Yahoo Finance Sabra Health Care REIT Inc (SBRA) Q4 2018 Earnings Conference Call Transcript
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Sabra Health Care REIT Inc (NASDAQ: SBRA)
Q4 2018 Earnings Conference Call
Feb. 25, 2019, 10:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen and welcome to the Sabra Health Care Fourth Quarter 2018 Earnings Conference Call. This call is being recorded.
I would now like to turn over the call to Michael Costa, Executive Vice President of Finance. Please go ahead, Mr. Costa.
Michael Costa -- Executive Vice President, 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 acquisition, disposition and investment plans, our expectations regarding our tenants and operators and our expectations regarding our -- future financial position and results of operations.
These forward-looking statements are based on Management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended December 31st, 2018 that was filed with the SEC this morning, 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 www.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, Chairman and CEO of Sabra Health Care REIT.
Rick Matros -- Chairman & Chief Executive Officer
Thanks, Mike and thanks for joining us everybody today. I'll start off by making a couple of comments about guidance, how we'll get into the details but. And the guidance primarily reflects everything that we've been talking about and doing over the recent past and the primary difference between all the dispositions and how that affects guidance is the assumption that we're going to be delevering the balance sheet, which look when you reset the table and it's been for us, it's been a -- an 18-month period of transformation of the Company that was necessary, given our exposure to Genesis and -- all their issues at the time.
So as we sit here today, we're a few weeks away from completing the repositioning of the portfolio. So if you're really good about that or our focus for the remainder of the year is to keep the noise behind us, have some quiet time and different deals done and delever the balance sheet. So, we did put an assumption in the guidance that we'll be delevering the balance sheet over the course of the year. And again, as you reset the table, it's best to do that and get everything in there, so it benefits the Company from a long-term perspective.
With that, let me move onto our acquisition pipeline in the competitive environment. Our acquisition pipeline has increased pretty dramatically since the end of the year where it's getting to about $200 million, and today it's about $1 billion. There's a lot of Senior Housing and they're primarily Senior Housing, but we're starting to see more Skilled deals and that's what we expect to get some things done this year. And so we expect to see that continue to increase. In terms of the environment, we don't see anything different from a pricing perspective on the Senior Housing side, the private equity groups are still keeping pricing at levels that we think are beyond reasonable, Skilled cap rates appear to be that they've been for a long time and that is relatively stable. And we don't expect that to change either.
In terms of our operational results, our operational results were pretty stable for the quarter. Our Senior Housing occupancy and coverage was flat sequentially, our Skilled occupancy was flat sequentially, our Skilled Mix was up by 50 basis points, our Skilled EBITDAR rent coverage was slightly down, that's really accounted 4/1 primary tenant, North American. North American, this past summer had an unforeseen change in Management with the Founder and CEO, leaving suddenly and he was very much at the center of things in the Company.
There have been a number of Management changes all from within since then, they've settled down and we expect them to rebound, we have no concerns about their tenant, they're the good operating team. We don't expect any changes then going forward, looking at January on a stand-alone basis, they've bounced back to about 1 to 5 (ph). So we expect them to continue to improve over the course of 2019. Our Managed Portfolio did very well and Talya will provide the details on that. The net attributable to primarily two of our operating partners, Enlivant and Sienna, again, Talya will get to the detail on that.
So with that, Talya, let me turn it over to you.
Talya Nevo-Hacohen -- EVP, Chief Investment Officer & Treasurer
Thank you, Rick. I'll provide some comments about the operating results and statistics for our managed portfolio. As of December 31st 2018, Sabra had over $1 billion invested in managed Senior Housing communities, approximately 83% of that capital is invested in assets that are managed by Enlivant, 14% is invested in retirement homes in three provinces in Canada and the balance represents three assisted living and memory care communities in the United States. So first I will discuss Enlivant's fourth quarter -- portfolio results.
Sabra's wholly owned Enlivant portfolio, a 11 communities located in Pennsylvania, West Virginia and Delaware continued to perform very well and outperform (inaudible). We've seen a steady improvement over the course of 2018 with great growth and continued solid occupancy, driving greater profitability. Average occupancy declined slightly to 92.6% compared with 95.6% in the preceding quarter, from multiple sequential quarters of occupancy growth. This decline was offset by more than 6% revenue growth.
Revenue per occupied unit rose to $5,441, nearly 10% higher than the preceding quarter, which reflects not only the implementation of the 5.5% annual rate increase, that was placed in the fourth quarter, but also higher effective rates throughout the communities. Cash NOI margin was 32.1%, (Technical Difficulty) higher than the prior quarter and much higher than the 23% margin in the fourth quarter of 2017. The Enlivant joint venture portfolio, 172 properties located in 18 states across the United States, of which, Sabra owns 49%, finished 2018 with strong results after being impacted by the flu last winter.
Average occupancy for the quarter was 81.7% in line with the previous quarter of 81.8% and revenue per occupied unit was $4,230, a 5.3% increase over the previous quarter, again, reflecting that the annual rate increase in the fourth quarter did not come at the expense of occupancy. Cash NOI margin was 25.5%, a 1.8% increase over the prior quarter. We have agreed that Enlivant will pursue this -- the strategic disposition of certain communities owned by the joint venture, where the combination of market, location and physical plant limit the objectives that we, TPG and Enlivant's share. In the meantime, we are continuing to see acquisition opportunities for Enlivant in various markets and are working together to pursue those fluently.
