Sabra Health Care REIT, inc (SBRA) Q2 2021 Earnings Call Transcript

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Sabra Health Care REIT, inc (SBRA -0.62%)
Q2 2021 Earnings Call
Aug 5, 2021, 1:00 p.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 REIT Second Quarter 2021 Earnings Call. I would now like to turn the call over to Michael Costa, EVP, Finance and Chief Accounting Officer. Please go ahead, Mr. Costa.

Michael Costa -- Executive Vice President, Finance and Chief Accounting Officer

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 Enlivant joint venture, 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, 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 during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as explanation and reconciliation of these measures to the comparable GAAP results included in the financials page of the Investors section of our website at www.sabrahealth.com. Our Form 10-Q, earnings release and supplement can also be accessed in the Investors section of our website.

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

Rick Matros -- Chairman, President and Chief Executive Officer

Thanks, Mike, and thanks, everybody, for joining us today. First, let me start by once again thanking our operators and all the team members that work at the facilities. It's been a really tough 18 months. The worst is over, but there are still some challenges ahead. And for myself and someone who's spent most of my career as an operator, I still can't even imagine what it was like these last 18 months dealing with COVID in the facility. So they continue to have our thanks, our appreciation and our admiration.

As you saw in a separate press release we did, Harold Andrews, our CFO, is going to be retiring at year-end. He'll stay on in a consultation role for the two years following his retirement, which essentially means that Harold is going to be available to us for whatever we need in an advisory capacity. And I'm sure Mike will be accessing him as well.

And with that, we're really pleased that Mike Costa will be promoted to the CFO position. As you know, Mike's been with us since inception. In fact, our whole team has been together since inception. So this is a really smooth transition for us, keeps us culturally intact. And we anticipate having Mike's position replaced. Our goal is early in the fourth quarter, so we've got a few months of overlap between Mike, Harold, and the new individual.

Next, moving on to the Enlivant exit. I know some of this was expected. A couple of comments that I want to make. One, our exit from Enlivant is specific to Enlivant. We're completely committed to continuing to grow in senior housing. I want to note and express my appreciation also to the management team at Enlivant and our desire, with the wholly owned portfolio, to continue to work with them and to continue to grow with them after the sale of the joint venture.

There were a couple of things that really happened. And just to go back a little bit in history, prior to the pandemic, we were getting pretty close to wanting to exercise the option on the 51% that TPG owns, but the pandemic really changed everything. And two things specifically impacted our decision-making. One is the leverage, and while the leverage was high, as it is with most PE-owned companies, prior to the pandemic at somewhere around nine times, it wasn't unreasonable. And the size of the check that we'd have to write to bring leverage down to levels that were accessible to us wasn't an overwhelming amount. Because of the pandemic, the impact on occupancy and NOI, that leverage is now 20 times.

The other issue is the operating company platform, which was really built to support a much larger and growing enterprise in order to accommodate that. And again, that was impacted by the pandemic as well, and current management fees no longer support that platform. The structure of the management agreement and the fee structure specifically would have to be increased pretty dramatically to a point that we think is not market.

And so the combination of those two items just makes this something that would be extremely dilutive to us probably over the next couple of years, at least. And it's something that from our perspective, as much as we like the portfolio, we're better off moving forward. It's immediately de-levering and accretive, and it simplifies everything about our company and our reporting, which we like, as well. And so it really comes down to those issues. So TPG at some point will start the process, and we'll tag along with that. And that will be that.

And the other final point I would make is, when we exited 2018, we had finished all the restructuring early in 2019 that was related to CCP, along with the sales of Genesis as well and Senior Care Centers. And we were really focused and committed to our shareholder based on not having noise. And certainly, even though the merger accomplished a lot of what we wanted to have happen to the company, it was a lot of noise over that 18-month period.

And over the course of 2019, we stayed true to that, and I think people rewarded us as a result of that. We did our first two investment-grade note offerings, which were really successful, then the pandemic hit. But our commitment doesn't change. We want to avoid noise, and we just want to move forward and do deals that are more predictable, understandable, and just focused on growing the company. The result of our exiting Enlivant puts us in a position that we've actually never been, with lower leverage and the optionality that comes with lower leverage that we've never had before.

Let me make some comments now about COVID and the current reimbursement environment. So at this point, we're not seeing trends with the variant in the facilities. And the vaccination rate, as we've been talking about the last couple of quarters, is exceedingly high for patients and residents throughout the Sabra portfolio, well over 90%. Many of our operators were over 95%. The workforce isn't where we would like it to be, but it's certainly much higher than the general population, north of 70% in the aggregate, although unlike residents and patients, where there isn't much disparity between the uptake rate on patients and residents, there is disparity with employees. But 70% to 75% in the aggregate is pretty much where we are in vaccination status for employees.

You may have just seen that Massachusetts is now mandating vaccinations for all healthcare workers. We think that's a good thing. We have several operators that have mandated vaccinations for employees. Not very many have. I think their primary concern, with all the pressures on labor, which I'll get to in a minute as well, is that they'll lose employees. But I would tell you that, for those of our operators that did mandate vaccinations, they did lose employees. And if they had to do it again, they'd do the mandate again. From their perspective, it was completely worth it. That created a much more comfortable atmosphere in the facilities, and they've been replacing the employees that they've lost.

