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Sabra Health Care REIT Inc (NASDAQ:SBRA)
Q3 2020 Earnings Call
Nov 6, 2020, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Sabra Health Care Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder today's program may be recorded.

I would now like to introduce your host for today's program, Michael Costa, Executive Vice President of Finance. Please go ahead, sir.

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

In addition, references will be made on 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 Matros -- Rick Matros, Chairman and CEO of Sabra Health Care REIT.

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

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

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

I also want to note that the majority of the states that we are in made moves to help on FMAP as well. When I finish my remarks, I'll turn it over to Mike Costa, who will take you all through a detailed presentation on everything related to the stimulus and the impact on the facilities and all other related assistance. There is still $30 billion of Cares Act stimulus left, there is Phase 3 $20 billion is already -- is in the process of currently being distributed. We do expect another stimulus package once the election get settled as well as an additional extension beyond the one recently announced of the PHE Act, which extend skilling in place and the FMAP add on.

I also want to note, and this was an important event for the industry, the deal that the government cut with Walgreens and CVS to provide free vaccines for our patients, residents, and employees. We still believe that path to normalization comes ahead of the vaccine, and that's with more and more testing. Once -- we have more testing now than we have -- obviously had in the past, we still don't have enough, but once we get to really adequate effective rapid testing, we will begin the path to complete normalization in the facilities. We will be able to test quickly, screen people better, and have a more normal environment within the facilities because of social isolation component of dealing with the pandemic has been extremely tough on our patients, our residents and their families.

I have been skeptical, as long as you know about the vaccine and when it's actually going to be distributed. Last week, Mark Parkinson, the CEO of American Health Care Association and Seema Verma, who run CMS, both commented that they think the vaccine will be ready for distribution in all of our facilities over January and February. I don't know if that will be the case, hopefully it will be the case. If that does turn out to be true then it will accelerate the normalization of the business. One of the questions that I have about that is I think the intent is to mandate it for everybody. And I'm not sure you can mandate that workers and patients can actually -- actually have to take this because if they don't, what do you do then? If one-third of the staff decide that they don't want to take the vaccine, they don't want to be first in line, does that mean they can't come to work and we will not have enough folks to take care of patients and residents. So we'll kind of see how -- we will see obviously how it plays out. So -- but I'm cautiously optimistic, but we'll still see. So I still have some level of skepticism there and still focused on testing as being the most immediate answer to the challenges that the space is currently facing.

I would also note that a lot of the conversation that we've all been having is focused on the topline, occupancy recovery. But it's important to note that we'll start having margin recovery ahead of occupancy recovery. And in fact, we are already seeing that in different areas of the country. As certain areas of the country have been clearer than in others with COVID, there are steps being taken by a number of operators to start normalizing the socialization aspects of the facilities and to start having smaller group activities. And recall that, based on protocols, unless everything -- not almost everything, everything is really what I want in facilities. No group dining, no group activities, no group therapy, but as that starts -- as that starts to normalize, we'll see those labor expenses come down. So we will start seeing margin improvement ahead of occupancy improvement.

Similarly on supplies and specifically in regard to PPE, our operators are starting to have more success building inventory and as they continue to build inventory, those costs will no longer be recurring. And so the net cost comes down as well. We're already seeing that in a number of the operations as well. So I just want to point that out. So we're not solely focused on occupancy as a means to recovery.

In terms of our operational trends, our top skilled operators as shown in the supplemental showed, occupancy gains in the first week of August through the last week of October at 50 basis points. Skilled mix for those operators at the end of October was 190 basis points higher than pre-pandemic levels. From the February average through the month of October average, those operators were down approximately 10%, with October 100 basis points higher than our low point in June. So in other words, occupancy has been slowly building. It came down a little bit as we started spiking all over the place in the first two weeks of October and then started picking up again at the end of October.

The aggregate skilled nursing portfolio is down approximately 800 basis points on the February average, through the end of October. Skilled Mix is higher than our top operators than in the rest of the portfolio with a smaller operators as a whole, but all the trends are similar regardless of the operators that we're looking at and regardless of what their Skilled Mix is. So for those operators not in our Top 10, they also have higher Skilled Mix, than pre-pandemic levels just not as high as our Top 10 operators.

EBITDARM coverage, just noted in the PR, was up sequentially. Thanks to government assistance. Excluding the Provider Relief Fund, we are pleased to note that our Skilled portfolio for the trailing three months, would have been above one times. Senior Housing Triple-Net, which only recently received federal assistance saw a coverage lower as expected, but with the anticipated continuation of assistance, we should see some stability, particularly since the lease portfolio occupancy as noted, has held up relatively well, all things considered. The leased Senior Housing portfolio was down 340 basis points from the February average through October. Talya, will provide details on the managed portfolio.

