Sabra Health Care REIT Inc

NASDAQ:SBRA

Earnings Call Transcript 2020-Q1

[Operator]

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

[Michael Costa, Executive Vice President of Finance]

Thank you. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including the expected impact of the ongoing COVID-19 pandemic, our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition and investment plans.

These forward-looking statements are based on management's current expectations, and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31, 2019 and in our Form 10-Q that was filed with the SEC yesterday morning, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid.

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

[Rick Matros, Chairman and CEO]

Thanks, Mike. On the call with me are Talya and Harold and as soon as I finish my remarks, I'll pass it over to Talya and then to Harold and then we'll go to Q&A. First let me thank you all for joining the call. And I hope you and all your families are safe and doing well during this pretty tough time.

So I’d first like to start the call by honoring and recognizing the staff in all of our facilities. I have the honor of years of working in facilities as an operator. I started as an activity director at nursing home. And so I start to see every day the kind of care that was being delivered and the other services beyond direct care that were being delivered, and how the staff in the facilities, whether they're skilled nursing, assisted living, memory care, independent living, become second families to the residents and patients that reside there.

And the hospitals have gotten tremendous attention and support, and the staff are being cautious this year, which they are and all of that support is well deserved. And they're also being treated with a very high level of understanding relative to the tough staffing issues and the shortage of the supplies. Unfortunately, we haven't seen that from the media as it pertains to skilled nursing and senior housing. And early on in the pandemic, it was identified that the elderly were the most vulnerable population, while the elderly that are cared for in our facilities are even more vulnerable.

And so we’re part of an effort to get some better PR out there, because our staff does deserve the same level of support and understanding that the hospital workers have gotten our facilities have not been prioritized, supplies are still tough, staffing is tough and they deserve the same level of understanding. And so I'll even go a step further, when you all see things out in paper or you see letters I think up head. If you want to take a moment as some of us have to respond to those, we'd appreciate that very much.

It's also appropriate to honor our staff not just because of the pandemic but as the yesterday was National Nurses Day and the beginning of National Nurses week. And next week starting on Monday is National Skilled Care Week, and as I'm sure all of our peers are doing, are doing things out in the field to provide support and to further honor all the workers out in the field.

So with that, let me get on to the direct business at hand. So talking about the acquisition environment, the acquisition environment has come to a complete stop for all intents and purposes. I do think that for the smaller operators, because this is so tough, the smaller operators who don't have good balance sheets or capital partners that can provide them the appropriate support that will create opportunities for us as soon as we move past this pandemic and we look to get back to growth at some point later on.

We did get a number of deals done this year that came from our development pipeline for senior housing facilities totaling 112.6 million for a blended yield of approximately 7.45%. We don't expect to do any material acquisitions looking forward this year. We'll have a few deals, some more direct, from our acquisition -- from our development pipeline similar to the ones that we've closed on this year.

Moving on to the Enlivant JV option, we're not doing anything about this. We don't feel pressed to do anything. Obviously, it's a very difficult time right now. And even though we saw some really nice uplifting performance in the fourth quarter, the combination of the flu season, which was much tougher than last year and now the pandemic hitting really in March, particularly on the cost side, which we’ll talk more about, there's really no reason to do it, we're not pressed to do it.

The fact that the option that we have expires at the end of the year at this point isn't meaningful to us. So we'll take time. We'll see how everything goes. This space is going to recover really nicely and we'll talk more about that. But we still have to see how that plays out and how that affects valuations. So, I would expect us to do anything in the foreseeable future on the JV option and whether we do something, actually exercise the option or come for some other arrangement really remains to be seen. Again, we don't feel pressed.

Moving on to first quarter numbers and the PDPM impact. Based on reported results through February, PDPM had an annualized positive impact of 0.14 on our EBITDA SNF coverage of which 75% was rate related and 25% was cost related. Now we excluded the market basket and we excluded the month of October, so we're talking trailing three months on an annualized basis.

In terms of PDPM, we're much better off as a sector having PDPM in place and we still have drugs in place, drugs incentivized operators to admit short term rehab patients only. Since we've had PDPM in place, we expanded the types of patients that have been admitted to the facilities to include a lot of nursing conditions, more complex nursing care. And that is helping us through, it’s one it positioned us -- our portfolio to be stronger going into the pandemic, because as you all saw in our stats, our coverage improved. But if you look at our coverage on a standalone basis, it improved even more in the first quarter.

And tenants that I know some had concerns about like North America and Avamere, really showed improvement. Avamere’s first quarter of this year was the strongest quarter that it's had since we acquired it. So that's helped us and helped our operators, because they are still admitting and in terms of facilities that have positive COVID-19 patients, if there's a large outbreak admission stopped. If there hasn't been a large outbreak and working in conjunction with the Department of Health Services, most of our facilities are still admitting, particularly if they’ve got the capacity to isolate quarantine new admission may come in. For a period of time, there are very specific guidelines that our facilities are following that have been issued by the CDC and has been supported by the American Healthcare Association in terms of admitting patients.

So that said, the cost savings that we saw prior to the pandemic from PDPM have pretty much gone away, because much of those cost savings had to do with group and comparing therapy. And right now in the facilities everything's being done on a one on one basis, and therapies being done on one on one basis. So that activities have been done one on one, meals have being served one on one. So everything is being done on a one on one basis. So those cost savings, while they will come back post the pandemic, currently do not exist.

For the quarter, as reported, our skilled EBITDARM coverage increased as did occupancy and skilled mix. Our senior housing triple net rent coverage and occupancy were essentially flat. Our top 10 tenants showed their best quarter yet with most of our skilled tenant showing improved coverage, and all benefiting from PDPM. The McGuire Group still had strong coverage over 2 times and showed improved coverage with PDPM on a more current basis. For our portfolio Talya will discuss that in more detail. One of the things I would point out is that it was -- the flu impact really went into the first quarter. And so in March, we really started seeing the cost increases as a result of the pandemic with the occupancy hit as a result of the pandemic starting in early April.

In terms of COVID-19 specifically, I first want to go over the things that we received from our operators and how we're monitoring what's going on in the business. On a weekly basis, we received census tracker from our [Technical Difficulty]. Every two weeks we receive census for all of our operators at the portfolio level. We don't ask for it at the facility level. We’re walking a fine line between asking our operators to provide information that we think is critical so that we can monitor the business, but not causing an undue burden on them given everything else that they're dealing with. But we do get every two weeks census for the entire portfolio on a tenant by tenant basis.