At the end of the fourth quarter, Sabra owned eight retirement homes and one assisted living and memory care community in Canada. Sabra sold the ninth community, an assisted living property in Ontario during the fourth quarter, and it is excluded from these statistics. Sienna Senior Living manages the eight retirement homes in Ontario and British Columbia. And in the third quarter of -- and in the fourth quarter, I apologize, of 2018, the eight properties managed by Sienna had 92.4% occupancy, which was 2 percentage points higher than the preceding quarter and 38.7% cash net operating income margin compared to 35.7% in the preceding quarter, an increase of 3 percentage points.
Sienna continues to focus on revenue growth in the portfolio, which has a direct impact on NOI margin at these occupancy levels. Therefore, remaining Managed Portfolio -- properties in Sabra's portfolio, an assisted living and memory care community in Calgary operated by BayBridge and three assisted living and memory care buildings in Wisconsin and Minnesota operated by Pathway Senior Living, two of which are in lease-up.
I will now turn over the call to Harold Andrews, Sabra's Chief Financial Officer.
Harold Andrews -- Chief Financial Officer
Thanks, Talya and thanks, everybody for joining the call today. For the three months ended December 31st, 2018, we recorded revenues and NOI of $139.2 million and $136.6 million, respectively, compared to $166.5 million and $160.5 million for the fourth quarter of 2017. These decreases to revenues and NOI are primarily due to the impact of dispositions in 2018. The $19 million Genesis rent cut effective January 1st, 2018 and loss rental revenues from Senior Care Centers during the fourth quarter of 2018.
Revenues and NOI also declined compared to the third quarter of 2018 by $12.6 million and $11.3 million, respectively. These declines are primarily attributed to a decrease in recognized cash rents related to Senior Care Centers of $12.5 million, which was partially offset by strong revenue and cash NOI growth in our managed portfolio, including our share of the Enlivant joint venture of $2.3 million and $1.6 million, respectively.
FFO for the quarter was $48.2 million and on a normalized basis was $90.2 million or $0.50 per share. FFO was normalized to exclude a $28.8 million primarily related to the write-off of a straight-line of rents receivable associated with the Holiday lease, which is expected to be transitioned to a Managed Portfolio in 2019 and a $2.9 million loss on extinguishment of debt primarily associated with the prepayment of a $98.5 million secured bridge to HUD loan associated with the Senior Care portfolio to be sold in 2019.
Additional -- normalizing items during the quarter include $5.2 million related to the acceleration above market lease intangible amortization associated with assets transitioned to new operators during the quarter, $4.3 million of non-managed property operating expenses consisting primarily of property taxes paid on behalf of Senior Care Centers; and $0.3 million of CCP merger and transition costs. AFFO, which excludes from FFO, merger and acquisition costs and certain non-cash revenues and expenses were $77.3 million and on a normalized basis was $83.8 million or $0.47 per share. Normalized for items, consistent with the FFO normalizing items. Compared to the third quarter of 2018, normalized FFO and normalized AFFO per share declined by $0.10 and $0.08, respectively. These declines are primarily the result of the unpaid and unrecorded contractual rent owed by Senior Care Centers during the fourth quarter.
For the quarter, we recorded a net loss attributable to common stockholders of $19.4 million, which among the items eliminated from normalized FFO of $42 million, includes a loss on sale of real estate of $14.2 million. G&A costs for the quarter totaled $11.3 million and included the following: $4.3 million of non-managed property operating expenses incurred in connection with the transition of properties to new operators; $1.4 million of stock-based compensation expense; $0.3 million of CCP related transition costs; and $0.3 million of non-recurring legal expenses. Recurring cash G&A costs of $5.2 million were 3.8% of NOI for the quarter, in line with the prior quarter.
Our interest expense for the quarter totaled $37.2 million compared to $32.2 million in the fourth quarter of 2017, included an interest expense is $2.6 million of non-cash interest expense compared to $2.5 million in the fourth quarter of 2017. As of December 31st, 2018, our weighted average interest rate excluding borrowings under the unsecured revolving credit facility and including our share of the Enlivant joint venture debt was 4.28%. Borrowings under the risk -- unsecured revolving credit facility bore interest at 3.75% at December 31st, 2018, an increase of 24 basis points over the third quarter of 2018.
We sold 15 Skilled Nursing facilities, two Senior Housing facilities and one Senior Housing Managed facility during the fourth quarter of 2018 for gross proceeds of $91.6 million, bringing our total aggregate sales in 2018 to 58 assets for total gross proceeds of $382.6 million. During the quarter, we made investments totaling $39.2 million with a weighted average initial cash yield of 7.4%, including $26.3 million related to one Senior Housing Community from our proprietary development pipeline with a net cash yield of 7.47%. These investments were funded with available cash of $18 million and $21.2 million of funds held by Exchange Accommodation Titleholders.
