 states that represent 73% of our skilled assets. In most states, it is a 2- to 3-year time line before increased costs for capture. However, most states will use an annual market basket to adjust for inflation, which provides an opportunity for sooner recognition of increased costs. That inflationary increase has a specific labor component.

About 80 of our -- 80% of our states have provided a temporary Medicaid add on. There is a common misconception that as PHE continue the Public Health Emergency Act that FMAP funding goes away, but that's actually not the case. The states have discretion as to whether they want to keep those Medicaid add-ons in place, and we're optimistic that a number of the states will have that in place. So from a lobbying perspective, the focus has really shifted from the Feds to all the individual states. After Phase IV, there's not much left in the fund, and we're certainly not betting on getting new money in this Congress, so the focus is really going to be on the states and all the Medicaid assistance that we've gotten there.

I want to make one comment on Avamere. I know that's been out there. I just want to point out that, that negotiation, we think went really well. We look forward to the ability to recapture it, which -- and we fully expect that we will see some upside there. We have no additional restructurings being contemplated. There's no ongoing discussions with any of the tenants about restructurings.

I also want to comment on spree, the Canadian deal, which Talya will talk more about, but these are very high-quality new assets with a trusted operating partner and strong growth prospects. So we're really pleased to finally after years of making the effort to see additional growth in Canada. Our acquisition pipeline, currently, it stands at about $1.4 billion. While it's still primarily senior housing, we are starting to see more skilled nursing opportunities and opportunities in the behavioral and addiction space. We're also seeing more deal flow in Canada, and we certainly -- we were seeing more deal flow anyway, but the announcement of the Canadian deal has increased that deal flow even more so.

In terms of the balance sheet, Mike will spend a lot more time on that, but leverage continues to be well within target range, and it should be expected to fluctuate. And really, that's really the primary message that we want to convey to everybody that if we hit 5x, it doesn't mean we're going to access equity. We've got plenty of room up to 5.5x. As deal flow happens, leverage can be expected to fluctuate up and down. We'll have some natural deleveraging events with the portfolio improving, particularly the managed portfolio and EBITDA improving. We've got asset sales still that will be ongoing. So we're in really good shape from a balance sheet perspective and in terms of the fact that we don't need to access the markets.

We aren't issuing guidance. And while we did issue guidance at least for periods of time last year, the impact of Omicron particularly on the managed portfolio makes it impossible right now to predict the degree and the rate of recovery. Hopefully, we'll be in a better position to do that. I doubt by the time we have first quarter because it's only about 6 weeks away, but hopefully, after that. And if we are able to -- we will do a first quarter, but I think it's unlikely at this point in time. If we had strictly a triple net portfolio, we'd be in much better shape and have a high degree of confidence relative to issuing guidance.

And with that, I will turn it over to Talya.

Thank you, Rick.

We've recently announced that Sabra in joint venture with Sienna Senior Living has entered into an agreement to acquire 11 senior housing communities in Ontario and Saskatchewan. This will nearly double Sabra's investment in Canada, given the vintage of the assets on average 60 years old and the timing of the acquisition, there is a clear path to increase occupancy across the portfolio as well as the one community in lease-up. Substantial expansion opportunities exist at Florida communities, providing for an additional avenue of growth. As Rick said, transaction activity in Canada has increased significantly in the last 12 months, and we believe that Sabra is well positioned both financially and operationally to pursue assets there, including through our joint venture with Sienna.

Now let me turn to our managed senior housing operating results. In the fourth quarter, Sabra's wholly owned managed senior housing portfolio continued the momentum on top line growth seen in prior quarters. This was offset by higher labor costs and contract labor expenses that have been challenging the health care industry since the middle of the third quarter with the emergence of first the Delta and then the Omicron variants of COVID-19. Early indicators point to the dissipation of the Omicron variant and rising employment rates as we speak, which will result in lower community spread, fewer infections among staff, greater availability of labor and lower utilization of contract labor. Continued move-in rates at or exceeding pre-pandemic levels and normalizing move-out rates point to the strength of demand for senior housing, which, along with the return of the workforce, will create the equation for ongoing recovery of senior housing, barring another highly contagious variants of the virus.

