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Sabra Health Care REIT, inc (NASDAQ:SBRA)
Q3 2021 Earnings Call
Nov 4, 2021, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Thank you for standing by and welcome to the Sabra Health Care Third Quarter 2021 Earnings Call. [Operator Instructions]

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

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 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 31st 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. Investor is encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at www.sabrahealth.com. Our Form 10-Q earnings release and supplement can also be accessed in the Investor section of our website.

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

Rick Matros -- Chair, President and Chief Executive Officer

Thanks, Mike, and thanks everybody for joining us. I'd like to start today actually with a quote that Talya shared with me, the dedication in General McChrystal's new book, which is called Risk, a Users Guide. To the healthcare and other essential workers when things with risk and is often difficult to effectively assess and impossible to completely mitigate, respond with quiet courage and too often sacrifice themselves for others. We once again want to thank all of our workforce out there for everything, they're doing on a day-to-day basis. Let me move on to labor now because that's I think foremost obviously on everybody's minds. First, I'll start by saying labor pressures are really different by market. So there is not sort of a simple answer or something I can say any avenues in terms of trends. So for example, in California, the Northeast States, in Texas the labor shortage just hasn't been as bad is in other markets. It's also better in states that have kept up with wage increases. Florida an the southern states for example a far behind on wage equity and so our operators in those states are having more difficulty with labor than in other states. So really is all over the place. We also see a difference in labor pressure and the culture of our operators. So that does make some difference as well and that part is actually quite good because the fact that culture could affect retention and recruitment is helpful and we're trying to share best practices with our tenants as it pertains to that. Our operators do have some level of optimism that those who have not come back into the workforce will do so as they start spending up for the holidays and have a less stressed environment with COVID receiving and the vaccination uptake improving and creating a safer work environment. Currently 40% of our operators have mandated and I don't know if everybody has seen the news today, but the new mandate with CDC and OSHA is effected on January 4.

So by January 4, all healthcare workers as well as others will have to be vaccinated and there is not going to be any allowance for testing in the absence of being vaccinated. In terms of the workforce among our operators, just under 80% of the workforce is now vaccinated. So that's really a nice improvement since the last quarter. It's above industry average, and certainly above the national average in general. So we feel pretty good about that. I would say that for those that haven't mandated there is still is a fear that they're going to lose too many employees if they mandate. But the data just really hasn't supported all the operators that we are aware of the have mandated simply have a loss that many employees and actually been able to use that as a recruiting tool because they do you have a safer environment. So, but nevertheless we understand the concerns that operators have it now, they're just going to have to mandate whether they like to do not. We think that's a good thing. And these labor issues are the primary impediment in the pace of the recovery. That said, our tenants have operated for incurring additional labor costs such as temporary agency in order to continue to push occupancy increases as much as possible. So in other words, we don't have tenants that are saying, we're just not going to admit because we have labor shortages, they'd rather spend more on labor and revenue in and keep those relationships as they commentators. Again, that's something that we favor because the demand is clearly there. In terms of funding COVID-19 Public Health Emergency Act has been extended again for another 90 days with Medicare sequestration effective through year-end and we have optimism that will be extended again, FMAP funding increase is extended to the end of first quarter 2022.

I'll move on to investments now. Our investment pipeline continues to be very active. We have approximately $2 billion in the pipeline, still not much skilled nursing, 75% of our $2 billion, potential investments that are excess of $100 million. To date we've closed approximately $400 million with a weighted average cash yield of 7.55%.And I want to note, we did announce the closing of the first trance on the RCA load and that's a deal that we feel really good about. We felt it was important to be a good capital partner. There aren't that many strong operators yet in the addiction space. So we want to be there for those who are and that commitment to RCA was also the commitment to the sector relative to our intent going forward. So a quick comment on the balance sheet. I know how it will talk more about that, but the two offerings that we did, both the debt and the equity offering both search striking the balance sheet and put us in really good shape our go-forward basis with a level of optionality when it comes to funding acquisitions that we haven't had historically. Moving on to operations, excluding PRF skilled rent coverage is down sequentially on a trailing 12-month basis, primarily due to the second quarter of 2020 being replaced with the second quarter of 2021 and on a quarterly stand-alone basis is sequential drop, which wasn't significant, but nevertheless a sequential drop was due specifically to higher labor costs. Our skilled occupancy, which lost momentum late summer, is now showing some improvement recently, the biggest turnaround has been Avamere, Avamere has actually fallen 300 basis points lower than the December low but since opening the COVID units and increased their occupancy to 400 basis points in the setting of two weeks and even though of COVID units will be around forever that should certainly by them a long time as we work on getting occupancy up on a longer term basis throughout invest Avamere portfolio.