Unfortunately, we've got other actions happening in other states. You may have seen in Texas that, even if operators want to mandate vaccines, they cannot. So I find that distressing and a real head-scratcher. So it just puts operators in Texas in a little bit more difficult position. But I would say that one of the reasons we're not seeing breakout trends, we have COVID here and there, obviously, with the variant, but we're not seeing trends because the operators are adhering to protocol. So people all wear masks when they come into the facilities, both workforce and visitors, so that's helping quite a bit, as well.

So we feel pretty pleased with where we are with COVID in the facilities. Out of all of our buildings, we only have 10 facilities that are completely clear of COVID. We actually have one operator that is reopening a COVID unit because one of their primary hospital partners are over-run with COVID, and so they're doing that to help out the hospital. So we may see a little bit more of that, as well.

In terms of the provider relief fund, it's now at $43.7 billion. It's increased, as I noted it would be last quarter, because of monies that have been returned by the hospitals. And phase four distribution has been delayed. Really, there were a couple of reasons it was delayed, but most recently it was delayed because of the debate around infrastructure and pay-fors. The PRF fund is now protected. And so, now, we fully expect that there will be an announcement on the amounts, timing and methodology, but we don't know what it is at this point.

PHE was extended through mid-October. FMAP has been extended through December 31, '21. And the final rule from CMS, the market basket came in at 1.2%, so pretty much where it was expected, and there was no parity adjustment to PDPM this year. I would note that I saw in some of the commentary after CMS made the announcement that some of the analysts out there were expecting that there will be an adjustment next year, so October '22 for fiscal year 2023, but we don't know about that, either. CMS did note that this year, obviously, it was a tough year to use anything as a database because COVID really impacted all the numbers and really drove up acuity. So we don't even know if the 5% is a real number.

Secondly, with the variant affecting operators to some extent, and we don't know how that's going to play out over the next few months, CMS isn't sure how good the database is going to be in fiscal year '22, either. So we'll see. But however it turns out, one of the things that we do feel very good about in terms of the relationship with CMS is that they don't want to disrupt the industry. So anything that they feel they need to do I think, will be spread out in a way over time that doesn't impact our operators. And the fact of the matter is increased Medicare revenue should come from the smart operators who are moving acuity up and not be dependent on market basket and other things.

Now, let me move on to our acquisition pipeline. Our acquisition pipeline is in excess of $2 billion. It's actually busier than it's ever been, so I'm talking pre-pandemic times. It's still primarily senior housing, but we're starting to see some skills and some more behavioral opportunities. And just a reminder that, when we discuss the development in our pipeline, those are potential deals that we're actively reviewing. They are always continually coming in and out, and a lot of these will fall off, as well. But when we talk about the amount that we have in the pipeline, it's not the amount that hits our desk. It's the amount that hits our desk and, after review, we've decided to actually spend some time on, do some underwriting analysis, etc.

In terms of our strategy, going forward, we'll continue to be opportunistic within the asset classes that we're in. And while we would like to find some larger opportunities, we're only going to do larger deals that are clean. We're not going to be taking on larger deals that require restructuring or any of the cleanup that will prolong sort of the noise around the company. And so we'd rather stretch a little bit for our portfolio that has a quality that we really feel good about and has clear upside and is accretive as opposed to paying something less for a troubled portfolio. Beyond that, we're laser-focused on sort of the bread-and-butter deals, the $30 million to $80 million deals and even less than that, and obviously more than that, because those are the deals that are easily digestible, the team is really focused on it; and, cumulatively, will provide some good growth for Sabra, going forward. So regardless of any time we may spend looking at larger opportunities, we never take our eye off the smaller opportunities.

Terms of occupancy trends, our top eight skilled operators, which is 71% of our NOI, since the end of December 2020 bottom are up 601 basis points in the aggregate. Skilled mix, while lower than the December high as acuity continues to normalize, is 144 basis points higher than pre-pandemic levels. We're seeing similar trends in the remainder of our skilled portfolio. Talya will discuss our senior housing occupancy trends, with AL improving more quickly than anticipated.

I noted earlier, I made a comment about labor challenges. That's really the biggest challenge right now until the pandemic-related benefits run off in September. And I know you all have seen this in all sectors. People just aren't coming back to work. And so that's put stress on operators in areas that we haven't seen stress before. So nursing and therapy are one thing because there's always a shortage there. But we're seeing labor stress in departments like dietary and housekeeping and laundry, and use of temporary agency in some cases. So we expect that to improve as we start moving into the fourth quarter. But that's still very tough right now, and it's going to be tough for a while.

And it does have some impact potentially on the trajectory and the rate of recovery for occupancy because, depending on what your staffing levels are at any particular time, you may not be able to accommodate every admit. We don't have operators that have had to close off admits, so everybody is admitting. But, for example, if you've got seven admits that you'd like to do in the next week and a half, you may only be able to do five. So occupancy growth is continuing to happen; but, here and there, it could get impacted by some of the labor stress.

The skilled portfolio EBITDARM [Indecipherable] coverage is flat sequentially, and on an EBITDA basis remains above one times when excluding provider relief funds. The triple-net senior housing portfolio was down to 1.12 from 1.23 sequentially, and that was purely a function of a strong pre-pandemic quarter dropping off, and that was replaced by a severely impacted quarter coming on. The difference in occupancy between the quarter that dropped off and the quarter that came on is 780 basis points. Our other acute and post-acute operators at 11.6% of NOI continued to perform at a high level, with coverage and occupancy higher. We continue to be strategically focused on growing the behavioral and the addiction segment.