Demand for senior housing communities remains resilient and somewhat price-insensitive. After a sustained lift in occupancy following the vaccine rollout, occupancy dipped in the fourth quarter, but gross move-ins have remained in a range between even with 2019 and 10% higher. In higher acuity communities, particularly memory care, gross move-outs have been impacted by higher death rates, resulting from the Omicron variant. We have heard from our operators that 5% to 7.5% rate increases have gone unquestioned by residents and their families, while at the same time, our operators are seeing move-ins coming from competing communities where aggressive pricing has changed residents view of value.

The headline numbers for the wholly owned managed portfolio are as follows: occupancy in the fourth quarter of 2021, excluding non-stabilized communities was 79.4% compared with 78.8% in the prior quarter, a 60 basis point increase; REVPOR, excluding non-stabilized communities, was $3,303 and REVPOR has remained stable over the past 5 quarters; assisted living has shown increasing pricing power with the same REVPOR increasing 5 -- with same-store REVPOR increasing 5% from the first quarter to the fourth quarter of 2021 despite pandemic surges from 2 variants and labor shortages.

Cash net operating income declined by 9.9% sequentially and margin decreased to 20.1%, 2.6% lower than the prior quarter. Virtually no COVID grant income was received in the fourth quarter, and none was received in the third quarter. Contract labor costs in Sabra's assisted living and memory care properties drove this decline. Sabra's wholly owned, managed assisted living portfolio experienced a dip in occupancy following the third quarter and began to recover late in the fourth quarter and into 2022.

From September '21 to October 2021, occupancy declined 126 basis points. From October to November 2021, our occupancy declined 43 basis points. And from November '21 to December 2021, occupancy increased 28 basis points. From December 2021 to January 2022, occupancy increased 108 basis points, making up most of the decline in the fourth quarter. There are signs of positive momentum in February with occupancy in the Enlivant portfolio increasing 80 basis points from January to mid-February. The downward occupancy trend was driven by our communities caring for memory care residents where move-outs increased due to deaths related to surges of the Omicron variant in the general community. Because these residents are generally frailer and less able to comply with mask-wearing and other infection control protocols, they are more vulnerable to COVID-19.

While revenue in our wholly owned assisted living portfolio grew 1.8% quarter-over-quarter, cash NOI margin compressed to 9.7% compared with 15.1% in the third quarter. Nearly the entire increase in operating expenses is attributable to increased contract labor costs in our wholly owned Enlivant portfolio. Sabra's wholly owned managed independent living portfolio experienced less occupancy loss than the assisted living portfolio and its recovery has been more gradual. Throughout the duration of the pandemic, we have seen more move-outs driven by the need for higher care as residents have stayed in place longer, and we continue to see that this quarter. From September 2021 to October 2021, occupancy increased 44 basis points. From October to November 2021, occupancy declined 34 basis points and from November to December 2021, occupancy increased 6 basis points. From December '21 to January '22, occupancy decreased 119 basis points, but there is a clear distinction between our Canadian portfolio where occupancy increased by 73 basis points in this period and occupancy in our US portfolio declined by 165 basis points.

While revenue in the wholly owned independent living portfolio grew 1.8%, cash NOI was flat quarter-over-quarter and cash NOI margin decreased slightly to 27.7% compared with 28.3% in the previous quarter. As a whole, the independent living portfolio has been less vulnerable to accelerated move-outs and labor challenges. Contributing to that result is that 8 of the 30 properties are in Canada, where the impact of COVID-19 has not been the same as in the US. Despite high vaccination rates among residents in our holiday communities, there was a rise in active COVID-19 cases among both residents and staff starting in late December and through January, which began to decline in February. At the same time, labor shortages that emerged during the holiday season and drove higher labor costs due to overtime began to trend down after the new year.