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

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

Thank you, Rick. In the third quarter Sabra's wholly owned Senior Housing Managed portfolio continue to build on the recovery that began late in the first quarter. Nationwide labor shortages coupled with the rise in COVID-19 infections from the Delta variant slowed the speed of the recovery during the latter part of the third quarter. We see clear signs of demand for senior housing and believe that the operators will mitigate labor shortages through initiatives on compensation, culture and safety. As we stand here today, the recovery of occupancy feels on track but the solution to the labor shortage remains worry. The headline numbers for the wholly owned managed portfolio are as follows; occupancy in the third quarter of 2021 excluding non-stabilized communities was 78.8%, a 150 basis point increase from 77.3% in the prior quarter. RevPAR excluding non-stabilized communities with 3,272 essentially flat to the prior quarters 3,263, RevPAR has remained stable over the past five quarters across both independent and assisted living despite surges in the pandemic. Cash net operating income declined by 11% sequentially and margin decreased by 3.4% compared to the prior quarter, in part because no COVID grant income was received in the third quarter, compared with just over $500,000 of grant income in the second quarter. Excluding the grant funds, cash net operating income declined 6.2% and margin decreased only 2.4%.Operating expenses in Sabra's assisted living and memory care properties including the wholly owned in Enlivant portfolio skewed higher in the third quarter, mostly in September because of contract labor costs. Across the wholly owned managed portfolio we are seeing leads at 20% to 50% above 2019 levels across the quarter and conversion rates higher than in 2019. The Delta variant appears to have delayed some moving volume during September as well as slightly increased move-outs.

Communities are beginning to recover from the effect of the Delta variant with move-outs normalizing and move velocity picking up. While the focus remains squarely on rebuilding occupancy in order to rebuild revenue, the shortage of labor and utilization of contract labor at higher cost have become a critical element in the path to economic recovery. Higher acuity communities have more staff, therefore, we have seen contract labor impact assisted living and memory care much more than independent living. Sabra's wholly owned managed assisted living portfolio has continued to occupancy recovery that began in the second half of March gaining 234 basis points from the end of the second quarter to the end of the third quarter. From June 2021 to July 2021 occupancy increased by 166 basis points. From July 2021 to August 2021 occupancy increased 53 basis points. From August 2021 to September 2021 occupancy increased nine basis points. From the low in March through mid-October occupancy increased 457 basis points to 73.9%. This trend was driven by our wholly owned in Enlivant portfolio which had occupancy of 73.7% in September, 400 basis points above June occupancy. So, a comparison Sabra's net leased assisted living and memory care portfolio has shown continued occupancy recovery increasing 303 basis points in the third quarter compared with the prior quarter. Note that in the supplemental information materials, we show this portfolio statistics one quarter in arrears, which currently includes the periods immediately prior to and then immediately following the distribution of the vaccine to senior housing communities. While revenue in our wholly owned assisted living portfolio grew 3.6% quarter-over-quarter excluding grant income revenue grew 7% quarter-over-quarter. Cash NOI margin compressed to 15.1% compared with 21.7% in the second quarter excluding grants income. About 70% of this change is attributable to an increase in contract labor cost in our wholly owned and Enlivant portfolio of which more than half was incurred in September.