We also received a weekly report on all facilities with COVID-19 positive test results and weekly we track every county and province we have facilities in for the number of positive cases that are out there. And this has allowed us to get some sense of how things might progress in the counties in which we have operating facilities. Our asset management teams talk with our operators continuously, not just to determine status of operations but where we can be of assistance. When we refer to the impact of COVID-19, we use February as the demarcation point. So we're looking at February month to date averages and then looking at March in comparison to February and April and May in comparison to February, as well as March and April as well.

So since month to-date average for February, occupancies for shop is down 160 basis points through the last week of April. The first week of April, however, saw the largest drop and it hasn't been dropping to that degree since then. Our triple net senior housing occupancy was down 130 basis points from the February average to the last week of April. So our senior housing has really held up pretty well, while admissions is slowed down, there has been a slow down in the back door. And really what's happened is the number of our residents who are able to leave or who’s families might consider taking them out feel more secure having them in the facilities and from a practical perspective simply may not be able to provide the care they need outside of the facilities. So that's mitigated some of the occupancy to a certain extent.

The other thing I would note though is if you look at our occupancy on a year-over-year basis, both triple net senior housing and in shop, it's a bigger drop and that bigger drop really reflects the impact of the flu. I’m everybody recalls first quarter of 2019, we had a pretty light flu season we have virtually no impact. And this is a tough flu season, not dissimilar to what we saw a couple of years ago. Although, not as long in duration as we saw in 2017 and 2018. So the reality is the facilities have to recover from the combination of the flu and the pandemic. But when we just measure how we're doing since the pandemic and we look at the occupancy trends that we have access to in the senior housing industry, I think we held up really pretty well and probably will be more specific as to the reasons why we believe that’s the case.

Our skilled nursing occupancy was down 460 basis points from February month to date through the last week of April. Our skilled mix is declining at about one third of the rate that our talking was. So skilled mix has been holding up pretty well and then it went from declining to flat, and we now have an increase in skilled mix. And our skilled mix as of the last week of April is actually higher by just a little bit than it was before the pandemic hit.

And so that's helped to mitigate some of the problem as well as the fact that skilled mix has been so healthy. And the reason that skilled mix has been healthy. And one going back to the comment I made earlier about PDPM, you've got a much larger population who are focused on nursing needs. Those individuals also have a long life to stay, so that’s helped. And with the suspension of the three day hospital stay requirement, we're now able to skill in place. So specifically, if someone's condition worsen before -- and they were on Medicaid, they would have to be discharged to the hospital where they get additional care regardless of whether the care could be treated at the nursing home and then they'd be sent back to the facility where they would qualify for Medicare.

So these folks, even when they're on Medicaid in the facility, they have their Medicare benefit. They just had to go through this discharge and then back to the facility, which is one of the reasons that the industry has always tried to lobby for a permanent retraction of that rule, because it really doesn't make a whole lot of sense and enhances transfer trauma and things like that. So now that is in place, our patients will be skilled in place. So you have a Medicaid patient whose acuity has increased for whatever reason, it doesn't even necessarily have to be COVID-19 related, although, maybe certainly, then they can be put on Medicare without being discharged back to the hospital for three day qualifying stay.

And we've seen some important changes in terms of metrics from that perspective. And there is some more extreme examples where there have been bigger drop in occupancies where there's been a big breakdown of COVID, but they've been able to care for most of those folks in place and able to convert them for Medicaid to Medicare while they're there. So, that's been a positive. And the other factor that's going to help going forward on skilled mix is effective May 1st, sequestration was suspended and so we've got 2% increase in the Medicare rate as well.

So all of that does help. The occupancy drop is almost entirely due to the cessation of elective surgeries. When we take the facilities that are positive COVID excluded from our census we see almost no difference, because the drop from elective surgeries is such a huge proportion and given the numbers of buildings that we have that the impact from COVID particularly since a lot of the facilities still admit, it doesn't really materially impact the overall occupancy at least to this point.

Now we move on to mitigation from the various relief packages that are out there. We're also tracking with each of our operators are accessing from the variety of programs that are out there. And so I'm just going to use aggregate numbers right now. I think, some of you may have seen this in our filings. But we have a total of 320 million that our operators have access broken down as follows; 100 billion from the public health care and social emergency fund providers, so PHSSEF; 60 million from that $100 billion; from sequestration suspension 10 million; from FMAP 20 million and we hope that that will improve; from the advanced Medicare payment program 150 million. And comment I would make there is number of our operators have chosen not to access that, because it has to be paid back; number one, in relatively short order; and secondly, some of your lenders are asking providers to pay down their line when they access that money.

There are some lenders out there who were being flexible on that, and we greatly appreciate flexibility from everybody during the pandemic. But that's limited the number of operators that we have that have access to advanced Medicare payment program. On the employer payroll tax rate delay that 6.2%, there’s 50 million. There's 30 million on PPE. And again, the way that the three day hospital stay does provide a benefit but you really can't quantify what that benefit is.

We're hoping for more health and we are cautiously optimistic that there will be another package that will be specifically to help on the Medicaid side but it's not done yet. So we don't think this is all there will be. And if this goes on longer, we'll have to wait and see what else there will be out there. We currently have 80 facilities with positive COVID-19 patients or residents and 22 of our 70 tenants. And those 22 chance two of those tenants are senior housing and live and holiday. We're seeing different patterns in the asset classes.

And as you would expect, in assisted living and even more so independent living, the population is healthy, you got less employees coming into exposed folks. So that does help somewhat but we're still experiencing positive cases. In the skilled nursing facilities, there really hasn't been a pattern, either we've had facilities that have had large breakouts and we've had facilities that have had a few patients and not much beyond that. And when a facility has some of our test positive, everybody gets tested in the facility. But there really hasn't been a pattern there. So some of that may be the efficacy of the testing. And in terms of the 80 facilities that doesn't mean that we don't have more positive COVID patients in other facilities. But as everybody knows, there continues to be a problem with both the adequacy of the testing and the quantity of the testing.