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

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

Thank you, Rick. Sabra's senior housing wholly owned managed portfolio continued on the path of rebuilding our occupancy and net operating income after the successful distribution and implementation of the COVID-19 vaccine late in the first quarter of this year. The headline numbers for the wholly owned managed portfolio are as follows: occupancy at the end of the second quarter of 2021 was 78.4%, up 322 basis points from 75.1% at the end of the prior quarter. Same-store REVPOR, excluding non-stabilized communities, was slightly higher than the prior quarter at $3,230 compared to $3,205 and in line with RevPOR in the second quarter of 2020.

Same-store cash net operating income increased by 34% sequentially, and margin increased by 5.9% compared to the prior quarter, in large part because of the occupancy rebound in our wholly owned Enlivant portfolio as well as reduced pandemic-related operating costs, such as additional labor, PPE and supply, with a small boost of $519,000 of COVID grant income in the second quarter of 2021.

When we look at sequential operating results on a more detailed basis, we see that the pandemic was not uniform in its impact on occupancy, with higher acuity assets experiencing greater declines and faster recovery and vaccine clinics being pivotal to this turnaround. Sabra's wholly owned managed assisted living portfolio, excluding acquisitions made during the quarter, has continued the occupancy recovery that began in the second half of March, driven primarily by our wholly owned Enlivant assets, which comprise about half of the units.

From March 2021 to April 2021, occupancy increased by 160 basis points to 69.5%. From April to May 2021, occupancy increased 214 basis points to 71.7%. And from May to June 2021, occupancy increased 39 basis points to 72.1%. From the low in March through mid-July, occupancy increased 425 basis points to 71.8%. This trend was driven by our wholly owned Enlivant portfolio, which had spot occupancy of 72.1% at the end of July, 200 basis points above June.

We are seeing [Indecipherable] consistently well above 219 levels, indicating the pent-up demand for needs-based communities continues. With no current infection outbreaks in this portfolio, move-out volume has reverted to normal trends, allowing occupancy to rebuild.

For comparison, Sabra's net leased assisted living and memory care portfolio has shown continued occupancy recovery, increasing 246 basis points in the second quarter compared with the prior quarter. During the quarter, the increases were steady. From March to April 2021, occupancy increased by 84 basis points to 75.7%. From April to May 2021, occupancy increased 71 basis points to 76.5%. From May to June 2021, occupancy increased 63 basis points to 77.1%. And from the low in February through mid-July, occupancy increased 505 basis points to 77.6%. Because we report EBITDARM coverage one quarter in arrears, this portfolio's lower coverage reflects declining occupancy from the pandemic over 11 months, with only March reflecting the post-vaccine recovery.

Sabra's managed independent living portfolio experienced less occupancy loss than our assisted living portfolio, and its recovery has been more gradual. In addition, it has been impacted by deferred move-outs, lack of prioritization for vaccine distribution in the U.S., and delayed vaccine distribution in Canada. For March to April 2021, occupancy increased by 31 basis points to 77%. From April to May 2021, occupancy decreased 52 basis points to 76.5%. And from May to June 2021, occupancy increased 166 basis points to 78.2%. From the low in May through the end of July, occupancy increased 212 basis points to 78.6%.

In higher acuity settings, initial vaccination clinics began in January and were completed in February. In independent living, vaccination clinics began in March and continued into April. In both cases, we see the timing of vaccination in the communities as pivotal to increasing occupancy. Unlike our higher care portfolio of communities, independent living experienced a higher rate of move-outs in May. Residents in independent living requiring higher levels of care deferred moving during the pandemic, resulting in pent-up move-out volume, a trend that has reverted to normal levels by this past quarter's end.

Together, these factors delayed the occupancy recovery. Demand for independent living appears to be strong, and Holiday leads are tracking 10% higher than in 2019, and move-ins are tracking at nearly 20% higher than 2019. Importantly, the rate of lead-to-lease conversion is higher than in 2019. While occupancy gains began to be felt in the second quarter across our wholly owned managed portfolio, pandemic-related expenses also dropped 56% quarter-over-quarter. The decline would have been even greater but for ongoing workforce challenges being faced, the same challenge affecting all industries; and a vaccine mandate at Enlivant as of June 1, resulting in temporary increased agency utilization as permanent staff is recruited.

In our portfolio, we're seeing nearly all community residents and patients vaccinated. Staff participation has been lower and ahead of the industry rate of 67%. In communities where operators have mandated employee vaccination, we are seeing participation at the same level as residents. There is a cost of this mandate, as staff refusing the vaccine must be replaced with temporary labor until permanent employees can be hired. Even in this challenging labor market, we expect vaccine mandates to become increasingly commonplace across all segments of the healthcare industry, considering the current concerns over the Delta variant spreads. Enlivant, among other operators, has already mandated vaccinations, and Holiday is requiring it of new hires. Our operators continue to put resident safety first.