As of December 31st, 2018, we had total liquidity of $426 million comprised of currently available funds under our revolving credit facility of $376 million and cash and cash equivalents of $50 million. We were in compliance with all of our debt covenants as of December 31st, 2018 and continue to maintain a strong balance sheet with the following credit metrics. Net debt to adjusted EBITDA, 5.66 times. Net debt to adjusted EBITDA including unconsolidated joint venture debt of 6.12 times. Interest coverage of 4.14 times. Fixed charge coverage of 3.7 times. Total debt to asset value, 49%. Secured debt to asset value, 7%, and unencumbered asset value to unsecured debt of 222%.
On February 5th, 2019, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.45 per share of common stock. The dividend will be paid on February 28th, 2019 to common stockholders of record as of the close of business on February 15th, 2019. We also issued our 2019 per share earnings guidance range which are as follows: net income, $0.24 to $0.32; FFO, $2.02 to $2.10; normalized FFO, a $1.86 to a $1.94; AFFO, $2.00 to $2.08; and normalized AFFO, a $1.81 to a $1.89. Critical to understanding our expectations for 2019 is understanding our commitment to delevering the balance sheet to under 5.5 times, inclusive of our share of Enlivant joint venture debt, and under 5 times, exclusive of our share in Enlivant joint venture debt.
Our leverage currently stands at 6.12 times inclusive of the JV debt, which is higher than historical levels, in part due to the loss of EBITDA from our Senior Care portfolio of $20.9 million. We expect to accomplish this goal to the further asset sales in 2019 along with the issuance of equity with the equity ATM program we established this morning. Our 2018 guidance reflects dilution from the issuance of equity under that ATM program of $0.05 to $0.08 per share.
Additional assumptions in guidance include the following: the previously announced sale of 28 facilities currently operated by Senior Care Centers is completed April 1st, 2019 for $282.5 million; collection of $5.7 million of post-petition rent from Senior Care Centers pursuant to a settlement agreement entered into Senior Care Centers on February 15th, 2019. Total impairment and transition costs for Senior Care Centers of $69.3 million all being excluded from normalized FFO and normalized AFFO. Termination of our Holiday Retirement master lease and concurrent entry into a management agreement with Holiday effective April 1st, 2019 triggering the receipt of $57.2 million of cash consideration on April 1st, 2019 in connection with the lease termination. This termination fee is excluded from normalized FFO and normalized AFFO.
Same-store cash NOI improvements in our wholly owned Senior Housing in Managed Portfolio of 3% to 6% -- in Enlivant live joint venture of 6% to 12%. We did not include any speculative acquisition activity in 2019, but do include a $142 million of acquisitions primarily from our proprietary pipeline closing primarily during the fourth quarter of 2019. These acquisitions are expected to provide an initial annual cash yield of 7.6%. And further assumptions other asset dispositions totaling $300 million resulting in a loss on sale of approximately $85 million. Thus dispositions currently have associated annualized cash NOI of $18.6 million. These dispositions include the remaining three Genesis assets, but the vast majority are comprised of legacy Care Capital facilities that we identified for sale as part of the portfolio repositioning and from a purchase option held by an operator, which we discussed in prior quarters.
Finally, I'll provide a quick update on the Genesis asset sales. We are near completion of these sales with only three facilities remaining to be sold. During the quarter, we sold 15 assets for total gross proceeds of $81 million. The remaining three are still in the HUD approval process, which was delayed due to the government shutdown earlier this year. As a result, we expect those sales to close in the second quarter. Upon completion of these sales, we expect residual rents to total $10.4 million per year for 4.28 years after each sale closing. Ultimately, we expect to have total continuing cash rents from Genesis including residual rents, generating from sold assets of approximately $20.8 million or 4% of our current annualized cash NOI.
And with that, I'll open it up to Q&A.
Questions and Answers:
Operator
Thank you. (Operator Instructions) And our first question is from Jonathan Hughes with Raymond James. Please go ahead.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Hey, good morning out there on the West Coast. Rick, you gave North American coverage into January in your prepared remarks, but can you just elaborate on why the CEO left since he was such a big part of why you bought that portfolio in late 2017?
Rick Matros -- Chairman & Chief Executive Officer
Yeah. So a couple of things. One, I actually can't elaborate, it's personal. So I'd prefer to keep it that way, but certainly it was unexpected. But when we bought the portfolio, we also saw a really strong operating team. And the fact that, they've announced they sort of regrouped and we -- they were able to promote from within in terms of the new CEO. I think we shared that. And look it just threw more their game a bit. We see them rebounding and it was actually a nice pickup in January. So we don't foresee any issues with that. And if I could share more, John, I would, but it's just too personal.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Yes, now that's fair enough. But what about, I mean, the rest of the team. Is it largely in place too or is it kind of a whole replacement of kind of the C-suite there?
Rick Matros -- Chairman & Chief Executive Officer
No, everybody else is in place.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Okay. Okay and then looking at the $300 million of dispositions and loan repayments in addition to Senior Care Centers, it looks like, it's about a 6 -- 6.2 cap rate on the expected proceeds there in the cash NOI, but more like a sub 5 on the gross book value. I guess, what -- what's the composition of that $385 million gross book value in terms of owned assets and loans and when were those investments made?