Our Sienna retirement home portfolio has few and large minor COVID-19 outbreaks during the surge of the Omicron variant in BC and Ontario, where there was a partial lockdown of Ontario during the -- through the end of January. While move-ins slowed during this period, residents were safe given the mid-90% vaccination rates in these retirement homes.

And with that, I will turn the call over to Mike Costa, Sabra's Chief Financial Officer.

Thanks, Talya.

For the fourth quarter of 2021, we recognized normalized FFO per share of $0.39 and normalized AFFO per share of $0.37. For the year, our normalized FFO per share totaled $1.57 and our normalized AFFO per share totaled $1.54, both of which hit the midpoint of our 2021 earnings guidance. As we noted in our earnings release, Avamere's December rental obligation of $3.6 million or $0.02 per diluted common share was paid in January 2022. Since Avamere's leases accounted for on a cash basis, this amount will be reflected in our results for the first quarter of 2022.

Compared to the third quarter of 2021, normalized AFFO per share increased $0.01 primarily due to lower rental revenues from cash basis tenants, namely Avamere and lower AFFO from both our wholly owned managed portfolio and Enlivant joint venture as a result of higher labor costs. These decreases were partially offset by higher interest income, primarily from the funding of the RCA mortgage loan during the quarter. Compared to the third quarter of 2021, normalized FFO per share increased $0.01. The decrease as noted for normalized AFFO were offset by sequential reductions in both deferred taxes in the Enlivant joint venture and stock-based compensation.

Cash NOI for the quarter totaled $109.2 million compared to $116.5 million in the third quarter. Included in cash NOI for the fourth quarter is $7.4 million of payments made to Enlivant from our joint venture to support them as they dealt with persistent labor pressures from -- and the impact of the Omicron variant on operations. Excluding these support payments, cash NOI was effectively flat sequentially. As of December 31, 2021, our annualized cash NOI was $452.4 million, and our SNF exposure represented 61.4% of our annualized cash NOI.

G&A costs for the quarter totaled $8.2 million compared to $8.7 million in the third quarter of 2021. G&A costs for the quarter include $900,000 of stock-based compensation expense compared to $2.4 million in the third quarter. Recurring cash G&A costs of $7.2 million were 6.6% of cash NOI and in line with our expectations.

We were in compliance with all of our debt covenants as of December 31, 2021, and continue to maintain a strong balance sheet. During 2021, we fortified our balance sheet by meaningfully extending our weighted average maturity, improving our debt laddering and lowering our reliance on term debt through the issuance of our $800 million senior notes due 2031, while only increasing our fourth quarter cash interest expense by less than $200,000 to $22.7 million. As of December 31, 2021, our leverage was 4.98x, which is in line with our long-term leverage target of 5x and well below our maximum of 5.5x. From time to time, our leverage may tick up above our target of 5x, particularly as we make investments, but we would expect leverage to come down naturally over time as performance in our managed senior housing portfolio recovers from the pandemic and as we recycle capital. Our liquidity as of December 31, 2021 totaled approximately $1.1 billion, consisting of the full $1 billion of availability under our revolver and $112 million of unrestricted cash and cash equivalents.

On February 1, 2022, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on February 28, 2022, to common stockholders of record as of the close of business on February 11, 2022. The dividend represents a payout of 81% of our normalized AFFO per share of $0.37.

Lastly, I want to comment on guidance. Given the uncertainty around the timing of a recovery in occupancy, continued labor pressure and the resulting impact of these items on our financial performance, we will not be providing 2022 earnings guidance at this time. We will continue to evaluate these circumstances in future quarters to determine if we can confidently provide meaningful earnings guidance.

And with that, we will open up the line for Q&A.

(Operator Instructions) Our first question comes from the line of Nick Joseph of Citi.

Have any other tenants come to you after the Avamere announcement, just given the unique lease structure and the ability to recapture some of the rent reduction?