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

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

Thanks, Talya. And first, let me just say it's been a real pleasure working with all the investors and all the analysts these past 11 years. It's been a blast and really a blessing working with Rick, Talya, Mike and the whole Sabra team. It's tough to leave the greatest gig of all time for me, but I do know that Mike will continue to do amazing things for Sabra as CFO, and I'm thrilled for him to have this opportunity.

So let me now get quickly into the quarter. I'll give a quick overview of the numbers for Q2 and then provide additional color on our 2021 guidance. But first, I want to provide some additional color on the decision not to acquire TPG's 51% interest in the Enlivant joint venture, and rather exit the investment when the opportunity to sell arises. And for clarification, the sales process will be handled by TPG. We expect to exercise our tag-along on rights to sell our interest if and when that sale occurs.

As Rick noted, the decision was not an indication of a lack of belief in the management team or recovery prospects for the portfolio at some point in the future; rather that pandemic has had not only a significant impact on the expected near-term financial performance of the portfolio, but it also had impacted our cost of equity capital as compared to late 2019 when we contemplated exercising our option to purchase the portfolio. These two factors, along with the current debt-to-EBITDA of 20 times as of June 30, 2021 compared to the historical 9.5 times leverage, has significantly increased the cost to Sabra to buy out TPG and right-size leverage on the portfolio to match our balance sheet targets.

Additionally, expectations of the need for a higher management fee on the portfolio would further reduce the long-term earning prospects below our prior expectations. These factors would result in an extended period of earnings dilution for us if we were to acquire the 51% interest at what we believe to be the fair market value of the portfolio. This decision has resulted in our recognizing an impairment on the investment during the quarter of $164.1 million, reducing our carrying value to an estimated fair market value of $114 million.

Finally, we currently have our net debt to adjusted EBITDA approaching the lowest level we have seen in our history at 4.75 times, excluding the Enlivant joint venture debt. I would like to point out that the calculation excludes our share of the Enlivant joint venture debt and only includes actual cash distributions from the joint venture to Sabra in that EBITDA calculation since this is the proper measure of cash available for us to repay Sabra consolidated debt. This current 4.75 times leverage includes only $5.7 million of cash distributions from the joint venture in our adjusted EBITDA amount as the joint venture suspended distributions to preserve cash during the pandemic

As a result, our leverage will likely be positively impacted by the sale of the portfolio. As an example, if we receive proceeds equal to our new carrying value of $114 million, our net debt to adjusted EBITDA would decline on a pro forma basis by 0.19 timesto 4.56 times. The benefit of the potential further de-levering are significant to our strategy to maintain a strong balance sheet and provide us with significant optionality in how we think about funding future growth.

And now for the numbers for the quarter. For the three months ended June 30, 2021, we recorded total revenues, rental revenues and NOI of $152.9 million, $110.8 million and $121.3 million, respectively, as compared to $152.4 million, $113.4 million and $121.3 million for the first quarter of 2021. This decrease in rental revenue of $2.6 million is primarily due to a decrease in collections related to the leases accounted for on a cash basis. Note that rental revenues can fluctuate quarter-over-quarter due to the timing of collections and recording of cash-based rental income as demonstrated by our first quarter rental revenue increasing by $2.7 million over the fourth quarter of 2020.

Total revenues and NOI were also impacted by a $3.1 million increase in revenues from our wholly owned senior housing managed portfolio compared to the first quarter. The increase is due to $0.5 million in government grant income as well as two senior housing management facilities we acquired in 2021. NOI was further impacted by the result of the Enlivant joint venture, which generated $2.3 million of cash NOI during the quarter. This was lower compared to the first quarter due to a $2.5 million one-time support payment the joint venture made to the management company to support its cash flow needs. Excluding this one-time payment, cash NOI increased by $1.7 million over the first quarter of 2021.

Finally, COVID-related costs in our senior housing managed portfolio, excluding the joint venture, totaled $0.4 million for the quarter, a $0.5 million decrease compared to the first quarter. FFO for the quarter was $85.7 million, and on a normalized basis was $88.4 million, or $0.41 per share. This compares to normalized FFO of $85.5 million, or $0.40 per share in the first quarter of 2021.

AFFO excludes from FFO certain noncash revenues and expenses and was $83.9 million, and on a normalized basis was $86.6 million, or $0.40 per share. This compares to normalized AFFO of $83.2 million, or $0.39 per share in the first quarter of 2021. The primary normalizing items for FFO and AFFO were the elimination of the one-time support payment made by the Enlivant joint venture to the management company. The increases in normalized FFO and normalized AFFO are primarily related to increases in NOI previously discussed.

For the quarter, we recorded a net loss attributed to common stockholders of $132.6 million, or $0.61 per share, of which $0.76 per share is the impairment charge related to the Enlivant joint venture. G&A costs for the quarter totaled $8.8 million compared to $8.9 million in the first quarter of 2021 and included $2.3 million of stock-based compensation expense in both quarters. Recurring cash G&A cost of $6.2 million were 5.1% of NOI and in line with our expectations. We continue to have very strong liquidity position as of June 30, with approximately $1.1 billion of cash and availability on our line.

During the quarter, we acquired one senior housing managed community and acquired land for one skilled nursing transitional care facility for an aggregate purchase price of $33.9 million, with a weighted average estimated stabilized cash yield of 7.78%. Additionally, the skilled nursing transitional care facility is currently under construction with a budget of $19.6 million and is estimated to be completed mid-2022. And we also made an $11 million preferred equity commitment on a 150-unit senior housing development during the quarter. This preferred equity investment earns a preferred return of 10% per year. And as of June 30, 2021, we had funded $3 million of this commitment. Our year-to-date investment activity totaled $75.5 million with a weighted average estimated stabilized cash yield of 7.94%.