So we are cautiously optimistic, however, because our census decline is slowing in skilled nursing. As I said, our skill mix held up better than overall occupancy and it’s now increasing. The counties with Sabra facilities not showings as many decreases in cases as increases in cases. Following protocols with also the lack of testing we’ve had a positive impact. So in other words, because of the lack of testing and the reliability in some cases of testing, so you've got FDA approved tests out there that still have high false negatives and false positives. But every patient is being treated according to CDC guidelines as if they have COVID-19.

So while we know, we have more positive cases and we're aware of, we also know that we've had untold numbers of patients and residents that have had it, that have been treated in place and have recovered from it, that have not been sick enough where they need ventilator care, for example, needs to be transferred to a hospital. So, we think that's really helped quite a bit. And Enlivant, for example, which has done a lot of testing, has had 1% positive rate. And again, that's because of the protocols that they've been following.

And a lot of this does come down to the operator, not just the markets they're in and what's occurring in test availability. My initial concern coming into this was on the senior housing side, because they didn't have the same level of experience dealing with infections and things like that, that skilled nursing had. And certainly even more so on the independent living side, it’s not a healthcare setting, assisted living and memory care has become a needs based business obviously. So it's much different than it was during the great recession.

But when you have a provider like holiday who regardless of the fact that you now have healthcare workers in place, institutes all the guidelines immediately, all the restrictions in place on visitors and such, it had a very positive impact. So that's been really great to see from an operator perspective, that we have operators that regardless of their experience or asset class, everybody's jumped on it with sort of the same vigor.

And one of the things that we do, I mentioned our asset managers is, we trying to provide as much assistance as possible and that goes from sharing best practices. And so we share with our operators what other operators are doing. We source supplies in terms of all the release programs, we disseminated as much information as we can to help them get access to make referrals on how they can get access, if any of them were struggling with it.

So we'd like to think all that helps in terms of the value that we're trying to bring to all of our tenants. All that said, availability of supplies continues to be an issue. Masks are much more available than they were, gowns are a huge problem. And so, there’s nothing on the horizon that shows that there will be some relief there, but at some point there will be, but that’s the biggest problem, right now. In terms of costs going forward and I know that that's on everybody's mind. I think for the skilled nursing, a lot of these additional costs will go away.

And I think the skilled nursing as well as senior housing definitely be an uptick in inventory. Skilled nursing facilities typically have a lot of stock, now the stock has to change a little bit now because this is different. The senior housing operators normally don't carry the same kind of inventory for the obvious reasons that skilled nursing does, but I think they'll have those on hand. So they'll be more prepared for something like this happens again. I do you think from an infection control perspective, there’ll be some increase in supplies on a go forward basis. That's more material for senior housing on a relative basis, just because the cost of labor is the biggest driver in skilled nursing on a relative basis that additional cost, I don't think we'll have that much of an impact.

And I think it will be reasonable at the senior housing level, again, I think it's going to be more a function of building up inventory, so you have what you need in case something should happen on a go forward basis.

And then finally, before I turn it over Talya, let me comment just briefly on our specialty hospital portfolio, which is primarily behavioral facilities but we also have some other facilities and children's hospitals and others as well, that's 10% of our NOI and that's been remarkably stable through this period of time so far. And no sense at this point that there’s going to be any material impact relative to that 10% of our NOI in those facilities.

And so with that, I will turn the call over to Talya.

[Talya Nevo-Hacohen, Chief Investment Officer and Treasurer]

Thank you, Rick. In my remarks, I'll provide you with the first quarter operating results of our managed portfolio. The first quarter mostly reflects the pre-pandemic environment and sets the stage for the broader impact of the spread the coronavirus that has followed. I will also provide you with insights into April's results, which will include real time data on senior housing operations amid the pandemic.

In the first quarter of 2020, approximately 17% of Sabra's annualized cash net operating income was generated by our managed senior housing portfolio. Approximately 52% of that relates to communities that are managed by Enlivant and 33% relates to our Holiday managed communities. The balance includes our Canadian portfolio and five assisted living and memory care communities in the U.S.

On a same store year-over-year basis, the managed portfolio, which excludes the Holiday portfolio and two recent acquisitions, showed favorable top-line results in the first quarter compared with the first quarter 2019. Revenue increased by 2.1%. Revenue per occupied room RevPOR, excluding the non-stabilized assets, was up 3.8% despite occupancy declining from 85.1% to 83%. However, cash net operating income decreased by 10.1% from $14.9 million to $13.4 million in part related to the impact of COVID-19 preparedness costs incurred in March by our operators. Occupancy remained fairly consistent during the quarter. But late in the quarter, operators began to incur unbudgeted costs for PPE and changes to the delivery of resident services, which together had a negative impact on cash net operating income and margin.

I wanted to grasp briefly and describe what has transpired for operators and senior housing over the last 45 to 60 days, and provide context for that within our managed portfolio. In the face of the coronavirus, operators have had to retool nearly everything that they do and get it done quickly and effectively. Virtual tours have to be created since in person tours were not allowed. Rules had to be developed to ensure that incoming residents were infection free. Clinical assessments had to be done virtually. Dining had to be converted to interim only, meaning that all meals had to be prepared, packaged and delivered to each resident three times a day at a minimum. Group activities had to be replaced with activities that could be done with residents kept socially distant. Staff had to be screened before every shift and sometimes after, including logging their temperatures. Sufficient mask, gloves, gowns and even face shields has to be stocked to ensure appropriate protection.

In light of this primarily a national assisted living and memory care operator with a portfolio smaller communities and secondary and tertiary locations with a middle market price point, staff in each community includes healthcare professionals who support the day-to-day medical needs of residents. Holiday Retirement is primarily an independent living operator also with a national platform. The operating model centers on providing a social environment, comfort and activities. Staffing each community is limited to residential supports, such as housekeeping, dining and activities and there are no healthcare professionals on staff.

And our portfolio managed by Sienna is similar to that of Holiday but located in Canada. And as a company, Sienna Senior Living operates nursing homes as well as retirement homes in Canada. So there are significant health care resources within the organization, even though it is not a service offered within our communities. Regardless of whether health care services were part of their offering to residents, operators were now on the front line of protecting residents from a very real health care threat and they assessed, planned and implemented change immediately.

The Enlivant joint venture portfolio of 168 properties of which Sabra owns 49%, showed top line improvement in the first quarter of 2020 on a same-store year-over-year basis, but was impacted by cost related to preparing for the pandemic late in the quarter. Average occupancy for the quarter was 81.5%, 1.5% lower on a stabilized same-store year-over-year basis coming off with impacted the flu, which affected occupancy beginning in November and into January.