Not one.

Is that surprising? Obviously, Avamere was in a bit of a unique situation, but just given kind of given the math both in terms of near-term liquidity, but also kind of that ability to participate in the upside? Is that a road map for future tenant restructurings?

No, I think -- look, we've got a really good report. And if they don't need it, they're not coming to us, we talk with them all the time. They know we're here to help if it's necessary. So they're not going to take advantage of a situation like this if they don't need it.

Our next question comes from Steven Valiquette of Barclays.

So just a question here around just health care REITs in general with skilled nursing assets this quarter, I think, has brought a pretty wide array of strategic updates on the various companies. One of your peers is talking about some high demand and elevated valuations for SNF assets and wanted to sell some underperforming assets into that strength. And then Rick, I was cut by your comment saying that you're seeing more SNF opportunities showing up in the deal pipeline from your perspective. I guess I'm curious whether what you're seeing are assets that are also more on the distress side or more on the side of richly valued assets and that was described by one of your peers? So just curious how your review with the overall market?

It's Talya. Let me take a stab at answering your question. So first of all, I think there's no conflict in what you just described. There has been skilled nursing sales transactional activity, and it's really been mostly off the market. And if anything, the publicly traded health care REITs have sold or certainly tried to sell into that bid. We are seeing a small amount of skilled nursing facilities. Frankly, there's nothing consistent in terms of quality, both high or low in what we're seeing, but we're not seeing a lot of skilled nursing. And part of that is because there are other groups bidding for assets that where they are pricing more than what we would price. In other words, there's incremental NOI that they're valuing.

The other thing I would add is some of the pricing that you see out there is a little bit misleading because these are private groups or private capital, not private equity, and they own other kinds of businesses. And the SNF opportunity is an opportunity to them to generate revenue in their ancillary businesses, whether that's pharmacy or therapy or whatever. So it's a bit of a different picture.

Right. I mean also the operators are typically affiliated in some fashion with the real estate landlord. So again, they are able to capture more of the essentially different parts of the income stream and not the same as what we were able to capture. And I think that's why you're seeing a fairly limited SNF transactions being bought by the publicly traded health care REITs.

Our next question comes from Vikram Malhotra of Mizuho.

2 quick ones for me. One, can you just remind us your latest thinking on sort of the recovery path for both skilled nursing and senior housing versus sort of pre-COVID levels? What are you sort of baking in, in your internal projections in terms of occupancy gains? And then second, just on the regulatory front, you mentioned FMAP kind of may vary quite a bit in terms of states, maybe relooking post any matching that goes away. But can you just talk about other regulations you're monitoring, whether it's waivers potentially going away or additional capital for labor that SNFs may receive? Just anything on the regulatory front would be helpful.

Sure. So on the Medicaid piece, in addition to FMAP, we're keeping a close eye on the 3-day waiver, so skilling in place. It's important at certain points in time, so I don't want to make too big a deal out of it when you've got an active variant that's really affecting as the way Omicron did, then skilling in place was really important because that increase in skilled mix really helped mitigate some of the other financial impacts from the Omicron virus. But we also saw, as things normalized and even with Delta because Delta variant was more serious wasn't anyone near is contagious, our skilled mix went back to pre-COVID levels. So that one is a nice to have, and we'd like to see that actually stay in place long term. We already know sequestration is going away. So essentially, it's really skilling in place and all the Medicaid add-ons from the various states. And as I said, most of that dialogue has been positive.

So say again, your first question, I'm sorry, Vikram?

Just the recovery path -- occupancy recovery path.

Yes. So caveat obviously is -- our prognostication is no better than anybody else's. We think we're about a year away on skilled and either being close or at pre-COVID levels, and probably the latter part of 2023 for senior housing. And I don't want to make too much of the fact that we just had a huge increase in skilled occupancy the last 2 weeks because there's just been pent-up demand. And so I think part of that is because of that. But if we could get back to the rate of recovery that we saw from January of '21, say, through the fall before Delta hit, which was 50 to 70 bps a month, I think we'd be really happy with that.