We have completed the sale of two skilled nursing transitional care facilities for aggregate net sales proceeds of $5.9 million. These sales resulted in an aggregate $3.8 million net loss on sale. We issued 4.9 million shares of common stock under our ATM program during the quarter at an average price of $17.76 per share, generating net proceeds of $85 million. As of June 30, 2021, we have $75.8 million available under the ATM program.

With our decision to no longer consider the acquisition of TPG's 51% majority interest in the Enlivant joint venture, we believe we have positioned ourselves well to focus future equity issuance opportunistically in financing growth rather than on ensuring that our leverage does not exceed our target maximum ratio of 5.5 times.

We were in compliance with all of our debt covenants and continue to have strong credit metrics as of June 30, 2021, as follows: leverage 4.75 times; interest coverage, 5.2 times, fixed charge coverage 5.03 times; total debt to asset value, 33%; unencumbered asset value to unsecured debt of 300%; and secured debt to asset value just 1%. On August 4, 2021, the company's Board of Directors declared a quarterly cash dividend of $0.30 per share. This dividend will be paid on August 31 to common stockholders of record as of August 17. A dividend represents a payout of 75% of our normalized AFFO per share.

And now, a few quick comments about our 2021 guidance. We expect amounts per diluted common share for the full year 2021 as follows: net loss, $0.15 to $0.13; FFO, $1.53 to $1.55; normalized FFO, $1.56 to $1.58; AFFO, $1.51 to $1.53; and normalized AFFO, $1.53 to $1.55. The above estimates are based on certain key assumptions spelled out in our supplemental. I'll bring attention to just a few of those.

The estimated amount above do not include any anticipated funds from the provider relief fund for our senior housing managed communities. The Enlivant joint venture is expected to be held through the end of 2021 and contribute normalized FFO and normalized AFFO during the second half of 2021 of between $4.4 billion and $5.4 million and $3.3 million and $4.5 million, respectively. The senior housing managed portfolio average quarterly occupancy, excluding the JV, is expected to fall within a range of 76.8% and 78.9%.

During the second half of the year, we expect to close investments totaling $111 million with a weighted average initial cash yield of 8.2%. Disposition and loan repayments for the second half of 2021 are expected to total $95.6 million with associated annualized cash NOI of $6.4 million. And we anticipate funding these identified investments with cash on hand and the revolver. Any incremental acquisitions not identified here would likely be funded with the revolver and with match funding the equity component using the ATM program.

And finally, I'll leave you with this. Our expectations for the second half of 2021 imply an expected decline from the first half of 2021 at the high end of the normalized FFO and normalized AFFO ranges of $0.04 and $0.03 per share, respectively. The vast majority of this decline is due to higher weighted average shares outstanding during the second half of 2021 as compared to the first half, along with lower cash rental revenues due to the transition of one operator's assets discussed on our first quarter's earnings call, which represents approximately $0.01 of the decline. These declines are partially offset by higher earnings expectations for the managed portfolio in the second half of 2021 as compared to the first half.

And with that, I'll open it up to Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Rich Anderson with SMBC.

Rich Anderson -- SMBC -- Analyst

Hi. Thanks. Good morning. So Harold, you talked about the new carry, implies the previous carry on the JV was $2.78, and I think I have my math right, and full value of $567 million at 49%. I recall talking about the 51% being kind of a $400 million type of nut. Can you just sort of connect the dots to how the value of the Enlivant portfolio in the JV has changed over time, and particularly now with the impairment? Because that sounds a lot like distress, and I don't know how much meaningful distress that we've seen really in the transaction environment for the senior housing business overall. So I just wonder if you could just connect the Enlivant situation with kind of the broader observations about senior housing.

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

Sure. Well, I'll start by just kind of giving you a little bit of insights into how that valuation is determined. We talked a little bit about it. You see some details in our 10-Q about the calculation. But it is based on a discounted cash flow model. Obviously, we don't have any offers to look at from a valuation perspective. And it's taking into account not only the fact that there has been a decline in the performance of the portfolio, but it also takes into account some assumptions around right-sizing the management fee for the portfolio.

So I think, when you look at what's out there in the market today and some of the pricing, I think that was very informative for our valuation calculations. We utilized a professional firm to help us with that calculation. And certainly, the recent deals provided data points, which were helpful. And I would say I don't view it as a distressed valuation as much it's highly levered; and therefore, the equity value, there is some amount of risk associated with utilizing the discounting calculation that we've built into it, to be conservative. But I don't view it as a distressed valuation at this point. I think it's a conservative valuation.

But I think when you factor in adjustments to the management fee, factoring the amount of debt that's on the portfolio, it gives a fair number for consideration and puts us in a position where we're not likely to have to see much of a change one way or the other, once the portfolio actually sells.

Rich Anderson -- SMBC -- Analyst

Okay. And then, on the process of getting it sold, can you describe the motivation of TPG to get it done? I mean, you're -- kind of sit there waiting now. What's the chance that this can sort of stay with you well through 2022?