Sabra's Managed Independent Living portfolio experienced less occupancy loss then our Assisted Living portfolio and its recovery has been more gradual. Throughout the duration of the pandemic, we have seen that move-outs have been driven by the need for higher care and we continue to see that this quarter. From June 2021 to July 2021 occupancy was flat, from July to August 2021 occupancy increased 183 basis points and from August to September 2021 occupancy increased 30 basis points. Cash NOI in the wholly owned independent living portfolio grew 4.2% quarter-over-quarter and margin expanded by 0.8%, while occupancy pressure at two of our Canadian retirement homes and catch up on maintenance deferred due to the pandemic offset some of the gains made, availability and cost of labor is not a meaningful factor.

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

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

Thanks, Talya. I'll give a quick overview the numbers for Q3, discuss recent balance sheet activity and briefly discuss our 2021 guidance. Before doing so, let me make a couple of remarks about the change in accounting for Avamere lease. As we noted in our September 13, 2021 business update, Avamere has experienced cash flow constraints over the past several months from census declines as a result of a spike in COVID-19 cases in Oregon, Colorado, and Washington together with admission limitations in these states, as well as from increased labor pressure. We have been using their letter of credit to satisfy their rent obligations beginning in September 2021 to help with these cash flow constraints. This letter of credit is expected to cover the rent obligations through a portion of the December 2021 amounts due, and we expect the full amount of rents due to the end of 2021 to be paid. However, even with the encouraging pickup in census they have seen since the opening of COVID-specific units in Oregon, we concluded that the lease no longer meets the high threshold to continue accounting for on accrual basis. As a reminder, we must conclude that it is more than 75% probable that we will collect 90% or more of all payments due over the life of the lease to continued accounting on an accrual straight-line basis. The Avamere lease does not mature until 2031. Given the less than optimal EBITDA coverage historically for this lease the 10-year remaining term and the uncertainty of the future stabilized performance level for these operations, we concluded that some level of rent adjustment in the future may be necessary. We expect this determination will not be made until sometime during 2022 as we begin to get additional clarity on future stabilized performance expectations. We consequently wrote off $25.2 million of straight-line rent receivable balances related to this lease.

We continue to have $19.1 million above market lease intangible assets associated with the Avamere Middle East on our balance sheet. Any future lease amendment may result in the write-off or acceleration of the amortization on all or a portion of this balance. And now onto Q3 results. For the three months ended September 30, 2021, we recorded total revenues, rental revenues, and NOI of $128.6 million, $85.4 million and $96.3 million respectively. Included in these amounts is the write-off of $25.2 million of straight-line rent receivables noted previously. Excluding this amount, total revenues, rental revenues and NOI was $153.8 million, $110.6 million and $121.5 million respectively, as compared to $152.9 million, a $110.8 million and $121.3 million for the second quarter of 2021. While our NOI after normalizing the Avamere write-off was essentially flat being just $200,000 higher than in Q2, there were some notable changes in each direction in our managed senior housing portfolio and live-in joint venture that landed us there. NOI from our Managed Senior Housing portfolio decreased $1.2 million to $9.1 million due primarily to the fact that we receive no government grant income this quarter compared to $500,000 last quarter as well as the impact of higher COVID-19 expenses and labor costs as Talya discussed in her prepared remarks. NOI from Enlivant joint venture was $3.5 million, which is $1.2 million higher than the second quarter, primarily due to the second quarter NOI containing the $2.5 million one-time support payments to joint venture made to Enlivant. Excluding this amount, NOI from the joint venture decreased sequentially by $1.3 million. Revenues from the joint venture, increased by $1.3 million due to increased occupancy of 2.2% to 71.9% for the quarter compared to the second quarter, offset by higher labor in COVID-19 expenses.