Okay. Great. And then if I could just clarify. You mentioned no additional tenants have come for relief or anything kind of post Avamere. I guess just some of your peers have mentioned they anticipate seeing additional requests, whether it's deferrals or it's actual rent relief. Can you just kind of -- in your underwriting for the year, are you anticipating additional tenant issues in skilled?

We're not in our underwriting or in our internal forecasting, but a cautionary note I would put out there is that if you think about late spring or the summer and the federal assistance has kind of played out and maybe there hasn't been quite enough recovery, it's certainly possible that we may need to defer rent for some folks, but that's a temporary kind of issue and not a longer term restructuring issue.

And let me -- just one more point on your previous question. The add-on to Medicaid rates are part of the waivers, along with the nursing assistant waivers that are helping labor. So you might recall that there was a relaxation of certain rules to help staffing in the facilities and those add on to the Medicaid rates are part of that. And as COVID subsides, admission restrictions will subside as well. So -- and we're already starting to see that.

Our next question comes from Rich Anderson of SMBC.

So Rick, you said triple net, if the portfolio is entirely triple net, it'd be easier to produce guidance, so maybe we can get some triple net guidance out of you. So if we go fourth quarter.

Good try, Rich, that's not going to apply.

Well, let me just -- hear me out. So fourth quarter is what it came in. And then you have a couple of payments coming in from Avamere to make whole for December and January. So if we were to just sort of normalize that out going forward, shouldn't the triple-net portfolio be fairly predictable if there's nothing else going on from an abatement perspective or any kind of lease negotiations? It should be pretty -- that should be a pretty fair run rate, shouldn't it for the remainder of 2022, barring any new COVID spread?

Rich, it's Mike. Yes, I think that's a fair way to look at it. You hit one of the key points on the head, which is the timing of that Avamere rent payment in the first part of this quarter. That's going to skew, if you're looking at our Q4 2021 numbers as a run rate, that's going to skew it a little bit. But you're right. I mean absent any shortfall like Rick was alluding to between government assistance and recovery and us giving you kind of temporary deferrals or anything like that for tenants, that's a good way to look at what our triple net run rate would be for 2022.

Okay. Good. Second question is, you guys have been fairly active lately with your external investments. I'm wondering, you mentioned $1.4 billion pipeline. I'm wondering how much of the recent pace is something that we could expect going forward in light of the stock had a tough year last year, you want to keep an eye on your balance sheet. Do you expect perhaps a more a slower pace of activity from an external growth standpoint going forward and that there happen to be just a bunch of things going on at once lately? Or can you actually see an acceleration through the year despite kind of all the challenges still going on?

So I'd say a couple of things. One, we're going to take advantage of the opportunities out there. But philosophically, because we're a REIT and we invest for a long period of time, we don't look at just today's stock price when we look at our underwriting. We are making an assumption that there is going to be recovery. And you'll note last year, before Delta hit, everything was recovering pretty nicely. Occupancy was increasing, the stock by August has gotten back up to $19, which makes everything that we're looking at very doable and that study even getting back to pre-COVID levels when we were in the 20s. So yes, we do make an assumption that we're not going to be stuck at $14 for a long period of time. Talya?

Yes. I think the other comment I'd add there is, to the extent that we can structure our investments in a way that allows us to ride the recovery up of the investment, then that becomes a real positive. So even if the entry point is like in our Canadian portfolio, around 6%, there's upside, and we'll participate in that upside through the investment. That again is opportunity and opportunity to go back to Rick's point over the long term.

Okay. And then last question, perhaps for Mike. Debt-to-EBITDA below 5x by a hair. I know it's an adjusted EBITDA that I think, assumes a full annual impact of investment activity. First of all, correct me if I'm right about or wrong about that. But assuming I'm right, how do you underwrite those in that calculation so that when the day comes and they -- and perhaps they underperform expectations because of everything that's going on in the world, do you haircut those numbers so that when you calculate your leverage metric there that you don't sort of miss the number when the real numbers start to come in?