Rick Matros -- Chairman, President and Chief Executive Officer

Well, I think this is a vintage fund for TPG, and they've done pretty well on it. And I think they were willing to hang in there pre-pandemic for a while as the company was starting to really do well. And as I stated in my opening remarks, we were really getting closer to wanting to do something with that 51%. But the pandemic changed everything, including changing everything for the fund in terms of how long everybody wants to sit around and wait for things to recover.

So in terms of timing, it is going to be with us, I would say, through at least the first half of '22 simply because, if it takes a few months to find a buyer, it's going to take another up to six months to close the transaction. So yes, it's going to be there for a while, but that's why we wanted to make the announcement now, cleanse the supplemental, take the write-down.

And so, from our perspective, it's behind us. We'll always be happy to answer questions or talk about what's happening with that component of the portfolio relative to occupancy recovery and things like that if people have questions, but the visibility for it is gone, as far as we're concerned.

Rich Anderson -- SMBC -- Analyst

Okay. Thanks for that and congrats, Harold and Mike.

Rick Matros -- Chairman, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Nick Yulico with Scotiabank.

Nick Joseph -- Citi -- Analyst

Thank you. I just want to go back to, Rick, you talked about getting out of the Enlivant JV as being de-leveraging. That's very clear. But maybe you could talk a little bit more about the assumption that you think it's also an accretive transaction for you.

Rick Matros -- Chairman, President and Chief Executive Officer

Yes. I think the way to think about that is we can't stand pat with where we're at with the joint venture. In other words, TPG wants to sell the portfolio. So we've either got to buy it or we've got to exit at some point. And so for us to go and invest the money to acquire it would be extremely dilutive for us. And so it's accretive for us, given the situation that we have right now. We either have to buy it and be dilutive or sell it, which would be accretive on that comparative basis. Does that make sense?

Nick Yulico -- Scotiabank -- Analyst

Yes. I got it. All right. The other question was, in terms of the guidance, I know you did mention the cash basis tenant last quarter. And I thought the annual rent for that was less than $4 million, and yet the guidance now is a little bit higher than that in terms of the cash basis tenant impact. So am I missing something? Is there another tenant that is creating an issue?

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

No. So just to get a little bit into the weeds about it, you're right, it's just under $4 million in cash revenues. And they paid rent basically through the end of June. So that's $2 million in the first half of the year, and we're not expecting to get any rent in the guidance for the second half of the year. It's going to take months to get that portfolio transition and the new operator up and running. So that $2 million is that $0.01 I referenced in my comments around the decline.

As it relates to comparing first half to the second half, we also had received 100% of the rents from Genesis. And in our previous guidance numbers, we assumed, Genesis, at some point we would strike a deal with those guys and reduce rents on some level, even if it were just the rents that are going to be going away here in a few months, or I should say in about 18 months. So now, we're assuming that those rents get paid fully through the end of 2021. So that's why the cash basis rents are going up, are staying pretty solid, but we are seeing that $2 million decline from that one operator.

Rick Matros -- Chairman, President and Chief Executive Officer

And Nick, this is also specific to New York. It's just a process that we have to go through there. There are other states where the transition would have been a lot smoother and we wouldn't have gone the number of months that we're contemplating without getting a new operator in and picking up rent again. So that's really just a New York issue, so it's just how it is.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thanks. Just one other quick one is on the senior housing occupancy guidance. It looks like it doesn't assume that much of a pickup in the back half of the year. Maybe you just talk about kind of what underlies that assumption, how much you're just being conservative based on Delta variant issues maybe coming back, because it sounds like the move-in activity, everything else Talya was pointing to earlier was pointing in the right direction.

Rick Matros -- Chairman, President and Chief Executive Officer

No, I think that's exactly right, Nick. In the absence of the variant, given how well the recovery has been going particularly on the AL side, as Talya pointed out, we would have felt more bullish. And while we're still pretty optimistic, we're just going to be conservative on those assumptions for guidance purposes. There's only Crosstalk.

Nick Yulico -- Scotiabank -- Analyst

Got it. Thanks, Rick.

Operator

Our next question comes from Juan Sanabria with BMO Capital.

Juan Sanabria -- BMO Capital -- Analyst

Just hoping to ask another question on the Enlivant JV on the sales process. When do you expect that to start? And how should we think about the OpCo issue here in terms of is it a lack of profitability because of the collapse of cash flows because of the coronavirus? Or was there a feasibility issue kind of before all this happened just because it didn't expand maybe as an OpCo as was previously anticipated?

Rick Matros -- Chairman, President and Chief Executive Officer

Thanks, Juan. So we believe TPG is going to start talking to folks after Labor Day. So I'm not sure that they've exactly formulated and settled on that, but that's our understanding.

In terms of OpCo, it really goes back to what I said earlier, and that is the platform was built to support a company that was going to continue to get larger as TPG continued to make investments in the senior housing space and outside of the JV. And so the pandemic just put a halt to all of that, and so you've got the combination of the impact of the pandemic on occupancy and NOI and the fact that that portfolio isn't going to be growing. I mean, their focus, as it should be, is on recovery. It's a really well-run company. And so they've just got to get back to where they were from a recovery perspective.