Harold Andrews -- Chief Financial Officer
So -- it's Harold, John. Basically about two-thirds of those assets being sold as I kind of -- commented on the call were from Care Capital legacy acquisitions. So two-thirds of it, that about a third of it or I should say about 25% are related just kind of Sabra historical legacy assets that were bought going back probably for the most part, three or four years and then a 11% of that number is -- are the Genesis assets. So and the yield is really as strong as it is to a large extent, because of the handful of those assets are have no operations in them at all. These are operations that were shut down early on when we made the Care Capital acquisition more of rents have been reduced. So it is a -- it is primarily Skilled Nursing assets and stuff it went back to the Care Capital acquisition.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Okay, that's helpful. And then earlier you did mention guidance and it -- and the earnings guidance then does include dilution from equity raises. Can we expect you to kind of issue around the current $19 share prices. How do you think about using that throughout the year? The ATM.
Harold Andrews -- Chief Financial Officer
I think we -- we'll wait a little while, we had a lot of noise around the stock, just like we saw in the third quarter when we issued the revised guidance, and it doesn't really matter how much you talk about it, until you put numbers out, there's always a reaction. So we should be able to bounce back given the discount that we're trading at. And look, we experienced the two things that kind of impacted us is all the noise you've had which has been ongoing for quite some time, but it absolutely necessary from our perspective to get the Company out from under how Genesis was growing itself and the issues that had created for itself as a result of that.
So we're almost done, we're weeks away, so that will be behind us and people can expect a lot more predictability and more of a quiet kind of clarity on the Company and then the leverage was the other piece. And I think, from our perspective yet not leveraged down and having some quiet time after we finish with the Senior Care Centers sales on April 1st should help us rebound. If you look at it just from a pure valuation perspective, it's still pretty exceptionally cheap and we've got a very strong balance sheet going forward and a lot of liquidity in the stock, good ratings from the agencies and a much better group of operators than we had 18 months ago and those single operator that's going to be large enough to affect the narrative of the Company.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Got it. Okay, that's helpful. And then just one more quick one. The leases that are expiring next year in 2020. What -- what's in that bucket in terms of operator? And what's the facility level coverage on those leases, if you can provide it? Thanks.
Harold Andrews -- Chief Financial Officer
Yeah, I'll get that. Let's -- I'll get that to you offline, I don't have all those details with me right here, but we did adjust the way we're disclosing just so you know, the lease maturities and we are now doing on a net basis, so you saw that number come down a fair amount this quarter, a lot of those assets that are, I'll just, I will say this, a lot of those assets that are maturing in 2020 are part of the assets that are being sold this year and so a big chunk of that is already anticipated going away and won't require any retenanting. But I can get you some more details on that offline.
Jonathan Hughes -- Raymond James & Associates -- Analyst
Okay. That sounds good. All right. Thank you for the color. I'll jump off.
Operator
Thank you. And our next question comes from Chad Vanacore with Stifel. Please go ahead. Your line is open.
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
Thank you and good morning all. So just I want to go back to North American. That coverage did significantly from last quarter's back from 1.25 to 1.09. Can we get some more details as what's happening outside the management change, what's happening operationally to create that drag plus they're located in California and Washington, and Washington is a tough environment. Maybe can you give us a split of NOI in Washington versus California and then how those facilities performed?
Rick Matros -- Chairman & Chief Executive Officer
Yeah. So, there isn't much of difference here, Washington facility actually performed pretty well. The drop we've seen -- the drop looked deep because their underwritten coverage we report on a -- when we're doing acquisition report we underwrote the maximum period of time and that started accounting well. So that's really what accounted for the drop ain't have that bigger drop. If you look at probably the last six months in a more steady decline once the CEO left. So and I'd say the decline started on the summer and we started seeing some things rectified toward the end of the year and started seeing some real improvement in January, but no real difference in California and Washington.
Harold Andrews -- Chief Financial Officer
Yeah, I think it's all -- I think it's primarily expense related as well and their occupancy and their rates were very strong that continue to be strong. So it is just a little bit of the distraction I think around the expense management.
Rick Matros -- Chairman & Chief Executive Officer
Yeah, which is one of the reasons they rebounded in January, because if your issue is on the expense side now the revenue side that's a lot easier to fix, that just needed to get some new systems in the controls in place and the new CEO needed some time to get settled in and address all that.
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
All right. With those expenses being more a labor-related let's say some temp labor usage?
Rick Matros -- Chairman & Chief Executive Officer
No. It's really all over the map, supply cost, food -- supplies stuff that's actually just it's blocking and tackling, really I think when you've got someone that's been Founder and CEO and there's a sudden change like sometimes people take their last move and may not be into the (inaudible) but it's reality where we see that happen all too often. So, but they're getting it together and we really don't have any concerns and Chad you know as well enough that we have concerns about an operator, we started raising the flag pretty early. We did that with Senior Care, we did that with Genesis, we did that with others, so we just don't see that here.
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
Okay. Then just thinking about your uses of cash. You're willing to take some dilution in order to delever. So why is delevering a better use of cash than reinvestment in 2019?