Yes. You're right in that, we do pro forma any acquisitions or dispositions for that matter into that number. And if you look at kind of the larger pro forma adjustments to get there for Q4, the biggest by far adjustment is going to be related to our RCA mortgage loans. So don't expect much, if any volatility in that number. So I think the risk that you point out is correct, just not necessarily for our fourth quarter leverage calculations. But on a go-forward basis, you're right, we're looking at it based on an annualized expected NOI. And to the extent that there is a potential that it doesn't reach that, that could cause some variability in our leverage numbers going forward. But what we're focused on is keeping it around -- in the ballpark of that 5x on a long-term basis. Will it get to 5.02x? Possibly. Will it get to 4.98x like it looked this quarter? Yes, that's going to happen, too. It's going to be hovering around there. And we want to give ourselves enough room for -- from our maximum of 5.5x such that if there are some blips or some -- the timing is off by a quarter on any of that performance that we underwrote, it's not going to create an issue for us from a balance sheet perspective.

Our next question comes from Juan Sanabria of BMO Capital.

Just on the deferrals watch list or whatever you want to call it, is there any other tenants where you're using a security deposit to help pay current rents?

No. We're pretty transparent, Juan, so, no.

Okay. That's good to hear. Sorry?

No, we think so. We've been -- we've had a remarkably stable portfolio, relatively speaking, through this whole pandemic.

Just looking at -- I wanted to go back -- I think Mike said something about a $7 million plus support payment. I just -- I wanted to get more details around that if that was the joint venture with TPG. I thought there had already been a top-up and that was supposedly the last of it. So I just wanted to understand what that was about.

No. The original one wasn't the last of it. You should expect that to continue from TPG because as we noted on our second quarter call last year, which I know it seems like a lifetime at this point, one of the reasons that we opted not to take on the other 51% was because of TPG's decision to exit opco. Opco got a pretty big bleed, and we didn't want to be in the position of both having to write a check to delever and to support the opco bleed. So until it's finalized, there is a bleed there. And so from time to time, because TPG owns 100% of opco, they are going to provide some support to that. We did participate last June and a little bit of that support, as we've talked about in the past, it's about $2.5 million, but we're not participating at this point. So yes, you should expect that.

The sales process there are some parties that they're talking to. There isn't a full-blown sales process yet. One of the things that we're seeing out there for large portfolios as everybody is kind of waiting until things subside enough that there is some recovery that people can project off of. There was a huge portfolio that was -- did go through a marketing process about $2.5 billion in senior housing. It didn't happen. There is a private portfolio that's about $1 billion to $1.5 billion out there that's pretty high quality and they're holding off as well, and there's another portfolio as well. So I think until there's a little bit more traction on recovery, there's not going to be a full-blown process although having -- they are having some individual discussions.

And then just one last one. Could you quantify how much agency costs are flowing through the shop numbers to help us think about how that hopefully moderates at some point forward and what that could represent in terms of growth?

No. We actually don't have that number. And it had peaked around November, then it came down and then it went up because of Omicron and it's coming down again. So we'd actually like to have a little bit more -- rather than pick a moment in time because it's been so volatile. We prefer just to wait a little while and see get a little bit closer to where it's normalizing towards, which should be a relatively small number. The other point I'd make is an aggregate number isn't particularly meaningful because we -- the degree of disparity that we see between our operators and the individual facilities, not just the operators, but really better so the individual facilities by market is huge. I mean there's nothing that even resembles the bell curve. So coming up with one number just doesn't make any sense. People are just going to run with it and extrapolate from it and make assumptions that I think aren't correct.

Our next question comes from Connor Siversky of Berenberg.

Apologies there. You just took my last question. I'll leave it right there.

Thanks, Connor.

Our next question comes from Tayo Okusanya of Credit Suisse.