Through the end of October, we had 304 communities that had been impacted by COVID, 209 of those have fully recovered. As noted on the last call, rarely do we see large outbreaks at this point. And an increasing number of facilities with positive tests are now employees only. So we'll have one or two employees test positive. And the issue is that, I'm sure many of you are aware, is that the median age for those contracting COVID has dropped dramatically into the 30s. That's a lot of our workforce. And even though these folks are screened before they come to work, they are almost always asymptomatic however still infectious and so they come into the buildings and they will infect folks. So that said the operators are doing such a good job with isolation and protocols and infection control, adhering to all those guidelines that even when an employees who is asymptomatic and has COVID comes in and they infect other residents or patients, we're still not seeing any big breakout. Out of all of our buildings, we've had three outbreaks of -- call it eight or nine or 10 or more, and almost every other building it is three or less. So they've done a really good job with that. And given the fact that we're seeing all these spikes all over the country, and we're still seeing those results, we feel pretty good about minimizing the disruption to the business as compared to what we saw in March and April when we were all trying to figure this out.

We move now to acquisitions. We've completed $154m in investments at a blended yield of just under 8%, with the exception of one of those acquisitions to preferred investment that all came through our development pipeline. Our acquisition pipeline is active at approximately $600 million, it is primarily senior housing, although we are seeing interesting skilled deals, but there is still a disconnect between buyers and sellers in both asset classes. We do anticipate some shift after year-end as banks that have been forgiving defaults, specifically actually in senior housing and with the smaller operators, we believe based on what we've heard that after year-end they'll start exercising legal remedies. So there may be some opportunities after the first of the year. So remains to be seen, but that's the way things look right now.

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

Michael Costa -- Executive Vice President, Finance

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

Starting with the direct funding category. These are direct disbursements of funds to operators to help mitigate some of the financial impact of COVID-19 and includes the Provider Relief Fund and the temporary increase for the state's Federal Medical Assistance Percentages or FMAP. The temporary regulatory suspensions and administrative waivers include the temporary suspension of 2% Medicare sequestration cut and the waiver of the three-day hospital stay requirement for Medicare coverage at a skilled nursing facility. As the benefits from these two categories are utilized to offset increased cost and lost revenues related to the pandemic, the negative impact to our operators' earnings and coverage will be reduced. These benefits would also help our operators by providing important liquidity.

Loans and deferrals include the Accelerated and Advanced Medicare Payments, Employer payroll tax delay and Paycheck Protection Program or PPP loans. With these loans and deferrals -- while these loans and deferrals, excuse me, provide liquidity to our operators, the first two must be repaid in full while the PPP loans must be repaid, if the borrowers do not meet certain criteria. Therefore, these loans and deferrals largely have no impact on the earnings and coverage of our operators.

A breakdown of how much our operators have received or qualified to receive from the various relief packages is included on Page 7 of our third quarter supplemental, as well as in our third quarter earnings release. The most significant of the aforementioned relief packages is the $175 billion Provider Relief Fund, which was funded by the enactment of March 27, 2020 CARES Act law. The Provider Relief Fund has given support for our skilled nursing and hospital tenants throughout the pandemic. And recently the support has been extended to certain operators in our senior housing portfolios.

On September 1, HHS announced the eligible assisted living and memory care facility operators may apply for funding through the CARES Act. We view the inclusion of assisted living and memory care facilities under the CARES Act as an important acknowledgment by the Federal government of the sectors contribution to the delivery of healthcare in this country. To date, two general distributions to healthcare providers have occurred and a third general distribution has been announced, but has not yet been distributed. The total of these three general distributions is $98 billion. Additionally, two target distributions specifically for skilled nursing operators have been announced, totaling $9.9 billion.

Let me break down the targeted SNF distributions made thus far, as well as what is left to be distributed. On May 21, the first targeted distribution of $4.9 billion was released to nursing homes, using a formula of $50,000 per facility plus $2500 per bed, resulting in a distribution to our facilities of $97 million or about $330,000 per facility. On July 22, HHS announced an additional $5 billion of targeted distributions, specifically related to nursing home infection control and quality, of which $2.5 billion was released on August 27, using the formula $10,000 per facility plus $1450 per bed. This resulted in a distribution to our facilities of $15 [Phonetic] million or about $170,000 per facility. The payments were made to nursing homes to help with upfront COVID-19 related expenses for testing, staffing, and PPE needs.

Of the remaining $2.5 billion of targeted distributions, $2 billion will be distributed in five instalments, with the first four instalments being paid out monthly as performance-based incentives determined by the nursing homes relative infection and mortality rate. And a final payments to be made in 2021, based on the same metrics over the cumulative timeframe. The first of these five instalments was made over the last week, based on September performance. Finally, the remaining $500 million of targeted distribution is expected to be used to address COVID hotspot and educational collaborative.