RevPOR was $4,340, 2.7% higher on a stabilized same-store year-over-year basis. Taken together, revenue was 1% higher on a same-store year-over-year basis. However, cash net operating income margin was 22.1%, 4.2% below the prior year's results on a same-store basis. And this includes $482,000 of Sabra’s share of the COVID-19 related costs, primarily medical supplies, raw food, dining supplies. As the community stocked up, prepared for and implemented infection control protocols and in-room dining, this additional costs represents 1.3 points of margin.

During the month of April, average occupancy in April declined about 130 basis points compared to February's average, impacted primarily by fewer move into the start of April, although, somewhat offset by fewer move outs than expected. Rates of housing collections have been normal. Enlivant estimates that Sabra’s share of continued expenditures on PPE, labor and employee programs will be about $425,000 per month.

In total, 10 of our Enlivant JV properties has had a resident test positive for COVID-19. As of a couple of days ago, only four communities had a resident with a positive test. In the second half of April, Enlivant began to see an increase in leads and virtual tours, potential residents have delayed moving that they could in order to wait it out would suggests that there is pent up demand. Enlivant’s ability to manage the safety of its residents and staff through this period plus the backlog of delayed move ins makes us cautiously optimistic about occupancy level.

Sabra’s wholly owned Enlivant portfolio of 11 communities continue to experience strong rate growth. However, as described in last quarter’s earnings call, occupancy and margin that had been affected by the early start of the flu season in the fourth quarter did not have a chance to rebound. First quarter occupancy was 86.1%, a 3.4% decline compared to the prior quarter, declining from 86.9% in January to 85.5% in March. The recovery from the regular flu was overwhelmed by the impact of the pandemic. REVPOR in the first quarter was 5,799 in line with the prior quarter and 8.1% higher than the prior year. Revenue was 2.5% higher on a year-over-year basis, but 3.9% lower on a quarter-over-quarter basis.

However, cash NOI margin was 26.2%, 3.7% below the prior quarter's result. The decline in cash net operating income and margin reflects reduced revenue due to change in occupancy described above and $80,000 of costs related to COVID-19. During the month of April, occupancy averaged 83.9%, 210 basis points below February's average occupancy. The occupancy decline was mostly in the first half of April as fewer new residents moved in, and this was stabilized by fewer move outs, resulting in flat occupancy in the second half of the month.

Similarly, rates have held steady and collections have been fine. Enlivant estimates that Sabra’s share of continued expenditures on PPE, labor and employee programs, will be about $100,000 per month in this portfolio. In total, four of our wholly-owned Enlivant communities have had a resident test positive for COVID-19. As a couple of days ago, three communities had a residence with a positive test. We transitioned our Holiday communities from our net lease to managed portfolio at the start of the second quarter of 2019, so we do not yet have year-over-year same-store results to report.

In addition, we transitioned our independent living community in Frankenmuth, Michigan to Holiday in the fourth quarter of 2019. Portfolio occupancy, excluding the transition community was 87.2% in the quarter, 0.6% lower than the prior quarter. RevPOR on a same store basis, excluding the one transition community was $2,496, slightly higher than $2,486 in the prior quarter. Cash net operating income, including the recently transitioned community, was in line with the prior quarter with a cash NOI margin of 35.2%, $139,000 of COVID-19 related costs were incurred in late March.

During the month of April, occupancy averaged 86.4%, excluding for one transition community, only 40 basis points below February. Rates of housing and have been no issues with collections, Holiday continues to apply 4.5% increase on these anniversary dates and there has been little pushback because of resident positive experience. COVID-19 related costs for April are expected to total $278,000.

So far only two of Holiday communities have had a resident test positive for COVID-19. The Holiday team has done extraordinary work managing all aspects of the pandemic, particularly because their operating model is not geared to or stashed to handle health care matters. In order to further support its residents, Holiday rolled out a free telehealth program, giving residents access to medical providers, while protecting them from possible exposure to the virus.

Sienna Senior Living manages eight retirement homes in Ontario and British Columbia for Sabra. In the first quarter of 2020, the eight properties managed by Sabra delivered 85.3% occupancy, 3% lower than the prior quarter and 4.9% lower on a year over year basis. RevPOR was $2,227, which was flat to the prior quarter and 2% higher on a year over year basis. First quarter NOI was also flat to the prior quarter, but down 3.7% on a year over year basis, reflecting the revenue decline. This includes about $20,000 in COVID-19 related costs.

Cash NOI margin was 38.9% for the quarter, a 1.1% increase over the prior quarter and 0.5% lower on a year over year basis. During the month of April, portfolio occupancy averaged 84%, only 20 basis points below February's average and ended the month 83.9%. Occupancy increased in several of the properties but was offset by a decrease in occupancy in two homes in Ontario, both impacted by new competition in the market.

Today there have been no confirmed cases of COVID-19 in our Sienna portfolio. The number of infections is very low in the interior of British Columbia where four of our retirement homes are located, and there are fewer than 19,000 cases in the entire province of Ontario. Sienna has seen some potential residents defer moving in until the pandemic eases, yet many see retirement home living as a safer option at a time when isolation and access to food, services and community threaten so many older adults.

Independent living residents in our Holiday and Sienna portfolios maybe the same age as the residents in assisted living and memory care, but they are healthier and require less care. Lower care means less staff, which means fewer interactions with people coming in from outside the community. We believe that this has helped to support occupancy during April.

There are two things that run through those results that we had discussed; occupancy pressure during April and costs incurred to ensure strict adherence to CDC protocols. The occupancy story is simple, more move outs than move in. In April, move ins were down about 40% year over year, while move outs continued but at a slower pace than usual. In particular, residents were reluctant to move to higher levels of care and others didn't have access to the support they needed during the pandemic outside the community.

As infection control protocols are implemented and visitors were restricted, sales strategies had to be modified and new residents moving in were often required to have a COVID negative test and spend two weeks in self isolation in their new apartment, not very appealing unless the move was truly necessary. Our operators discovered that virtual tours turned out to be a strong sales tool as it allowed greater access to potential customers and decision makers. All of our operators have now ramped up their digital marketing to generate leads and are seeing strong responses. They believe there is pent up demand for senior housing. At the same time, rates are holding and collections are normal.