So a question around the acquisition outlook going forward and the pipeline you guys talked about $1.4 billion, it looks very healthy. You've done some really good deals year-to-date and buying senior housing and kind of 6 to 6.5, even sometimes close to 7 cap when your payers are buying portfolios in the 5s, which is all great. But when I still kind of think about your cost of equity today, given where the stock is trading, just kind of curious how you guys kind of think about funding acquisitions going forward, as we to kind of given some of your leverage target?

Yes, I'll take that real quick. In terms of funding in the short term, there's a couple sources that we would look to. First, we have quite a bit of cash on hand, that would be one. We have full availability on our line of credit, but we also have some capital recycling that's occurring throughout the year. And this is not even including the Enlivant sales proceeds. So we have some sales -- some capital recycling that we have expected throughout the year that will help finance some of those acquisitions without having to -- without putting our leverage in a place where we would have to think about raising equity.

Got you. But you would fully expect to use the availability on the ATM, which basically is an equity issuance, right?

Well, if we had to go there, but what I'm saying is that with the cash on hand and using a little bit on the line of credit plus sales proceeds, like the Canadian portfolio that we just announced, we wouldn't have to hit the ATM to keep our leverage in check. We'd be comfortable with our leverage that with the sales proceeds and everything and the cash on hand.

Yes. And that's an important message, Tayo, because last year, as we were really focused on delevering the balance sheet, we're pretty aggressive, as you'll recall, with the ATM. And I think there's a certain sensitivity about how quickly we likely willing to use it. But we got to where we needed to get. And as Mike said, we've got a number of tools available to us now. So we're in a much better place.

Our next question comes from John Pawlowski of Green Street.

Maybe just a follow-up on that last question there. Could you give us a sense for the disposition volume or range of disposition volumes we could potentially see come to market this year?

Yes. I mean I don't really want to be given disposition guidance on the earnings call. I mean we have -- it's going to be of a similar level that you've seen over the last couple of years in terms of volume. I'm not going to be giving cap rate guidance either on this call. But like I said, we have a bit in the pipeline, just your normal pruning of your portfolio and recycling of our capital and putting it into new investments. And I'll leave it at that.

Yes. The only thing I would add is to the earlier discussion about what some of these private buyers are paying, we may be willing to look at some additional dispositions. Again, to Mike's point, it's not going to be major, but it could be slightly more than just the day-to-day step that we normally do. If we think folks are willing to pay a valuation that we think is worth considering.

Okay. Could you give us your latest thoughts on the size of the mortgage loan and pref equity book $400 million right now? Does it grow meaningfully from here? Is it stable? Just help us think through the kind of 2- to 3-year trajectory of that book?

Yes. I'll make one comment and then turn it over to Talya. Philosophically, it's not a direction that we're going in strategically. It's more relationship-oriented with operators and the ability to be a good capital partner on grow with those operators. We don't expect it to be substantial and it's not a strategic thing that we're pursuing.

That's right. On the mortgage side, that's exactly right. On the preferred equity, we've been doing preferred equity at various points in the real estate and financial cycle since we started Sabra. And I think you'll see us continue to do that as the very specific as to which project and what and the timing of where we are in the cycle is an opportunity for us to have a small amount of capital deployed with a relatively high rate of return and optionality typically on long-term ownership in the future. So that's something we like. It also lets us be in the front row of property types that might otherwise not be willing to be able to buy on a stabilized basis on a fully marketed process.

Our next question comes from Joshua Dennerlein of Bank of America.

Sorry if I missed this, but are there any states where you're more or less kind of positive on operators receiving more state funds or maybe even like changes to kind of some of the ease some of the pain points that they have?