Rick Matros -- Chairman & Chief Executive Officer
Well -- we plan on doing both, but our leverage ticked up, it's higher, it's above the level that we'd like it to be, we certainly want to get a stable outlook we're getting back from Fitch and we expect that to happen. We think all that's important. We think potentially getting an upgrade from Moody's is important as well. So all of that stuff affects your cost of capital. So we think that's really important. And our leverage may not be that much different than some of the larger guys who are also investment grade, but we don't necessarily get prepared for the larger guys, we get compared to the smaller guys who may not have as much goal on from the growth perspective to keep their leverage low. So we think it's going to accrue to the benefit of our shareholders if we focus on getting that leverage down, because it will improve the cost of capital of the Company from our perspective and that allows us to do more investment.
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
All right. And just one more question is on the Senior Housing Managed Portfolio. You put out some pretty good expectations for 2019, rate in the quarter was up pretty significantly in a REVPOR basis, what kind of occupancy rate assumptions you'll be making in 2019 for that portfolio?
Talya Nevo-Hacohen -- EVP, Chief Investment Officer & Treasurer
For the Enlivant wholly owned portfolio, certainly the one you're referring to. We've actually fixed it back down a little bit on the occupancy and held steady on the REVPOR. But we think it's a very strong portfolio -- for purposes of forecast...
Harold Andrews -- Chief Financial Officer
Yeah, when you look at the numbers as inclusive of the joint venture, you do see a steady increase in occupancy over the course of 2019, because remember, this was a -- this portfolio was acquired under-performing and we've entered into joint venture is obviously well below where stabilized occupancy should be. So there is some pickup in occupancy over the course of 2019, but nothing that's -- it's nothing dramatic.
Rick Matros -- Chairman & Chief Executive Officer
So think about it in the couple from pieces, Chad, you've got the wholly owned portfolio which has exceptionally high occupancy. So you just -- it's effectively almost fully occupied when drove to 90% so you've got to temper your expectations there. As Harold said, the joint venture is different because it was a whole turnaround. So in the wholly owned, it will be tempering our expectations in terms of what we're putting in guidance and the assumptions and on the JV which is still picking up speed, we've got some assumptions that there will be (Technical Difficulty).
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
All right. (inaudible). I'll hop back in the queue. Thanks.
Rick Matros -- Chairman & Chief Executive Officer
Thanks.
Operator
Thank you. Our next question comes from John Kim with BMO Capital. Please go ahead. Your line is open.
John Kim -- BMO Capital Markets -- Analyst
Thank you. On the delevering, was the 5.5 times really the focus of Fitch or were the other rating agencies also focus at this level?
Harold Andrews -- Chief Financial Officer
No, it's -- it was the -- Fitch was the only rating agencies that specifically laid out 5.5 times as a target for us. We just had a report put out by S&P who reaffirmed our ratings and put us on stable and so they don't have the same level of concern that Fitch indicated.
John Kim -- BMO Capital Markets -- Analyst
And how much equity do you need to raise this year to get your 5.5 times?
Harold Andrews -- Chief Financial Officer
Well, it's clearly depend on the timing and the amount of dispositions we make. And so it's not going to be an immaterial amount, but it will be something that we'll do over the course of 2019. And we've got lots of time to get it done. So as Rick said, the timing is something we'd like to do sooner or later, but we're going to wait till and make sure the stock price makes some sense.
Rick Matros -- Chairman & Chief Executive Officer
And using the ATM and it's a match funds. It's the cheapest way to do that and it's the least disruptive way to do that. So again, Harold so we'll be patient with it and prudent about it.
John Kim -- BMO Capital Markets -- Analyst
Okay. So nothing in your -- that you share with us as far as guidance on weighted average shares like outstanding for the year?
Rick Matros -- Chairman & Chief Executive Officer
No, that's the start.
John Kim -- BMO Capital Markets -- Analyst
Okay. On the Enlivant same-store guidance, there is a pretty wide range of 6% to 12% and I know you have to meet your comps in the flu season. But what are the other variables do you see as far as hitting the low end and the high end of that guidance range?
Rick Matros -- Chairman & Chief Executive Officer
It's not so much as the other variables which had got a portfolio that's been in turnaround mode. They've done a really good job with it. Has it been a steady state portfolio, it's a little bit easier to predict and you have a tighter range. We know it's going to be really healthy improvement, but it's really difficult to predict how much improvement they're going to have. So it's really because it's in turnaround mode that we have a wider range.
John Kim -- BMO Capital Markets -- Analyst
And if you hit that 6% to 12% on that portfolio, when do you think you would exercise the option to acquire the remaining portion of it?
Rick Matros -- Chairman & Chief Executive Officer
Right now, it looks like first quarter of next year.
John Kim -- BMO Capital Markets -- Analyst
Okay, great. Thank you.
Rick Matros -- Chairman & Chief Executive Officer
Yeah.
Operator
Thank you. Our next question is from Trent Trujillo with Scotiabank. Please go ahead. Your line is now open.
Trent Trujillo -- Scotiabank -- Analyst
Hi. Thanks very much and good morning to everyone. First appreciate the prepared -- good morning. Appreciate the prepared comments on variability in operator coverage levels, maybe from a bigger picture perspective, could you maybe expand on how you get comfortable with your top operators or any operator for that matter, given the headwinds that you see in Skilled Nursing?