On the cost side all of our operators have worked to procure and stock materials necessary to continue to deliver services to their residents, such as meals in their rooms. Our operators are faced with additional labor costs, because of the need for additional cleaning and meal packaging and delivery and additional labor to cover for staff impacted by the virus.

Our managed communities located mostly in secondary and tertiary markets and targeting a middle market price point have so far shown themselves to be more shielded from the pandemic and its impact. The spread of the coronavirus has been worse in densely populated areas with 70% of cases in primary markets and far fewer cases in secondary and tertiary markets, measured both on an absolute and per capita basis. The labor pool is more stable and loyal in competitive urban markets. And in many of these locations, the senior community is an important employer. These communities are part of the fabric of the towns where they are located, they are the place where older adults can live out there years in a place they know with the support they need.

During a national crisis, these communities have continued to care for their residents and their workforce, be dependable employers and providers of jobs in a time of uncertainty and job insecurity and has gendered goodwill that we believe will carry forward. With that I will turn over the call to Harold Andrews, Sabra's Chief Financial Officer.

[Harold Andrews, Chief Financial Officer]

Thank you, Talya and thanks everybody for joining the call. I will begin my comments with an overview of the quarterly results and finish with some discussion around the financial implications of the COVID-19 pandemic going forward. First, I would like to note that the COVID-19 began in March, which for our financial performance only impacted our managed portfolio.

The impact included cost increases and mineral loss revenues to lower occupancy. The cost increases included certain identified direct cost totaling $0.3 million in our wholly owned managed portfolio and $0.5 million in our share of the joint venture assets operated by Enlivant. These are costs that were directly related to COVID-19, such as incremental personal protection equipment, incentive pay, incremental staffing and incremental operational and cleaning supplies. We have normalized this $0.8 million cost impact out of our FFO and AFFO for the quarter, and we made no normalizing adjustments to revenues.

And now for a few comments about the financial performance for the quarter. For the three months ended March 31, 2020, we recorded revenues and NOI of $149.3 million and $125.6 million respectively as compared to $155.8 million and $134.8 million for the fourth quarter of 2019, representing declines of $6.5 million and $9.2 million respectively. The declines in revenue and NOI were primarily due to the write off of straight line net receivables and above market lease intangibles, totaling $6.1 million associated with four operators move to cash basis accounting. These operators represent 3.1% of our total annualized cash NOI.

FFO for the quarter was $86.9 million and on a normalized basis was $92.1 million or $0.45 per share. FFO was normalized primarily to exclude $5.8 million of the write off of straight line rent receivables and above market and lease intangibles mentioned a moment ago, and $1.9 million settlement received from a legacy CCP legal case and the $0.8 million of incremental costs associated with COVID-19, also mentioned a moment ago.

This compares to normalize FFO of $95.6 million or $0.48 per share in the fourth quarter of 2019. AFFO, which excludes from FFO, merger and acquisition costs and certain non-cash revenues and expenses, was $91.8 million and on a normalized basis was $90.5 million or $0.44 per share. AFFO was normalized primarily to exclude the same $1.9 million settlement received from a legacy CCP legal case and $0.8 million of pandemic related expenses that were normalized out of FFO. This compares to our normalized AFFO of $93.2 million or $0.47 per share for the fourth quarter 2019.

Approximately one half of this $0.03 per share declines in normalized FFO and normalized AFFO is attributed to the incremental weighted average shares outstanding in the first quarter of 2020 over the fourth quarter of 2019 due to our deleveraging activities, while I have a primary contributor with higher compensation expense, including $0.7 million of cash compensation, and $1.4 million of stock-based compensation, which impacted FFO only.

Stock-based compensation was in line with expectations during the quarter although higher than the fourth quarter of 2019, as that quarter included an accrual true-up to reflect lower payouts than accrued for in earlier quarters. For the quarter we recorded net income attributable to common stockholders of $35.2 million or $0.17 per share.

G&A cost for the quarter total $8.8 million, up $2.8 million from the fourth quarter of 2019, which were low due to an annual equity award for us, mentioned a moment ago. First quarter 2020 G&A costs included $2.4 million of stock-based compensation expense, recurring G&A costs of $6.2 million, or 4.9% of NOI for the quarter and in line with our expectations.

Our interest expense with a core total of $25.7 million compared to $27.4 million in the fourth quarter of 2019. This quarter-over-quarter reduction is primary driven by a combination of debt pay downs in the fourth quarter of 2019, associated with our deleveraging activities and lower overall borrowing costs.

Our cost of permanent debt declined 12 basis points from the end of 2019 to the end of this quarter to 3.67%. Now our revolver borrowing costs declined 82 basis points from the end of 2019 to the end of the quarter to 2.09%. Interest expense includes $2.2 million of non-cash interest for each of the first quarter of 2020 in the fourth quarter of 2019.

Other income of $2.3 million for the quarter includes the $1.9 million legal settlements previously mentioned. And the loss from our unconsolidated joint venture includes a $1.7 million loss on the sale of two assets from that portfolio. During the quarter, we completed the acquisition of two senior housing triple net communities and one senior housing managed community from our property, proprietary development pipeline for aggregate purchase price of $83.4 million with a weighted average cash yield of 7.51%.

We also completed the sale of three skilled nursing transitional care facilities for an average sales proceeds of $6.8 million, resulting in a $0.2 million loss on sales. During the quarter, we recorded no revenues from the sold facilities. As of March 31, 2020, the Company's determined that two skilled nursing transitional care facilities with an aggregate net book value of $11.3 million and a net secure debt balance of $13.8 million net declined period to be classified as assets, liabilities, held for sale.

These balances are included in accounts receivable, prepaid expenses and other assets net, and accounts payable and accrued liabilities respectively. Subsequent to March 31, 2020, we completed the sale over the facilities for an aggregate gross sales price of $14.4 million, inclusive of the assumption by the buyer of an aggregate $14.2 million of HUD-insured mortgage debt, encumbering the facilities.

During the quarter, we issued 0.2 million shares of common stock under the ATM program at an average price of $20.33, generating $3.9 million of gross proceeds before $58,000 of commissions. While we expected to issue additional equity during the quarter, under the ATM program to further lower our debt and positively impact on leverage and we completed the acquisitions previously mentioned. The sharp decline in the equity markets eliminated that opportunity.