In total, roughly $145 billion of the $175 billion Provider Relief Fund has been announced to date, leaving an estimated $30 billion in the relief fund to be spent. As of September 30, 2020, our tenants have received or qualified to receive approximately $210 million in total distributions from the Provider Relief Fund and our Senior Housing Managed operators have qualified for approximately $4 million through the second general distribution from the Provider Relief Fund.

Operators have taken varied approaches to recognizing these amounts of earnings, ranging from some recognizing a 100% immediately to others not recognizing any until they are certain that the amounts won't be recouped. This has resulted in only about $50 million of the aforementioned $210 million received by our tenants being reflected in their reported EBITDARM for the trailing 12-month period ended June 30, 2020. Recently, the reporting requirements for the use of money received from the Provider Relief Fund will revise and clarify. And we expect this to result in most, if not all, of the roughly $150 million balance of these funds to be recognized in EBITDARM as they are utilized to offset costs and lost revenues related to the pandemic.

Another important source of funds to our skilled nursing tenants is the temporary FMAP increase. On March 18, a 6.2% FMAP increase was enacted to assist states with COVID related Medicaid costs. There was no requirement that states pass any portion of this increase onto providers. And in fact, some states chose not to pass any of it as well. In our portfolio, 27 of the 37 states where we own SNF pass along some of the FMAP increase, benefiting 236 of our 287 SNFs or 82%. These states all have varying method to distributing these funds to SNFs from targeted funding for COVID units in Kentucky to a temporary 10% Medicaid rate add-on in California. All in, we estimate that our SNF tenants receive approximately $30 million in additional funds through June 30 because of this FMAP increase.

Recently, HHS has announced the extension of the Public Health Emergency Declaration for COVID-19 for another 90 days, extending through January 20, 2021. The extension of this declaration is critical as it extends the three-day hospital stay waver through January 20, 2021 and ensures the increased FMAP funding provided to states will continue to the end of Q1 2021.

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

The past eight months have proven to be one of the more challenging times for the long-term post-acute care industry, both from a clinical and business perspective. Suffice to say that the tremendous amount of financial support provided to the industry by federal, state, and local governments, continue to provide our operators with not only a bridge to the other side of this pandemic, but also the resources to protect their employees and patients. We are grateful for their support and the implicit acknowledgment of the long-term post-acute care industries importance.

And with that, let me turn the call over to Talya Nevo-Hacohen, Sabra's Chief Investment Officer.

Talya Nevo-Hacohen -- Executive Vice President, Chief Investment Officer and Treasurer

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

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

Senior housing operators have now transitioned into a phase were operating during a pandemic is the new normal. They have operationalized protocols, focused on infection control and prevention and created ways to relax restrictions, which can be flexed as warranted by circumstances and location. At the same time, consumers have transitioned from pandemic fear to pandemic fatigue. The results have been that while our senior housing operators have data and evidence that living in their communities is safer than staying at home, prospective residents worry that they will never embrace their families again, if they move in. To start, I will provide highlights of the operating results of our managed portfolio on a same-store quarter-over-quarter basis to illustrate the trends in the industry. These results will exclude two recent acquisitions and one transitioned community in our wholly owned portfolio, consistent with the presentation in our supplemental information package. Revenue increased 4.2% in the third quarter compared with the second quarter of 2020 and included $4 million from the Provider Relief Fund, Phase 2 general distribution that was made available to eligible assisted-living facilities in the third quarter through the CARES Act. If we exclude this grant, then same-store revenue declined 1.5%. And if we look at revenue for those facilities that were eligible for the grant and exclude those funds, then same-store revenue declined 1.4% on a quarter-over-quarter basis.

Revenue per occupied room (REVPOR), excluding the non-stabilized assets and the CARES Act grant rose 1.7%, while occupancy also excluding non-stabilized assets, declined 270 BP to 79.3% from 82% in second quarter. Cash net operating income increased by 20.6% to $19.7 million from $16.3 million. Without the federal grant, cash net operating income would have declined by 4.1%. If we look at the cash net operating income, for our eligible facilities and exclude those funds then same-store cash net operating income, without government funding would have declined 2.2% on a quarter-over-quarter basis.

Cash NOI margins increased to 26.8% from 23.1% in the preceding quarter. Again, excluding the government grant, cash NOI would have been 22.5%. While REVPOR has remained robust, occupancy continued to decline during the third quarter. As the pandemic as continued to affect our hemisphere in varying degrees, we have seen changes in the behavior of residents and their families. Pandemic fatigue of both residents and their families is contributing to higher discretionary move-outs and deferral of move in. In contrast to that, rates continue to be strong in our portfolio, indicating that residents appreciate the value operators are delivering to them. Senior housing is a high operating leverage business. Operators have scrutinized our cost structure, but there is a limit to expense cutting given the fixed costs inherent in the business model. For this reason, decline in revenue attributable to lower occupancy or an increase in revenue from CARES Act funds have a disproportionate impact on cash net operating income and cash NOI margin.