On the expense side for Sabra, the G&A cost for the quarter totaled $8.7 million compared to $8.8 million in the second quarter of 2021. G&A cost included $2.4 million of stock-based compensation expense for the quarter, compared to $2.3 million in the second quarter. Recurring cash G&A cost of $6.4 million were 6.7% of NOI and in line with our expectations. Interest expense totaled $24.2 million for the quarter remaining effectively unchanged from the second quarter. The result of this activity is FFO for the quarter of $59.9 million and normalized FFO of $85.3 million or $0.38 per share. FFO was normalized primarily to exclude the Avamere straight line receivable write-off. This compares to normalized FFO of $88.4 million or $0.41 per share in the second quarter of 2021. AFFO which excludes from FFO certain non-cash revenues and expenses was $84.8 million and normalized AFFO was $85.2 million or $0.38 per share. This compares to normalized AFFO of $86.6 million or $0.40 per share in the second quarter of 2021. For the quarter, we recorded net income attributable to common stockholders of $10.2 million or $0.05 per share. Under the balance sheet, we issued $800 million of 3.2% senior unsecured notes due in 2031. The net proceeds were used to repay $345 million of our US dollar based term loans and subsequent to quarter end redeem all $300 million of our outstanding 0.8% senior unsecured notes due 2024, and to fund a portion of the RCA mortgage loan. This issuance allowed us to improve our weighted average debt maturity by 2.4 years to seven years and reduced our cost of permanent debt by 23 basis points to 3.5%. Again, we were in compliance with all our debt covenants as of September 30, 2021 and continue to have strong credit metrics as follows, all of which are pro forma for the redemption of our 2024 notes, which occurred on October 7.

Our leverage 4.81 times, interest coverage 5.32 times, fixed charge coverage 4.9 times, total debt asset value 34%, unencumbered asset value to unsecured debt 289% and secured debt to asset value of just 1%.We continue to have a very strong liquidity position. After giving effect to the redemption of $300 million of 4.8% senior unsecured notes that were due in 2024, as of September 30, 2021, we had approximately $1.2 billion of cash and availability on our line. On October 15, we completed an underwritten public offering of 7.8 million newly issued shares of our common stock at a price of $14.40 per share and received net proceeds before expenses of $112.6 million. These proceeds were used to fund a portion of the RCA mortgage loan. On November 3, 2021, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on November 30, 2021 to common stockholders of record as of the close of business on November 16, 2021. The dividend represents a payout of 79% of our normalized AFFO per share. Finally, a couple of comments on our 2021 guidance. We reaffirm our previously issued guidance range for normalized FFO of $1.56 to $1.58 per share, normalized AFFO of $1.53 to $1.55 per share. Our previously issued guidance did not include the impact of two batters that affected our full-year 2021 per diluted common share guidance for net loss FFO and AFFO. The first is we have in the straight line with receivable write-off, which had an $0.11 per share impact on net loss and FFO, the second is the debt extinguishment costs related to the 2024 note redemption early in the fourth quarter that resulted in a $0.17 per share impact on net loss and FFO, and the $0.16 per share impact on AFFO. The impact of these two transactions are added back in arriving at our expected normalized FFO and normalized AFFO numbers.

And with that, we'll go ahead and open it up to Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Richard Anderson from SMBC. Your question, please.

Richard Anderson -- SMBC -- Analyst

Thanks sir, and good morning out there and Harold, I think this is your last call, so congrats on that. And so, just remind me, Rick is the January 4 mandate that's just on skilled right? Not on the senior housing is not a part of that, is that correct?

Rick Matros -- Chair, President and Chief Executive Officer

So I was clear on that before, and I'm a little less clear on the news this morning because it says all healthcare workers, the original mandate was healthcare businesses that received federal money and that's not the case with senior housing. So, I'm assuming that you're correct that senior housing still carved out, but our guess is that most of the senior housing can recover to a lot of them really want to mandate. So I think we'll see more senior housing operators anyway there, I think that's correct.

Richard Anderson -- SMBC -- Analyst

Okay. In terms of Avamere, it's nice little bounce on the occupancy side, and I know you're going to reserve some time to figure out what you're going to do with that longer-term, but what would it take for you to not have to do something? I mean, if we get 400 basis points of occupancy gain, god willing, some with some sort of regularity, is there a scenario that you could get back assuming COVID cases has declined in all the good things that hopefully will happen in the future that maybe nothing will happen?