Rick Matros -- Chairman & Chief Executive Officer
Well, first of all, the headwinds are dissipating. So that's an important portfolio. And we look at a few things that are happening that are tangible, we should start seeing some benefit in the not too distant future to -- at least a slight demographic -- impact of a slight demographic uptick and when the occupancy of the industry is as low as it is, call it, 82% you've got really nowhere to hide, so that next patient that you get in, that's a pull through -- that's a complete pull through to the bottom line. So you have a disproportionate positive impact on any additional patient at this point.
Secondly, you're going to see much more supply decline and the industry actually over the next -- in the next several years is probably going to have access issues which bodes well for the industry intervention, if you have a government tries to deal with it. But you've got declining supply, increasing demographic and then you have PDPM happening on October 1st, and every single one of our operators have been preparing for it. It feels really good about it. I believe it's the best Medicare reimbursement system that the industry has ever had.
So I think the headwinds are dissipating, beyond that, we're operating buybacks so we spent a lot of time with our operators. We have a really strong asset management team that's out in the buildings on a regular basis, so seeing things themselves having business discussions on a regular basis, we got operational calls also on a regular basis with all of our operators and we're always reviewing their regulatory reports and their operating trends and all that. So it's not really difficult from our perspective to get comfortable with an operator and that's with a couple of operators in the past, I think relatively early on we were very concerned that we stared sort of waving the red flag, but in the case of say, North American that's also one that we're comfortable that they'll be able to rebound and do -- continue to be good tenant for us going forward.
Trent Trujillo -- Scotiabank -- Analyst
Okay, appreciate that. Thank you. Thank you very much. I guess piggybacking on that, Texas has been one of those states that's been highlighted as one of the, I guess, a difficult operating environment and not necessarily indicative of your portfolio, but we saw one of your peers report some negative news with one of its operators, so maybe could you talk about the environment in that space, since it's your largest and also appreciating that you've taken steps to reduce the exposure there, but just curious about your thoughts on how you're looking at the State of Texas?
Rick Matros -- Chairman & Chief Executive Officer
Yeah. So there are two primary factors that create a difficult environment in Texas. One is, it's one of the worse Medicaid rates systems in the country. And then secondly, unlike the rest of the country where it's very difficult to build Skilled Nursing even in the states that you can't build it, because it's not a CLN, very rarely pencils and so outside of Texas, you'll see facilities being built here nearby a Company here and there, but you don't see real trends in Texas. There is oversupply in a lot of markets, the regulatory environment is much lighter in Texas than pretty much any other place in the country. And so as a result of that, there's been a lot of building in Texas. So you combine the oversupply in a number of markets similar to what we've seen in Senior Housing, we just don't normally see that in Skilled Nursing with weak Medicaid rates, it's not a great combination.
So I think that even if Senior Care Centers hadn't started completely blowing up the way it had, we would have looked to reduce our exposure that is sort of made the decision easier and so we'll be cutting our exposure in half. Now the one potential silver-lining in Texas is, there's a lobbying effort ongoing right now to get a provider tax to put in place, which would be voted on in the State Legislature in November and Sabra as well as some of the other region a number of the operators are working with the American Healthcare Association as well as the Texas Healthcare Association on that lobbying effort.
And I think we've made a strong case and we'll continue to make inroads there, whether or not it happens or not, remains to be seen. If it's does happen, it's going to be much, much better for the industry and so the operators that we continue to work with in Texas will obviously then do much better, but I think for us, even if that were to happen, we had 18% exposure to Texas. So even in a better operating environment, that's an awful lot of exposure in one particular geographic region. And we made a commitment to ourselves as we started working for the Genesis assume that whether it's an operating tenant or a state that we wouldn't allow ourselves to be overly dependent on any one particular state or operator, because there are always certain things that are out of your control and for us, we got pretty tired of any individual operator or situation controlling the narrative of the Company.
Trent Trujillo -- Scotiabank -- Analyst
Very, very much appreciate that detail. Thank you.
Rick Matros -- Chairman & Chief Executive Officer
Yep.
Operator
Thank you. Our next question comes from Michael Lewis with SunTrust. Please go ahead. Your line is open.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Great. Thank you. I wanted to ask, the low end of your normalized AFFO guidance is right on top of the dividend, you're going to be issuing some more equity at a yield that's about 9.5%. I guess the question is, does -- is there a scenario where you kind of adjust the dividend or is this a silly question at this point?
Rick Matros -- Chairman & Chief Executive Officer
It's never a silly question, right. So we understand the question. We will not be adjusting dividend. We're not going to see growth that is in the dividend, but everybody can count on it being stable.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Okay, great. And how about -- how should we think about the likelihood and the timing of buying the remaining interest in the Enlivant JV?
Rick Matros -- Chairman & Chief Executive Officer
Well the timing is right now the way we see it, when we look at their performance against their forecast, first quarter of 2020, looks to be realistic and as we spend the rest of 2019 getting our leverage down on some, that will put us in a better position to pull that trigger at the appropriate time.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Okay. And then lastly, I just wanted to ask a big picture question, I actually asked this at one of your peers on their call, but George Hager at Genesis said earlier this month at a conference that the REIT structure in Skilled Nursing has proven to be a failure. You obviously have some broad experience or some experience with them, specifically, do you think there is some truth in that, the kind of blocking and tackling and constantly dealing with tight coverage and issues here or do you think it's more operator-specific, and this is something that will work itself out and it will get passed?