And remember, these are smaller facilities, and so the smaller facilities are more dependent upon corporate support than, say, larger facilities where you can actually have more infrastructure in place. Our wholly owned portfolio, for example, those are larger facilities. Those are the original ALC facilities. They also happen to have quite a bit more memory care, as well. So it's really a combination of those things. And whether there'll be changes to OpCo as a result of the process, we could all just speculate about that, but that's really what the issue is. Does that make sense?

Juan Sanabria -- BMO Capital -- Analyst

Yes, it does. Thank you. And then just on Genesis, so it sounds like they continue to be current. I mean, have you had any discussions with them about their assets that they're running and about their ability to continue to pay rents? The coverage level dipped there for that. And if you could just remind us how much is under that kind of top-up MOU-type income that you're booking quarterly now, and when does that come off again?

Rick Matros -- Chairman, President and Chief Executive Officer

So I'll take the first part, and Harold can take the last part. We haven't had any discussions with them really since the new management team has been in place. They're aware of aware of the fact that we have other operators that are prepared to take over those eight facilities if necessary, but they're paying the rent and, as Harold mentioned, they're paying the base rent plus the excess rent. They're similar amounts, and that excess rent, which is about $10 million, burns off at the end of '22.

Juan Sanabria -- BMO Capital -- Analyst

Thank you.

Operator

Our next question comes from Nick Joseph with Citi.

Nick Joseph -- Citi -- Analyst

Thanks. First of all congratulations. Rick, you mentioned being committed to senior housing growth. Obviously, you've seen a few large deals in the space. So I'm wondering how many opportunities you're seeing that really fit exactly what you're looking for.

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

It's Talya. We're still continuing to see opportunities that we're taking a run at where we have economic solutions that make sense to groups. Some of the large deals that you've probably heard about that have come to market have been a feeding frenzy because there's still quite a bit of capital that's looking to put out sizable investments into the senior housing space. They're not going to do it by doing onesies and twosies. They're going to do it by doing $500 million or more, $750 million at a time. So they're gunning for those deals.

And frankly, we're making sure we're in the mix where we want to be, and we are dutifully pursuing a lot of other transactions that are smaller scale and you've seen in our supplement. We are getting things done. It's not splashy headlines, but that's OK. We're just trying to just keep doing what we know how to do and do it well and make those deals accretive.

Nick Yulico -- Scotiabank -- Analyst

Thanks. And then, just as you think about kind of the overall portfolio, I guess post-COVID, whenever that is, there are geographical differences already, particularly on the skilled side. But when you come out of this, how do you think about kind of positioning the portfolio from a geography perspective? Are there any markets that may be a little more active in trying to either exit or lessen exposure, just given the lessons learned over the past 18 months?

Rick Matros -- Chairman, President and Chief Executive Officer

So we're spread out pretty nicely right now geographically, and we haven't had tenant issues. So we really feel like we addressed the things that we needed to address through the merger and with Genesis and things like that. So from a disposition perspective, anything that we do, going forward, is going to be kind of normal stuff. You might dispose of something here or there if the circumstances call for it in a certain market, but we just don't have that much exposure to problematic markets at this point. I think we've set ourselves up pretty well, going forward.

Nick Joseph -- Citi -- Analyst

Thanks.

Operator

Our next question comes from Steve Valiquette with Barclays.

Steve Valiquette -- Barclays -- Analyst

Thanks. Hello everyone. Thanks for taking the question. You just touched on a couple of these, but Rick, just on that topic of labor and the inter-related impact on SNF occupancy, you provided some useful commentary in your prepared remarks. We did see that one of your SNF REIT peers talked about some portfolio facilities and operators having self-imposed admission bans if they cannot stab at clinically appropriate levels. So I wanted to hear just a little bit more on your characterization of your collective operator partners around that, if that's possible. And also, if we'd just break down labor between RN versus LPN, any comments on severity of labor shortage when breaking it down that way? Thanks.

Rick Matros -- Chairman, President and Chief Executive Officer

Yes. So one, it's not just skilled, it's assisted living and independent living, as well. So just as you're seeing in other industries, it's across everything. But in terms of the self-imposed occupancy bans, we don't have any operators doing that. It may restrict the number of admissions, so the rate of recovery, the acceleration of recovery may be a little bit slower as a result of that in certain markets or with certain operators, but we don't have operators that are in such a severe state that they're imposing occupancy bans.

And really, the stress is more on non-nursing and therapy areas than it is on nursing and therapy. Nursing and therapy, we always have a certain level of stress there. We don't see a big difference between stress on RN staffing versus LPN staffing. It's just I think what caught everybody a little bit off-guard with these benefits is the degree of stress that they're seeing in dietary, laundry and housekeeping. I mean, those are just core functions, obviously, for the facility.

Steve Valiquette -- Barclays -- Analyst

Got it. Okay. I appreciate the color. Thanks.

Operator

Our next question comes from Daniel Bernstein with Capital One.

Daniel Bernstein -- Capital One -- Analyst

Hi. Good morning. I wanted to go a little bit into the RevPOR growth, strength of that that you saw in seniors housing, particularly AL and maybe the mechanics behind that. Is it more of a function of increasing acuity, in-place rent raises, maybe operators holding the line on incoming rent and not discounting as much? Just trying to understand maybe the sustainability of that because it's been a little bit stronger than I expected. Thanks.