However, we're very pleased with maintained our leverage with the lower target of 5.5 times including our share of the enlightened joint venture debt, which stood at 5.747 times and 4.97 times excluding the joint venture debt. We were in compliance with all of our debt covenants as of March 31, 2020, and continue to have a strong credit metrics as follows.

Interest coverage 5.28 times, fixed charge coverage 5.07 times, total debt asset value 36%, unencumbered asset value, unsecured debt 269%, unsecured debt asset value 1%. On May 6, 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.30 per share. The dividend will be paid on May 29th to common stockholders of record as of May 18th.

The dividend was reduced this quarter in response to the uncertainty around the impact for COVID-19. We've set the dividend this quarter at a level we feel can be sustained in the future, even if our operations are disrupted to a level in excess of what we believe is likely to occur. We'll continue to evaluate the dividend payout as we get through the pandemic.

Shifting gears to the financial implications of the COVID-19 pandemic. I would like to start by noting that we have formally withdrawn our 2020 earnings guidance, due to the significant amount of uncertainty around the impact, it may have on our triple net rental revenues and our managed portfolio performance over the balance of 2020.

We can however provide some insights into the strength of our balance sheets and our fortified liquidity position that will provide a solid foundation as we see our way through this difficult time. As of March 31, 2020, we had over $950 million of liquidity. Our principal payment obligations to the end of 2021 totaled only $19.6 million, and we have significant cushion in our debt covenants.

We're suspended all significant investment activity thereby eliminating any associated material liquidity requirements. We anticipate continuing this manner, until our cost of capital provides a clear path for pursuing and creative investment opportunities that can be match funded with debt and equity to maintain our leverage targets.

Reductions of our quarterly dividend from $0.45 per share to $0.30 per share will preserve an incremental amount of liquidity equal to approximately $30 million per quarter. Given these factors, we feel confident in our ability to sustain the disruption of cash flows from operations for an extended period of time, even at levels well excess of what we believe is likely to occur.

To-date, we have not seen a disruption in the monthly payment of rent associated with the COVID-19 pandemic. For the month of April, we saw rent paid in the normal course collecting 100% of our forecasted rents, and through the first few business days of may, we have seen collections slightly above our normal level of collections at this point in the month.

We have not used any deposits or other credit enhancements to fund rent payments due to COVID-19 disruptions. We do expect that relief will be warranted for some tenants and all of such requests will be evaluated on a case-by-case basis.

Taking into consideration the following, the operators first avail themselves to the government relief programs available and practical access to the operator's business plan and approach to managing the operational and financial challenges demonstrates a strong commitment to quality care and fair and reasonable approach to addressing all of its financial obligations.

Rent relief is provided, will be on the basis of helping the operator to navigate through the challenges presented by COVID-19. This means providing temporary relief to the level that the cash flows can support and not a permanent reduction that provides a level of rent coverage one would expect to provide under a long-term lease renegotiation.

Finally, we expect rent really to take the form of a rent deferral and not a permanent forgiveness. Levels of stress and other factors will dictate the timeframe we will consider for repayment and the need referrals, and each will be determined on a case-by-case basis.

A couple of comments on our analysis of the available government assistance for our operators, in our supplemental on Page 7, we provided COVID-19 mitigation summary which identifies the estimated funds available to our tenants from these various programs. Three of the programs can have a direct positive impact on EBITDA, so you can provide short to medium term cash flow relief and one has the potential to be a permanent cash injection through the forgiveness of an SBA loan, if certain criteria are met.

While the total amount of approximately $320 million is informative when evaluating potential mitigation at a macro level, it must be noted that certain limitations on the benefit may also come into play. For instance, the estimated $150 million of liquidity available to our operators who may benefit from the accelerated and advanced Medicare payment or AAMP plan may be limited in its desired effect on liquidity and some working capital lenders may require any funds received on this program to be fully reserved.

In addition, the amount available for relief must be evaluated on an operator by operator basis and therefore broad-based conclusions about mitigation across the portfolio cannot not be made based on these estimates, certain of these mitigation funds will be provided to operators who would not have otherwise required rent relief, while some operators may need rent relief in addition to obtain the funds available for them.

Finally, relative to our debt ratings, we have been and will continue to be in close contact with the three rating agencies during this pandemic. We believe we have good visibility into the drivers of our ratings and currently have cushion in those financial drivers. Notably, we believe our net debt to adjusted level for each of the rating agencies, drivers have cushion that will provide us routes, sustain a sizeable disruption in our even before tripping any downgrade drivers.

Furthermore, we understand that the health of the operators in our portfolio is a key rating driver from the agencies, and we will continue to provide them this information they request to make informed assessments that may impact our ratings. And while we cannot predict at this time the final impact on EBITDA from the financial stress created by COVID-19, we do believe that excluding any such stress, our net debt to adjust EBITDA can be maintained through 2020 in the area of 5.50 times without accessing equity and debt markets to further reduce debts.

And with that, I will turn the call back over to Rick Matros.

[Rick Matros, Chairman and CEO]

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

Thank you. [Operator Instructions] Our first question is from Nick Yulicowith with Scotia Bank.

[Unidentified Analyst]

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

[Rick Matros, Chairman and CEO]

Yes. So I know and I still wanted to note someone made an attempt to do that, but that doesn't make any sense to us because every operator -- not every operator is accessing all the programs. So it's affecting every operator differently depending on what's happening with their operations, depending on how COVID-19 has affected the business. So if you just look at averages, I don't think there's anything about that that's helpful.

Looking at that and trying to say, okay, this is going to help them for two months, depending on how much occupancy drops or whatever. I just don't think it works that way because the decisions the operators made with specific to their own needs and that's going to determine what they accessed or attempted to access and how much time that will give them.

So the only thing I'd really say is, if you were told me two months ago that we'd be sitting here today, not having granted any rent relief that I would be surprised. And particularly on the senior housing side, because the senior housing operators don't have these programs to access, and so my, sort of opening comments about how our operators haven't been prioritized within the healthcare system, even less so for senior housing and for skilled nursing, right.

And I think in our case, because the pandemic for all the reasons that Talya talked about hasn't impacted our senior housing portfolio, triple net or shop, as we've seen in some other places, it's enabled them to continue to move forward without any, any additional assistance. So I just don't buy the metrics. I mean, I get why people try to do it, just don't buy it.