The Enlivant joint venture portfolio of which Sabra owns 49%, posted stronger third quarter results bolstered by the receipt of approximately $3 million in CARES Act fund. Average occupancy for the quarter was 75.8%, reflecting a 3.1% decline on the same-store quarter-over-quarter basis and a 5.6% decline on the same-store year-over-year basis.

REVPOR excluding CARES Act funding was $4,411 compared with $4,302 or 2.5% higher on a same-store quarter-over-quarter basis and 2.4% higher on a same-store year-over-year basis. Revenue was 7% higher on the same-store quarter-over-quarter basis and 3.6% higher on the same-store year-over-year basis, driven by the federal grant receipt. Excluding those funds, revenue decreased by 1.6% on a same-store quarter-over-quarter basis and 4.7% on the same-store year-over-year basis.

Same-store cash net operating income was $9.1 million, a 37.3% increase on a sequential basis, driven by CARES Act funds. Without those funds, same-store cash NOI would have declined 8.7%. Same-store Cash NOI margin was 24% compared with 18.7% for the prior quarter or 5.3% higher on a same-store quarter-over-quarter basis. Again excluding the federal grant cash NOI margin would have been 17.4% and more in line with the prior quarter's results. Subsequent to the end of the quarter, October occupancy was 72.8%, 890 basis points lower than February occupancy before the impact of COVID-19.

Rate increases occurred on October 1 for eligible residents. Rather than increased rates by 5%, as has been done in the past, Enlivant chose to increase rates by 4%. As a side note, Enlivant was not allowed to increase rates in the state of Washington, because of the Governor's order. We had 12 Enlivant communities in Washington and the impact of this temporary rate freeze on the portfolio is negligible.

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

The third quarter operating results for Sabra's wholly owned portfolio of 11 communities had similar theme in its performance. Third quarter occupancy was 81.2%, a 2.1% decline compared to the prior quarter and a 7.6% decline on a year-over-year basis. REVPOR in the third quarter excluding CARES Act funding of $797,000 was $5,761, essentially flat to the prior quarter and 4.2% higher than the prior year. Revenue was 6% higher on a quarter-over-quarter basis and 3.9% higher on a year-over-year basis. Excluding the federal grant, revenue declined 2.7% on a quarter-over-quarter basis and 4.7% on a year-over-year basis.

Cash net operating income was $2.8 million, a 42.4% increase on a sequential basis, driven by CARES Act funds. Without those funds, same-store cash NOI would have increased 2.1% for the same period. Cash net operating income margin was 29.2%, 7.5% higher on a quarter-over-quarter basis, excluding the federal grant, cash NOI margin would have been 22.8%, 1.1% higher than the prior quarter. More recently, October occupancy was 78.9%, 710 basis points below February pre-pandemic occupancy level. As in the joint venture, rate increases occurred on October 1 for eligible residents at 4%. Seven of our wholly owned Enlivant communities have had a resident or staff number test positive COVID-19. And as of earlier this week, only two communities have not yet recovered. Enlivant has made a strategic decision to maintain a six month to nine month inventory of personal protective equipment such as gowns, masks, and gloves in order to avoid potential shortages in the months ahead. This has given them some latitude and timing of purchases in order to achieve better pricing. Since occupancy is the key to improving financial results, Enlivant has been focused on regeneration and moving in new residents. Regeneration has rebounded since April and is in line with prior year leads.

Move-in volume while recovering since April, is about 74% of pre-pandemic results driven by potential residents and families concern over possible restrictions on visitation, quarantine, etc. Regulations on indoor visitation vary by state and maybe tied to county infection rates and local regulations. These limitations currently impacting half of the states in which Enlivant operate tend to dampen move-ins and accelerate move-out. Enlivant is trying to mitigate these concerns, including offering testing for new residents. So that they can avoid 14 day isolation and incentivize move-in and testing employees to prevent the infection from entering the building to mitigate pandemic fatigue.

Holiday retirement operates 22 independent living communities for Sabra, one of which was transitioned to Holiday in the fourth quarter of 2019. Since Health Care services are not provided in these independent living communities, these properties were not eligible to receive CARES Act funds allocated to assisted living providers. All of the following operating results are presented on a same-store basis and exclude the transitioned property. Holiday portfolio occupancy was 82.5% in the quarter, 2.5% lower on a sequential basis and 6.1% lower on a year-over-year basis. REVPOR was $2,519 slightly higher than both $2,499 on a sequential basis and $2,483 on year-over-year basis.

On a quarter-over-quarter basis, the Holiday portfolio experienced a 2.2% decline in revenue and a 5.6% decline on a year-over-year basis. Cash net operating income was $5.9 million, a 7.4% decline on a sequential basis and 18.6% decline on a year-over-year basis. Cash net operating income margin was 33.2%, compared with 35.1% in the prior quarter and 38.5% in the third quarter of 2019. Nearly the entire difference in margin, as a result of lost revenue due to occupancy decline with the balance being an increase in expenses associated with the pandemic.