Actually, most of the states that we're in have been really good. So the biggest surprise state really was Texas, which, as everybody knows, has historically has one of the worst Medicaid systems in the country, but they've been really terrific to operators. So I am happily surprised by the fact that by far, the majority of the states have been really helpful. And I think it bodes well for the future as well. They're in good shape from a budget perspective. The pandemic has affected their view of Medicaid and how underfunded at certain states it's been. It doesn't mean that we're going to get big increases. But certainly, the tone of the dialog has changed. And the fact that so many of them have stepped up when they could have just banked that, I think, is a big sign.

Okay. Awesome. And then -- maybe just a follow-up on like potential dispositions. Would there be kind of like a more of a weighting one way or the other to a certain asset class? Or it just kind of expect?

Yes. It's really opportunistic. So I'd say Mike noted that our skilled exposure is down to almost 61%, which is as low as it's been in a really long time. And we'd like to see that below 60%. There seems to be kind of a thing out there where as soon as we hit 60% with SNF REIT. So -- but that said, our primary focus is to get back to growth between -- for the Genesis sales and the senior care center sales and the pandemic is being we've had declining earnings these last several years. And so that -- our primary focus is getting back to growth. And so we're not going to bypass doing good skilled deals or do a number of them simply because we're trying to get the skilled exposure under 60%, depending on how we swing. So number one, it's growth earnings growth; number 2, it's balancing the portfolio, but earnings growth comes first.

(Operator Instructions) We have a follow-up from Juan Sanabria of BMO Capital.

Thanks for allowing me to come back in the queue. Just a question on the lease expirations. You've got 3.5% of rents expiring this year. Any color on how we should be thinking about that? And tangentially, is there any purchase options we should be thinking about as well in the portfolio over the next year or so?

Yes. Over the next year or so, there's no purchase options that stand out to me. For the lease, that's maturing this year, that's a tenant that we've talked about for a while. Now it's one of our cash basis tenants portfolio called [Wyo], and we've talked about it for several quarters now. That expires at the end of the year, and we're in the process of putting in a long-term lease with that -- for that portfolio and hopefully should have that announced for the end of the year.

One other comment, let me make to follow up on some of the Medicaid stuff, Juan. The states -- all the states have received money from the Feds. And as I said, the majority of states have been passing that on to the skilled nursing industry. If states don't spend the money, they have to return it. So that should create good tailwinds for our operators as the federal assistance tails off.

Mike, could you just give us a bit more on that exploration on what the coverage is or are they essentially paying on time?

Yes, they've been on a cash flow sweep for several years now. It was a portfolio that we transitioned to one of our best operators, Cadia, they're a top 10 operator. They took over that portfolio a couple of years ago. And there's really 2 portfolios. It's a stabilized portfolio that we did with Cadia back in 2011, one of our first deals and one of our best deals that we've done. And then they took over that Wyo portfolio a couple of years back and as we're looking to, one, reopen one of the facilities that I got shut down and just reposition the portfolio there, we put them on a cash flow suite. And that was a short-term leasing with a 5-year lease at the time. So that 5 years is coming up now. And now we're going to be looking to put it on a more fixed level of rent and something that's just going to be not on a cash flow basis and more steady.

Great. And just one last one for me. Any guidance or color you can provide on G&A, $35 million in 2021? And now there's some uncertainty as to what the T&E budget would be, but any color would be appreciated.

Yes. I mean we had -- our run rate for the quarter was $7.2 million. The year-end numbers -- the fourth quarter numbers, I should say, are always a little bit on the higher side. You have some tax -- payroll tax issues and you had issues, the payroll tax acceleration that happened in the fourth quarter with like stock comp and things like that. But I think that $7 million -- call it between $7 million to $7.5 million is probably a decent run rate to assume on a quarterly basis for our cash G&A.

At this time, I'd like to turn the call back over to CEO, Rick Matros, for closing remarks. Sir?

Thanks, everybody, for joining us today. And hopefully, we are through the vaccines. I know we've said it before. I think the fact that 87% of the workforce is now vaccinated really bodes well going forward. So put some positivity out there. Thanks, everybody. Talk to you all soon.

And this concludes today's conference call. Thank you for participating. You may now disconnect.