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

Stronger than you expected is a good thing. We have seen RevPOR be very consistent throughout the pandemic, and it continues. And it's been surprising because you've had such occupancy pressure during the worst of the pandemic, and yet RevPOR didn't really move much. It was all about occupancy.

So when we looked at room and board versus care levels, you can't tease out an answer like you'd think; like, oh, it's all in the level of care. Yes, that's probably in some instances a little more level of care. But in that number that I spoke to, and that I've spoken to in the past, it's also independent living, where there's no level of care. It's just held pretty stably because it's not a price sensitivity. That's our conclusion. There has been discounting in the market overall. We're seeing that come in and ratchet down, to be more clear about it, so that it's not quite as much as what we had seen before, among all the operators.

And we've seen some operators to be very aggressive on discounting from their regular rates in order to just get heads in the beds. The operators in our portfolio have not been aggressive on discounting. They've really held firm. Partly, it's a value proposition. And frankly, the cheapest solution is not necessarily the best. It's often not the best solution in these cases when care is an issue. And so we've seen the continued stability of RevPOR. It just hasn't waned.

Daniel Bernstein -- Capital One -- Analyst

Okay. And I guess maybe a related question, or it's combined with the occupancy. And I don't know if you gave this out earlier, but do you have any forecast for what margins might look like the second half of the year? I know the Delta variant could throw a monkey wrench into that, but big pickup in margins in the second quarter versus 1Q. And do you have any thoughts on where margins are heading, particularly in light of some of the [Indecipherable] pressures out there?

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

I'm hesitant to predict. Delta variant aside, if we don't have something major and we don't have next version of the post-Delta variants, which I heard about this morning, then I think continued occupancy growth, which is what this is all about, and expenses coming into control suggest expansion of margins and trending back to a normal level.

Now, we've been fairly conservative in terms of our view about when senior housing returns to kind of pre-pandemic levels. So I would lay margins out along the same timeframe.

Rick Matros -- Chairman, President and Chief Executive Officer

Yes. And so, Dan, another way to think about it is we expect margins to improve. But because of the variant, we're not willing to say they're going to improve in the next quarter at the same pace they improved from first quarter to second quarter.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then one last question. I mean, how do you feel your operators are prepared for the current surge, especially in terms of PPE, I mean the masks and gowns, things like that? Are you seeing any shortages or prices going up on that? Yes. Actually, we're not seeing much in the way of shortages primarily because the December surge really hit inventory and depleted PPE. And so the first six months of this year has been a concerted effort to rebuild PPE. So it's more normal level of stuff now because, as I noted earlier, even though the external communities don't seem to think COVID exists in a lot of states; in the facilities, they adhere to protocols. And so they've maintained enough PPE to do what they need to do within the facilities. And so yes, I think from a PPE perspective, I think they are prepared for issues related to this variant. And look, we know there are going to need more mutations, so that's sort of whatever comes next. But I'm not sure it will be to the same extent that we saw last year, but the adherence to protocols should have a positive impact on the few as well this year. It was great last year, the impact, but it should be helpful this year, as well. So we're guardedly optimistic that the flu season won't sort of do what it normally does because of the protocols that are still being adhered to at the facility level. I appreciate all the color. Thanks.

Operator

Our next question comes from Lukas Hartwich with Green Street.

Lukas Hartwich -- Green Street -- Analyst

Thanks. Most of my questions have been answered, but I was hoping on the managed senior housing portfolio, can you disclose how 2Q NOI compared to pre-COVID levels for that same portfolio?

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

Well, our supplemental has 2Q 2020 and on same-store basis. So that gives you some gauge because, obviously, 2Q 2020, I guess that's the very start of the pandemic. [Speech Overlap]

Lukas Hartwich -- Green Street -- Analyst

Follow up offline. And then, my other question was just there was a $2.5 million support payment to the JV manager. What was that exactly?

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

So as we've been talking about, the manager operates at a loss. And with the pandemic and the impact on lower revenues, and therefore, lower management fees, they were in a situation where they needed to get shored up a little bit on their cash flow. And so we and TPG as the owners of the portfolio, the JV, made the determination to provide them with a $5 million incremental management fee for the quarter to get their cash flow shored up during this time. And so that's what that relates to. It's one time. It will be the only time that we provide that incremental cash payment. And so we normalized it out.

Rick Matros -- Chairman, President and Chief Executive Officer

If we hadn't made the decision to exit, there might have been a need to do a little bit more, but since we made the decision to exit, its one time only.

Lukas Hartwich -- Green Street -- Analyst

All right. Okay. Thank you.

Operator

Thank you. And there are no further questions in the queue. I'd like to turn it back to Rick Matros for closing remarks.

Rick Matros -- Chairman, President and Chief Executive Officer

Thank you all for joining the call today. And if you all have any things that you want to follow up on, as always, we're readily available, and take care. Thanks again. Be safe.

Operator

[Operator closing remarks]

Duration: 63 minutes

Call participants:

Michael Costa -- Executive Vice President, Finance and Chief Accounting Officer

Rick Matros -- Chairman, President and Chief Executive Officer

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

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

Rich Anderson -- SMBC -- Analyst

Nick Joseph -- Citi -- Analyst

Nick Yulico -- Scotiabank -- Analyst

Juan Sanabria -- BMO Capital -- Analyst

Steve Valiquette -- Barclays -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Lukas Hartwich -- Green Street -- Analyst

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