Rick Matros -- Chairman & Chief Executive Officer
So I know that George said that I was really disappointed to hear that, particularly since he had a group of landlords that gave them him rent relief and debt release and quarter-after-quarter-after-quarter gave him waivers on defaults. So that was really disappointing to hear. I think every things with our culture in this business. And so, there always been sometimes where there have been some downtime, they're actually been less downtimes and uptimes over the course of this business for the last 35 years. And I know for me as an operator, we never looked at ourselves as victims of the environment. If there are headwinds and everybody is going through those headwinds, and so you make a decision that you're going to deal with those headwinds better than anybody else.
I think if you look at Genesis, every decision they made has put them in traditional rent, it's self inflicted. So all of our operators had headwind to deal with, in some cases we've given them some help and we've given them some help because that demonstrates as they've earned it, and they are good operators in other cases, we haven't needed help. So it was really disappointing to hear that. And again, given how much the REITs have helped them, it's not to believe the Company be bankrupt.
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
All right. Thank you for answering my questions.
Rick Matros -- Chairman & Chief Executive Officer
Yeah, how's that?
Operator
Thank you. Our next question is from Daniel Bernstein with Capital One. Please go ahead.
Daniel Bernstein -- Capital One Securities -- Analyst
Hi. Good morning to you on the West Coast. I want to ask you about Medicaid mix and your Skilled mix. If you look across the industry, Medicaid mix has been going up, your Skilled mix actually improved though. So I just want to understand a little bit about your thoughts about increasing Medicaid centers in the space. And then maybe some -- anything particular with your portfolio that it's kind of bucking the trend?
Rick Matros -- Chairman & Chief Executive Officer
Yeah. So one, our Skilled mix is the most important indicator whether an operator really understand the business, because it need the higher Skilled mix as it means that you are guiding for the high security patients. And allowing them to minimize Medicaid. When you see Medicaid increase, in my experience, look I've done it as an operator as well. When your occupancy is really low, you may have met Medicaid patients more than you might normally do it, because you've hit that inflection point where you've got no leverage any longer.
And so, as I said earlier about the low occupancy and just even slight improvements in the demographic that disproportionately help your bottom line. If you're at 82% occupancy or 83% occupancy, even if you're in a state where the Medicaid rate is weak, getting that Medicaid patient in, that's a full pull through to the bottom line.
So there are points in time where our operators will admit more Medicaid patients just to help occupancy and they're covering their cost. The key there is, you really don't want to do it to the extent that you admitted too many lower reimbursed Medicaid patients that have longer length of stay. Now the industry is a lot different now than it was even 10 years ago and Medicaid patient -- most Medicaid patients in Skilled Nursing today have a much shorter length of stay than Medicaid patients in Skilled Nursing 10 years ago, say.
So there is less danger that happening now than it happened in the past, but it's always when you had low occupancy that was always a fine line to kind of walk. I think with our operators, they really are focused on very high acuity, I think we've always had about the highest Skilled Mix in the space and they've made decisions that they'd rather just focus on that higher acuity patient and sort of live with lower occupancy for a little while rather than admit more Medicaid patients. So everybody -- every operator is a little bit different, there isn't exactly a wrong or right to it, but over the long haul, you do not want to see Medicaid increasing at the expense of Medicare and Insurance.
Daniel Bernstein -- Capital One Securities -- Analyst
Okay. I guess we'll see what happens to when PDPM comes and now incentivize people to do the high acuity, right?
Rick Matros -- Chairman & Chief Executive Officer
That's right. Because -- it's going to be on the Nursing side, not just the rehab side and that's really -- there are a number of benefits to PDPM I think from my perspective, the primary benefit is, when you've got a system that's been designed to only incentivize you to go after short-term rehab patients by definition, you're creating your own issue then, you're admitting patients that while the reimbursement maybe good I'm going to continue to put more pressure on your length of stay, which obviously brings your occupancy down. So that's really one of the benefits that PDPM you're going to get out of that sort of vicious cycle.
Daniel Bernstein -- Capital One Securities -- Analyst
Although I did have a question on that in the rehab and PDPM. It seems to me that margin should go up on rehab and we've been hearing a little bit about operators maybe bringing rehab back in-house. So it -- I mean, one is, are your operators looking to bring rehab back in-house if they were third-party? And two, is that, I presume that's a positive impact on lease coverage or corporate coverage is the kind, wanted to get your thoughts on that?
Rick Matros -- Chairman & Chief Executive Officer
Yeah. So a number of our operators who are already in-house that's a trend that started really over the last 15 plus years, before that almost everybody outsourced rehab and the reason everybody used to outsource rehab and a change with that rehab was huge variable in terms of revenue, it was another predictable sort of line of business. Once the RUG system got developed, when you had RUG-IV come in in 2006 and rehab became a lot more predictable, it made sense, because you can count on a certain level of revenue, it made sense to bring therapy in-house we can completely control the product.
So in terms of in margin issue under PDPM for rehab, it's definitely a positive because they are bringing back concurrent and group therapy. And even though it's capped at 25% when concurrent and group therapy had been around really just -- really until several years ago, the industry experience is about 26%, so they capped it basically at these -- at the experiential level and, but remember, you're still looking at the Nursing Patients, because the rehab rates are going to be exactly what they were and after day 21, you're going to be incentivized to get those patients out of the facilities otherwise you thought having a decline in net revenue per patient.