Subsequent to the end of the quarter, excluding the one transitioned community, October occupancy was 80.6% compared to 86.8% in February, a 620 basis point decline. Of the 22 properties that Holiday manages for Sabra, 18 have had a resident, staff member or private home health aid test positive for COVID-19 and 12 communities have recovered. 16 properties are now in various states stages of lifting restrictions such as dining or reduced capacity, limited visitors and reopening of the beauty salon.

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

After having fewer move-outs in the second quarter, Holiday saw an increase in voluntary move out starting in July. Move-outs are trending down since quarter-end. The excess move-outs, those above normal levels, are result of COVID-related restriction. At the same time the number of move-ins per community rose to near pre-pandemic levels in July and August, before trending down at September due to concerns over a COVID-19 surge and resident concerns about restrictions after move-in. Holiday continues to be proactive in maintaining its reputation for safe communities. In anticipation of the regular flu season, Holiday partnered with CVS Health to arrange for flu vaccine clinics on site, with more than 10,000 vaccinations delivered to residents and staff.

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

In the third quarter, cash net operating income was just over $1 million, a 17% decline on a sequential basis and 46.7% decline on year-over-year basis. As in Holidays case, nearly the entire difference in cash net operating income is a result of occupancy loss. Cash net operating income, margin was 23.8%, lower than both 27.5% in the prior quarter and 39.9% in the third quarter of 2019. More recently, October occupancy was 80.2%, 400 basis points below February occupancy. There have been no confirmed cases of COVID-19 in our Sienna portfolio. The number of cases is very low in the interior of British Columbia where four of our retirement homes are located, with the total in the province of 777 cases, and there are fewer than 80,000 cases in the entire province of Ontario. While the more populated provinces in Canada had managed to flatten the curve, a surge in COVID cases triggered by Canadian Thanksgiving is causing the government to tighten restrictions.

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

Between February and October of this year, our total Senior Housing Managed portfolio inclusive of non-stabilized assets lost 687 basis points in occupancy. That change in occupancy is a key variable driving the operating results of our Senior Housing Managed portfolio. Pandemic related operating costs have become more routine as operators have acquired PPE inventory, operationalized infection prevention protocols, and managed delivery of services to residents. Our operators are reporting reduced agency use, key role pays decreased significantly since the summer and Enlivant has even seen an increase in employee retention over the last few months. These expenses are not driving the ongoing pressure on net operating income. It is a decline in revenue from the erosion in occupancy.

In order to be a desirable alternative to home, Senior Housing always needed to offer a multifaceted value proposition to residents and their families. Senior Housing is needed to provide a pleasingly living arrangement, tasty food, engaging activities, social life, and delivery of care. COVID-19 has added a significant new facet, infection protection. The challenge has been to do this without infringing on residents lives. Our managed communities located mostly in secondary and tertiary markets, targeting a middle market price point were somewhat shielded from COVID-19 outbreaks during the early months of the pandemic. Now after seven months, COVID has spread across all markets infecting people in nearly identical rates per capita from urban to rural markets and everything in between.

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

Potential residents, making a decision about whether to move into a senior housing community today are faced with the difficult choice. And that choice is increasingly being skewed by need rather than want. The pent-up demand that we talk about are those people still in the want category, who will move into the need category. And that timeframe is measured in months, not years. Enlivant has already noted that they are seeing higher acuity residents moving in. Higher care may result in higher revenue, but it may also result in shortened average length of stay, which will drive greater turnover in the near term.

Until an effective vaccine is available and administered to residents and staff, senior housing operators are walking the fine line of keeping residents safe, while keeping them engaged and fulfilled. That is why our operators are so intently focused on creating testing programs that are effective at stopping potentially infected individuals from entering the building regardless of their symptoms or lack thereof. The better our operators can insulate residents from community spread, the freer our residents can be within the building. This gives our operators the opportunity to sway the people who want to move in that now is the time.

In prior earnings calls, we've spoken about the importance of our senior housing operators in the healthcare continuum. We saw that recognized by the federal government in September. We also believe that the pandemic will be seen as a period where operators' reputations will be burnished because they kept their residents and their staff safe, and did so with care.

I will now turn the call over to Harold Andrews, Sabra's Chief Financial Officer.

Harold Andrews, Jr. -- Executive Vice President, Chief Financial Officer and Secretary

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

We have concluded that our leases with subsidiaries of Genesis and Signature will no longer be accounted for on an accrual basis resulting a write-off of straight line rent receivables and above market lease intangibles totaling $14.3 million. The auditors for these two tenants concluded that absent additional government stimulus, increased occupancy, and/or reduced operating expenses, Genesis and Signature will likely have insufficient liquidity to meet their operating needs over the next 12 months. Both tenants are current on all rental obligations to us and neither have requested rent relief during this pandemic. After moving these two tenants to a cash basis of accounting and assuming we collect all contractual rents due, our AFFO will not be impacted and our FFO will increase by $3.2 million over the next four quarters.