[Unidentified Analyst]

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

[Rick Matros, Chairman and CEO]

Yes, so it's a little bit hard to predict because, well, one thing I'd say, just generally speaking. There'll be a lot of pent up demand. So when it starts, I think the recovery will be much quicker than say, if you bought a facility say that had 20% vacancy rate, there's probably a lot of reasons to that, it's going to take you a long time to resolve that. This is different than a lot of pent up demand.

The reason it's hard to predict because there are a number of states that have said they're starting elective surgeries, but if you actually drill down, you're starting elective surgeries for certain conditions. It's not necessarily blanket and all these places. So I think what we're going to see is, it's going to be a very market specific issue where we start seeing things ramp up.

I will tell you that all of our operators have been in continual communication with the hospitals that are normally their primary referral sources. And so, they know specifically when they're going to be ready to go and they can take. Now, there may be some facilities that maybe had a big COVID break out, and they're just not ready to do the yet. But so majority of facilities, they will be ready.

And I think in some of the geographic areas that really got hit, so Washington State was kind of ground zero, and we had a couple of North American and avenue buildings that got hit with pretty decent size breakouts. But since then, it's going to continuing within spreads to the other facilities that we have in the states.

So, there's been a lot of recovery earlier on, when we have larger breakouts that going to enable these operators to start admitting again. And some people have asked, why would you admit at all? Well, one, the hospitals and physician groups need our operators to admit. They have people that just have to be taken care of. And so that's helped somewhat that’s where you see some of the benefits that we're seeing in our numbers with the skilled mix.

So, it's impossible to predict that I would say when it starts with a lot of pent up demand. The other point I make and I think it's pent up demand applies to assisted living and memory care, not just skilled nursing is to the extent that people needed surgeries and it's been deferred. Given the age of the population, I believe that we're going to be admitting patients that are sicker than they otherwise would have been, because by delaying surgeries, it can exacerbate other issues they have as well.

So we may want getting patients that are sicker than, if we have been able to admit them in a timely manner because there wasn't a cessation at surgeries. During the great recession, we saw a cessation -- we saw a pullback of elective surgeries for very different reasons. Everybody was -- it was a financial situation. People couldn't pay out of pocket. And we saw less of a delay with our age group, there with the other age group, about 45 to 60 days.

But this is just -- we've already passed a few days really. So I do think we may see some sicker patients. That's a long answer to your question without specifically answering it, but that what we got right now.

[Operator]

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

[Michael Griffin, Citi]

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

[Rick Matros, Chairman and CEO]

Well, it's different for every program, right. It's not all payback. So, the sequestration suspension, that'll get let say, next year, it looks like, that math isn't a payback. The important task delay, they're going to retain their employers. And the same thing with PPP, those aren't necessarily payback.

The payback is with the advanced Medicare payment program and that's why very few of our operators have access to it. They work with their lenders to see if they actually could use it not use all the pay down in line. And so the operators avail themselves of that one piece just because there's enough going on in their company that they have a very high level of confidence that over the next year, which is when they have to pay it back, we'll be able to send it back.

And in all likelihood, what will happen is Medicare may just take pieces of it over a period of time. So, there'll be some negotiation. So it's really just the one piece and no for operators having available themselves of that piece. It's just for a decent sized operator getting three months of Medicare in advance of huge numbers. So that's 150 million looks larger than it is in terms of the number of operators it's really impacting. Does that make sense?

[Michael Griffin, Citi]

Thanks. I appreciate that.

[Rick Matros, Chairman and CEO]

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

[Michael Griffin, Citi]

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

[Rick Matros, Chairman and CEO]

Harold, do you want to take that?

[Harold Andrews, Chief Financial Officer]

As I said in my opening remarks, we're actually not prepared to increase leverage beyond the levels that we've identified. There's going to be -- certainly, if there's some disruption and we see some rent relief that we have to provide, there is a chances that our EBITDA numbers will go down, which would naturally increase our leverage to some extent. So we had to be very mindful of that. I would just add that we're extremely focused on maintaining our credit rating.

And certainly given what's going on in this environment, there is some risk, if they rating agency could look across the portfolio or I should say look across the whole space and think about downgrading. So we're just being very mindful about. What I said in my remarks, we're really going to be very cautious in our acquisition activity until we can continue to fund it matching funds with both debt and equity. So, we maintain leverage below that level you've identified as our target.

[Michael Griffin, Citi]

Okay. That's it for me.

[Harold Andrews, Chief Financial Officer]

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

[Operator]

Our next is from Steven Valiquette with Barclays.

[Steven Valiquette, Barclays]

Couple of questions, first of all, I do want to circle back quickly on that comment from a minute ago, I am a little surprised around the comment that SNF operators would not be accessing the advanced payment program. As really every company is just going to be paying that back out their future Medicare receivables and future revenue that they would have received from CMS down the road. So, it's really not even alone, it's just getting revenue early with really no penalty for doing so.

Like every household, we spoken to said they're having that whether they need to or not, I am surprised that some of the SNFs are not having that. Just kind of a more of a comment than a question, but if you want to comment on that. Then the other question that I really wanted to ask about was, has to do with the accounting for your operators when they're reporting their EBITDA or back to you.

Some companies are excluding COVID-19 operating expenses, some are not, seems like the stimulus federal grants in my mind probably should be counted as EBITDAR, but again these advanced payments probably not counted as EBITDAR. But just curious how you're thinking about any sort of standards for reporting this back to you from your operators quarterly when you're talking about EBITDAR coverage ratios down the road? Thanks.

[Rick Matros, Chairman and CEO]

I'll comment on the first and shift it over to Harold for the second. So on the first, I'd say a couple of things. One, they're determining what they actually need and if they're getting enough assistance from these other programs and they don't have to access the advanced Medicare program, they're not doing it. Secondly, depending on who their lender is, if that lender is requiring a complete paid down the line, which then do for every dollar they get, why would you do that, right.

So, that's really why, they're just looking at it individually. If they don't want me to put themselves in that situation, if it were, if they try to be a little bit more cautious on when Medicare occupancy's come back or build up to a level that they think is more normalized. They just don't want to be in a position where they're having to pay that back or have those deducts later on, if the other assistance programs that they've accessed that seems to be meeting their needs, which is the case.