So the fact that you're going to have concurrent and group therapy allow rather than have any of that decline come straight to the bottom line, concurrent and group therapy gives you the opportunity to mitigate that and improve your margin. So I think you're going to have margin improvement from concurrent and group therapy and you're going to have margin improvement from having a broader palette of patients to go after some of which will have a longer length of stay, because you're not just going to be going after short-term rehab patients.
And then the fact that you're getting rid of the case mix system completely makes things a lot simpler as well, because you go into a simple case mix system. If you look at the recent changes in home health reimbursement that's also more of a case mix system. So CMS is pushing everybody to a Case Mix System, which we think is a good thing and over the long haul will allow CMS to then transition the Post-Acute space to a neutral site system, which is something that those of us in the Skilled states will always look forward to. Hope that answers your question?
Daniel Bernstein -- Capital One Securities -- Analyst
No, that was great. I guess I have a few more questions, but what, I'll hop off and talk to you guys later.
Rick Matros -- Chairman & Chief Executive Officer
Got it.
Operator
Thank you. (Operator Instructions) Our next question is from Nick Joseph with Citi. Your line is open.
Nicholas Joseph -- Citigroup Investment Research -- Analyst
Thanks. For the $69 million of expected impairment charges in transition costs in guidance in 2019, what the assumed breakdown between the two?
Harold Andrews -- Chief Financial Officer
So it's Harold. So it's about $60 million assumed of an impairment or loss on sale and about -- and the balance is the transition costs, a big chunk of that being property taxes, it will still need to be paid on that portfolio.
Nicholas Joseph -- Citigroup Investment Research -- Analyst
Thanks.
Harold Andrews -- Chief Financial Officer
You bet.
Operator
Thank you. And our next question is from Lukas Hartwich with Green Street. Please go ahead.
Lukas Hartwich -- Green Street Advisors -- Analyst
Thanks, good morning. Can you define more color on the size of the Senior Care Centers' settlement, is it larger than the $5.7 million?
Rick Matros -- Chairman & Chief Executive Officer
It is larger than the $5.7 million and it affects a note that was outstanding. They just asked us not to give any more specific follow on, it's a court approval, but it is more than that.
Lukas Hartwich -- Green Street Advisors -- Analyst
Do you have a rough idea of the timing...
Rick Matros -- Chairman & Chief Executive Officer
It's totally -- it's totally good news. So.
Lukas Hartwich -- Green Street Advisors -- Analyst
Right, right. Do you have a rough timing of when we'll find out how much bigger it is?
Rick Matros -- Chairman & Chief Executive Officer
I would never predict timing when it comes to bankruptcy coherence.
Lukas Hartwich -- Green Street Advisors -- Analyst
Fair enough. And then there's...
Rick Matros -- Chairman & Chief Executive Officer
I mean we protected ourselves from the bankruptcy, but there are a couple of the clause remaining matters that the bankruptcy court has to make a decision on. We just protected ourselves by terminating the leases, so we pulled that stuff out, which is the majority of the -- of what we had to deal with.
Lukas Hartwich -- Green Street Advisors -- Analyst
Right. And there's some concern around Managed Medicaid and, Rick I'm just curious what your thoughts are on that issue?
Rick Matros -- Chairman & Chief Executive Officer
It all depends on rate and how they approach it. And we see in Medicaid -- Managed Medicaid products before and some of them have not been good and some of those have been good. So I think it's a little bit early on that. So we'll see. But most of the experience that we've had with Medicaid and it's not really even Sabra's experience, going to my experience as an operator and really going back probably over 20 years, the Medicaid -- the Managed Medicaid rates have been pretty close to the State Medicaid rates that have been in place, but we'll see, little hard to predict.
Lukas Hartwich -- Green Street Advisors -- Analyst
Great, thank you.
Rick Matros -- Chairman & Chief Executive Officer
Yeah.
Operator
Thank you. And this concludes our Q&A session for today. I would like to turn the call back to Rick Matros for his final remarks.
Rick Matros -- Chairman & Chief Executive Officer
Thanks, everybody for bearing with a long call, now we've had a lot of moving parts and we're looking forward as I know you are to getting it behind us and Harold and Talya and I and the team here look for any initial conversation offline, we'll be heading to the Wealth Conference Call and just hoping to see a bunch of you guys there. Thanks.
Operator
And ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.
Duration: 55 minutes
Call participants:
Michael Costa -- Executive Vice President, Finance
Rick Matros -- Chairman & Chief Executive Officer
Talya Nevo-Hacohen -- EVP, Chief Investment Officer & Treasurer
Harold Andrews -- Chief Financial Officer
Jonathan Hughes -- Raymond James & Associates -- Analyst
Chad Vanacore -- Stifel Nicolaus & Company -- Analyst
John Kim -- BMO Capital Markets -- Analyst
Trent Trujillo -- Scotiabank -- Analyst
Michael Lewis -- SunTrust Robinson Humphrey -- Analyst
Daniel Bernstein -- Capital One Securities -- Analyst
Nicholas Joseph -- Citigroup Investment Research -- Analyst
Lukas Hartwich -- Green Street Advisors -- Analyst
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