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

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

FFO for the quarter was $84 million and on a normalized basis was $98.8 million or $0.48 per share. The primary normalizing item being the $14.5 million write-offs related to Genesis and signature. AFFO, which excludes from FFO merger and acquisition costs and certain non-cash revenues and expenses was $94.8 million and on a normalized basis was $95.1 million or $0.46 per share. This quarter, we revised our policy on normalizing items to no longer normalize out the impact of pandemic related expenses or grant income. When applying this normalization policy to the second quarter results, our third quarter normalized FFO and normalized AFFO increased from the second quarter by $9.4 million and $7.5 million respectively or $0.04 per share for both normalized FFO and normalized AFFO. For the quarter, we recorded net income attributable to common stockholders of $36.5 million or $0.18 per share. G&A costs for the quarter totaled $7.2 million compared to $8.7 million in the second quarter of 2020. G&A costs included $0.9 million of stock-based compensation expense for the quarter compared to $2.4 million in the second quarter of 2020. This decrease is due to a change in performance-based vesting assumptions on management's equity compensation.

Recurring cash G&A costs totaled $6.3 million or 5.3% of NOI for the quarter and in line with our expectations. Our interest expense for the quarter totaled $24.9 million compared to $25.3 million in the second quarter of 2020. Our cost of permanent debt increased 2 basis points from the end of the second quarter to the end of this quarter to 3.53%. While our revolver borrowing cost declined 1 basis points from end of the second quarter to the end of the quarter to 1.25%.

Interest expense includes $2.1 million of non-cash interest for the quarter compared to $2.2 million for the second quarter of 2020. The income from consolidated joint venture of $2.8 million, includes one-time $3.1 million net adjustment to our basis difference in the joint venture, as a result of the completion of the joint venture strategic program to dispose of 14 Senior Housing communities, partially offset by loss on sale of $0.5 million and the strategic disposition of one facility. In addition, income from unconsolidated joint venture includes the $3 million in government grant income recognized under the CARES Act as previously noted.

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

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

Subsequent to quarter end, we completed the sale of an additional skilled nursing transitional care facility for gross sales proceeds of $9 million. We issued 1.4 million shares of common stock under the ATM program during the quarter at an average price of $15.70 per share, generating gross proceeds of $21.4 million, before $0.3 million of commissions. Our levers move down slightly to 4.91 times to 5 times, excluding the JV debt and the 5.48 times and 5.54 times, including our share of new Enlivant JV debt.

We have $315 million available under the ATM program, and we'll continue to monitor the equity markets and utilize the ATM to match fund, investment activity, and managed leverage as opportunities present. We're in compliance with all of our debt covenants as of September 30, 2020 and continue to have very strong and improving credit metrics compared to the prior quarter as follows, interest coverage 5.1 times, up from 5.36 times; fixed charge coverage of 5.22times, up from 5.17 times. Total debt to asset value is 35%, down from 36% and then our unencumbered asset value to unsecured debt is 275%, secured debt to asset value just 1%.

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

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

And with that, I will open up the Q&A.

Questions and Answers:

Operator

Certainly. [Operator Instructions] Our first question comes from the line of Nick Yulico from Scotiabank. Your question please.

Josh Brown -- Scotiabank -- Analyst

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

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Well, elective surgeries are picking up in some areas more than others. We are 100 basis points higher on skilled occupancy than we are at our low point. So we have seen increases, but you see the numbers, we're having spikes in COVID all over the country. So there is a direct relationship there. We have -- about 95 facilities currently that's still have some level of COVID positive and so they are restricted in what they can do. Most of -- the rest of the facilities are admitting. So the majority of the facilities are admitting, but because of all the spikes in COVID around the country, hospitals are keeping beds open for COVID patients. And in some cases we've got -- they've already hit/or exceeded capacity. So there's just a direct relationship there. So it's not as if we're not seeing the occupancy increases on the skilled side, we are, but it's definitely mitigated by the impact of our inability to control the virus. I don't know if that answers your questions. Are you seeing something different with the numbers out there on COVID?

Josh Brown -- Scotiabank -- Analyst

No. And then just you mentioned in your prepared remarks the pandemic fatigue, and I'll kind of pick up in discretionary move out, so how much of an impact is that having on your operator occupancy?

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Talya?