[Steven Valiquette, Barclays]

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

[Harold Andrews, Chief Financial Officer]

Yes, I think Talya had it in her comments, kind of what we were expecting. I think on an annualized basis for in my event it was about 425,000 per month. Now that's our share. That would be our share for about $5 million on an annualized basis, and then the others would be much smaller than that. I think holiday was quite a bit smaller, but I think it was let's see, 80,000 for the month of April in our live at Holy Oak portfolio and then for holiday is affects about $1.2 million on an annualized basis, about a $100,000 a month and we'll look, we'll scrub that and we would intend to pull it out on a normalizing basis most likely and report that so people can get a sense for what it is without those costs.

And specific to reporting coverage’s to finish up on your first question. If you look on our supplemental on page seven we identified that have implications for our EBITDA, which would improve coverage going forward, which is basically the $100 billion program of which we had 60 million available. Obviously, the suspension of sequestration would have an effect on EBITDA and then EFAP, which is the federal medical assistance program that the federal government's giving to the States, and that number is about $20 million. And that's the number that's going to continue, hopefully to go up.

We were able to identify 15 States that has made determinations of how they're going to utilize those funds and how they're going to impact, skilled nursing, and so there's a potential for that piece to go up higher. But those three areas do have a positive impact on coverage’s while as you point out the accelerated payment programs, employee payroll tax delay, those two items would not be reporting coverage. It is just short to medium term cash flow so they would not affect our coverage going forward.

And then PPP is not a lot of our operators who can access that program given your limitations, but it will depend on whether or not those loans are forgiven whether they will be impacting covered. So initially, we will not include those in coverage until that impact is known impacts EBITDAR.

[Operator]

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

[OmotayoOkusanya]

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

[Rick Matros, Chairman and CEO]

Yes, that's a good question. I don't really have a good answer. But I think that the question you pose is one of the reasons that when the 6.2% FMAP increase happened, we actually saw the relatively small number states pass that on, frankly, they should have to the providers. They're just keeping it for themselves. So I think, and maybe for all the reasons that you talked about having some money for rainy day or just patting things a little bit on the Medicaid side.

In the long-term, I don't have a good answer for that. I mean, you've got a real safety net issue here that I think sort of on the positive side really is going to get re-addressed after we get through this, because it really hasn't been adequate. So how they juggle all those parties, and what roles the Feds play because the Feds play a critical role on their Medicaid piece, because even though, as you point out as a state by state issue, the federal matching huge pieces, how they meet those obligations.

I think that kind -- we talked a little bit about this before, because some of it came up in the conversations way back about block Rams and Capita limits on Medicaid spending when you think about what Medicaid was put in place for the blind as already disabled, and since then it's been expanded right to become a community based programs are these waiver programs, I think those are vulnerable. And I think that's going to be something much more vulnerable than say Medicaid rates in skilled facilities, because Medicaid program was really never set up to do that.

There were a lot of those things were put in place. I'll date myself, going back into the mid-80s. The policy was long thought that people don't need to be in nursing homes. So, we put reserve the problems in place, occupancy will then in nursing homes. It will pick up in community based program with Medicaid and will actually save money. Well, that never happened because she keeps going up and skilled nursing facilities. It turns out to be just a huge additional expense than it would have been in place before they give that so. So, yes, I'll have a good answer, but that's where I think it can be moved lower on our ability.

[Omotayo Okusanya, Mizuho]

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

[Rick Matros, Chairman and CEO]

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

[Omotayo Okusanya, Mizuho]

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

[Rick Matros, Chairman and CEO]

Yes. So, there on a quarterly standalone basis, they're brought about in the third quarter, they started improving in the fourth quarter and started improving more in the first quarter, they really benefited from PDPM. The whole big IT transition that they went through, which hurt their earnings -- basically last year, now behind them, and it's proven to be really effective for them.

So for instance, the home health version of PDPM, PDGM, which is the larger news, as you probably know, is a negative to the home health industry that Avamere invested in is going to actually slight positive for them and their rates. So, we actually feel pretty good about the trajectory that Avamere has now and they've weathered the outbreak in Washington, they did get some help because despite my earlier comments about, not enough states got the help from if not that they got.

We got it where we needed it the most. So Washington State was a state where we've been talking about how bad Medicaid rates have been. They already determined, a $29 rate increase effective July 1st. they put an additional $29 rate increase effective March 1st. And if COVID extend into July, they'll keep that. So, they'll have doubled the rate for a while.

So that really helped quite a bit, not just Avamere, but we've got North American up there as well. And then Oregon was another state where some help was needed and they had a rate increase coming, but they gave a 10% Medicaid rate increase, effective March 1st. So, just as it turns out and then because the problems were so bad in Northwest even before COVID, there were so many facility closures and things like that, that the states really stepped up there.

So, I think for Avamere, it's a combination of their own initiatives while they're executing on PDCM and the help they got on the Medicaid side in Washington and in Oregon.

[Operator]

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

[Daniel Bernstein, Capital One]

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

[Rick Matros, Chairman and CEO]

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

[Talya Nevo-Hacohen, Chief Investment Officer and Treasurer]

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

[Daniel Bernstein, Capital One]

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

[Operator]

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

[Rick Matros, Chairman and CEO]

One of the topics I did want to address because one of the analyst had to jump off and shout us a note. So, there have been questions about telehealth and I would say that, we actually view telehealth as a positive. And Talya mentioned what Holiday was doing, which I think is really going to serve as well in the long run. Because for those I think folks are going to be concerned about entering into facilities like that, because of what's happened with COVID-19.

I think anything that the operators can do to provide a greater sense of security is going to go a long way in the fact that how they do that from the get go, I think will work out really well for the long run. But beyond that, a number of our operators have been employing telehealth initiatives for quite some time. Signature health had initiated for several initiatives for several years.

Avamere is doing it and a number of operators are doing it because they look at it as a way of providing more comfort, providing greater connection, because physicians don't visit facilities that often either in the skilled nursing side, providing greater connectivity to individual healthcare workers outside and will help provide care in place for a long period of time, particularly on the senior housing side.

So -- and with assisted living and memory care and obviously skilled need based business and acuity is just going to continue to increase with all of them. And so, they're not individuals that can be cared for at home and less and less so on a go forward basis, relative to assisted living and memory care. So, we view that as a positive, so I just wanted to make a note that since we got a question right.

And with that, I appreciate everybody's time today. Again, very healthier, I hope nothing but the best for you and your families. Please think about all of our workers and keep them in your prayers. Take care.

[Operator]

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