Talya Nevo-Hacohen -- Executive Vice President, Chief Investment Officer and Treasurer

It's quite significant. Because you heard what the occupancy trends are across the portfolio irrespective of assisted living and memory care -- independent living and assisted living and memory care, I guess. You are seeing just a longer tail to getting residents to move in and it really is a function I think of getting people at higher acuity when they have to move in as opposed to when it is more of a choice. So the challenges -- your move out are happening as they always have -- the move-outs that you always have whether it's higher acuity or people path or whatever that might be, but then you're also having people move out, there is a whole tranche of people that are moving out, because after -- within a community that is at various times had to maintain social distancing sometimes there has been food delivery to the rooms because they've wanted people not to socialize because it's just, it's just a concern. And that's a regulations in that location. The people feel limited, and so they're reluctant to move from their home, let's say to senior housing community where they may be in the 14 day quarantine and maybe then they're not going to be out of their room much anyhow. And so the whole aspect of socialization, which is the want part of the equation for moving in, is really limited.

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Let me clarify. In terms of staff, in case you're referring to that, yes, the fatigue has been very stressful, but that isn't impacting admissions. Everybody has worked -- within the facility, everybody is working just as hard to admit as they always have. You just got those other factors that Talya articulated that create some issues. And in terms of acuity, we have been seeing pretty consistently, I think our peers are seeing it to because folks have been staying at home longer, whether it was delays on the skill side, or all the reasons that Talya articulates on the senior housing side. They are coming in second half. But I just want to make sure that it's clear that the stress and fatigue is not impacting the desire or the execution on the part of facility management or staff to admit.

Josh Brown -- Scotiabank -- Analyst

Got it. Okay, thanks.

Operator

Thank you. Our next question comes from the line of Nick Joseph from Citi. Your question please.

Nick Joseph -- Citi Research -- Analyst

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

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

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

Nick Joseph -- Citi Research -- Analyst

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

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

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

Talya Nevo-Hacohen -- Executive Vice President, Chief Investment Officer and Treasurer

Sure. So it's a -- it's actually a really interesting question because there are some dynamics obviously in the marketplace. So when -- all operators are not unique in the pressure on occupancy and there is quite a bit of new construction you may have heard that's been going on -- it's been under way for the last three years or so in Senior Housing. You may have heard about it, and my guess is, in fact, I can say with certainty that those properties are also having pressure on their occupancy and they are on lease-up mode, but we think that there is going to be some interesting opportunities within that -- within that segment so assets that -- as Rick had mentioned earlier, have not had pressure from the lenders. But probably will eventually if they are not really -- if not getting on back on track if you will to hit their numbers under their covenants. So we think that there are assets out there that are going to be -- come to market at an odd time, right, during the pandemic, but where liquidity is or recapitalization is really important. So we think that's an interesting opportunity.

Nick Joseph -- Citi Research -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Rich Anderson from SMBC Group. Your question please.

Richard C. Anderson -- SMBC Group -- Analyst

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

Harold Andrews, Jr. -- Executive Vice President, Chief Financial Officer and Secretary

Well, I think with the numbers that are coming in from the revenue side obviously our managed portfolio got the 2%. So it's going to require incremental stimulus to be coming in for there to be incremental revenues coming in and we're hopeful that that will happen, but it's impossible to predict the timing with the scale of that. And I would just say on the operating cost side, things have come down this quarter compared to last quarter, as they built up inventories and we've seen things become more operationalized and so as we start moving through the pandemic obviously we'll see the -- we expect to see labor costs that are impacted from COVID to normalize as well. But again that's very difficult to predict the timing. So I think we'll see -- what we saw this quarter, and I'm not going to predict because it's hard to, but I think it's kind of indicative of the level of cost that we're going to see for a while as the pandemic is ongoing and then it should start to moderate as we get closer to vaccine when we start to see less cases in the buildings.

Richard C. Anderson -- SMBC Group -- Analyst

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

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Thanks, Rich. Appreciate it. So it doesn't really affect our thinking. Part of the answer to that is, it's just practical. There is hardly anybody out there when you do a deal that wants to do triple-net anymore, so you got sort of that practical consideration if you want to stay in the space and grow in this space you're going to do -- you are going to do managed deals. I think there's lessons to be learned. And I said this before, we've all been complicit in this. The coverage that we put in place when we do acquisitions in the senior housing side are pretty thin, certainly extremely thin on the independent living side because they are not viewed as really healthcare facilities. And so when you hit any sort of headwinds or hard times or pre-pandemic the supply demand equation creating issues as we've seen that really -- it really depress the amount of breathing room those folks have on coverage, which led to not just more managed deals being done, but the conversion of existing Triple-Net deals to managed deals. So we think if we do as long as we continue to partner with good operators, the managed yields are fine and we're happy to find the upside, the initial diligence and analysis is critical to determine that there is upside because as we all know with the managed year you're buying both upside and downside. And so you don't want to do any transaction where you're buying that particular operator at a peak level.

Now it's possible that over the next couple of years as the demographic really starts making its way into the occupancy of senior housing facilities that folks might be interested in doing triple-net again and if that's the case, hopefully, everybody has learned their lesson and sort of underwriting 1.2 times for assisted living or 1.1 times independent living, you're going to go in there with a higher level, whatever it happens to be. So that you know that when there are inevitable headwinds and headwinds are always inevitable at some point for whatever reason that you've got cushion there. So it's possible that the triple-net could come back, but I think that that's a function of the demographic really impacting occupancy and then sort of the state of the dynamic between supply and demand. Obviously, all that is interconnected.

Richard C. Anderson -- SMBC Group -- Analyst

Great, thanks very much. Appreciate it.

Operator

Thank you. Our next question comes from the line of Lukas Hartwich from Green Street. Your question please.

John Dion -- Green Street Advisors, LLC -- Analyst

Hi, this is John Dion [Phonetic] for Lukas. Thank you for your time and congrats on the quarter. Just a quick one for me. I was just hoping to get some insight into as you look to take advantage of the deals that are kind of manifest over 2021, you look at your own portfolio, there are areas where you can see yourself selling into the strong bid out there for senior housing assets that you have to recycle capital to take advantage of the deal in the future?

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Talya, do you want to take that?

Talya Nevo-Hacohen -- Executive Vice President, Chief Investment Officer and Treasurer

Sure. So potential, yes. We have always -- something in the bottom of the barrel that we're looking to sell that's inevitable everyone does that. It's funny you asked the question because we probably get almost weekly a call from somebody who wants to buy an asset -- is looking to buy an asset. They're not even asking about specific assets, they just want to buy and can they buy something from us. Oftentimes it is multifamily guys looking at senior housing particularly independent living, but it's -- but it's, it's really quite challenged. So there's a lot of capital there looking to find a home and we frankly haven't tested the market to see whether something that we bought it at seven, we can sell it off -- 5.5 and then you have to make a judgment as to whether long term that makes sense, because we have to measure what we -- how we redeploy that capital and how we think about the long-term improvement and sturdiness of the returns that we can get over time.

John Dion -- Green Street Advisors, LLC -- Analyst

Thank you.

Operator

Thank you. [Operator Instructions] And our next question comes from the line of Steven Valiquette from Barclays. Your question please.

Steven Valiquette -- Barclays -- Analyst

Great, thanks. Hello, everyone. Thanks for taking the question. So, I'm just hoping to get a little more color regarding the Genesis and Signature going concern opinion. The Sabra press release from September 25 says that you guys have not received any rent relief request from either operator as of that date. Wasn't sure if that was still the case today? And I'm not sure if you can even talk about this, but what do you expect to be the likely scenarios from here? So how does that might play out or so is this more just really an accounting protocol? Just want to get more flavor for kind of this whole situation. Thanks.

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

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

Harold Andrews, Jr. -- Executive Vice President, Chief Financial Officer and Secretary

Yeah, thanks Rick. I don't -- we don't have any, any detailed insights into more than that from their auditors. We have conversations, obviously with the operators and obviously Genesis will be having their call here at some point for this quarter. And they are clearly under pressure. They've told us that this is not an eminent issue for them as far as having problems, but they've got to see relief continue to come in and they got to see occupancies improve over time or it would be a problem for them. So we just kind of in a wait and see mode. The Genesis, Signature, Signature has been one that we restructured that lease while back. We've been very pleased with the progress that they've made and what they've done. But, as Rick said their conclusion was they could not that provide a forecast to show things being able to be funded, absent increased occupancy or more relief, given the occupancy levels they are at today, but similarly given all the relief that has been received by Signature, we feel like their cash flow position in the short term is fine. So we're basically in a wait and see mode. And I think there is not a whole lot more I can say about it than that.

Steven Valiquette -- Barclays -- Analyst

Okay, that's helpful. I appreciate the color. Thanks.

Harold Andrews, Jr. -- Executive Vice President, Chief Financial Officer and Secretary

You know I would add just real quickly that we have got Genesis down to such a small percentage. We've got -- it's about $10 million of recurring rent and $10 million a year for the next couple of years. So whatever happens there, it's not going to be a significant impact for us. If something negative happens, hopefully that won't be the case, but I think the fact that we've gotten down so dramatically. This is just really obviously is indication there that was the right move for us to do.

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

And we've also had internal conversations that if it came to that we've had internal conversations relative to who we can move those facilities. They are all in one region. So it would be not difficult move and it's in a state that we really like, New Hampshire.

Steven Valiquette -- Barclays -- Analyst

Perfect, OK. All right, appreciate the color. Thanks.

Operator

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

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

Michael Costa -- Executive Vice President, Finance

Rick Matros -- Chairman of the Board, President and Chief Executive Officer

Talya Nevo-Hacohen -- Executive Vice President, Chief Investment Officer and Treasurer

Harold Andrews, Jr. -- Executive Vice President, Chief Financial Officer and Secretary

Josh Brown -- Scotiabank -- Analyst

Nick Joseph -- Citi Research -- Analyst

Richard C. Anderson -- SMBC Group -- Analyst

John Dion -- Green Street Advisors, LLC -- Analyst

Steven Valiquette -- Barclays -- Analyst

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