Rick Matros -- Chair, President and Chief Executive Officer

Yes. So, I think so the way we think about it Rich is and I know you'll recall that prior to the pandemic, Avamere year had a lot of coverage of any of our material tenants. And so hitting just trying to of problematic period of time this last two months and starting out within a coverage just made it even that much more difficult for them. So I think we're inclined to want to do something for them. We just want to see with that is once things stabilize, but we don't expect that it's not going to have a material impact on the company on numbers or anything like that, but I think we would like them to have a little bit more breathing room, just could you never know, I think this demonstrated at if you-I mean we have a lot of conversations with you over the course of all the restructuring as we did related to the merger and all the things that we did for those other tenants that actually held up really well during the pandemic, I mean, this is the only tenant that we really had an issue with the entire time and it came pretty late in the game. So yes, I think we're inclined to do something next year for them. We just need things to stabilize a bit more get a better sense of kind of where they land, but again it won't be material.

Richard Anderson -- SMBC -- Analyst

Okay. Last question from me and I'll yield the floor to my peers, but any update on the time line to Enlivant and TPG and actual exit from that portfolio?

Rick Matros -- Chair, President and Chief Executive Officer

Not really, they were TPG wants to give you a little bit more time before they really run sort of a full blown process and that's really because things have been rebounding pretty nicely there, and I think their thought processes, I want to be careful here because I want to speak for them. But I think their thought processes, as the portfolio has been recovering it will just make the opportunity to get a better valuation that much greater. So I guess, it's not really going to start in earnest until after the first of the year and then the way to think about it is however long it takes to find a buyer, it's going to take several months for regulatory reasons to get a close. So I don't think we're looking at anything sooner on a close than mid-year 2022, could be later it later in the summer. For us it doesn't really make a difference, kind of is what it is now and to the extent-- look they are smart and so to the extent that they think by waiting on better valuation that accrues to our benefit anyway.

Operator

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

Nick Joseph -- Citi -- Analyst

Thanks. Maybe just following up on that Avamere question, so if the letter of credit runs out in December and recognizing that once things are stabilized, maybe you can make a decision kind of longer-term of the lease, but what happens in that intermediate time frame, maybe beginning in January, assuming the business kind of fully recovered to coverage level that would allow them to pay the rent?

Rick Matros -- Chair, President and Chief Executive Officer

Right now, we think we're OK for the to the couple of months to show following the expiration of or ability to use a lot of credit, they were able to access sort of upfront phones, which is really going to help their liquidity on these COVID units THEY negotiated with the State of Oregon and as they are in the process of some of the negotiations as well, which we think will help. So we're not really concerned about in the short term Right now, even after the letter of credit runs out sometime in December.

Nick Joseph -- Citi -- Analyst

Thanks, that's helpful. I think you've obviously repositioned the balance sheet to be in a good position. I think you mentioned the acquisition pipeline is may be $2 billion. How are you thinking about your cost of capital, I guess specific cost of equity and the ability to kind of execute on that acquisition pipeline just on shares trade today?

Rick Matros -- Chair, President and Chief Executive Officer

So I think a couple of things, one is on the skilled side. Behavioral and addiction. Clearly, we can be competitive, and what we're finding the senior housing is it's clearly difficult to compete on large portfolios with PEs out there, given where our equity currently stands, but on the smaller deals that we have been executing on this year, about $75 million so far, those are deals that are on the radar of some of the more competitive players and there deals that we can get down and we can be creative with those deals, whether that's earn outs or things like that because of some of the issues that some of particularly smaller senior housing providers have had. And we're really good at doing those kind of deals and doing smaller deals like that really got hit the radar as far as you are concerned in terms of taking on some difficult things, but it allows us to get more things done on the senior housing side, if we focus on the small things. Talya, I don't know if I missed anything on that?

Operator

Our next question comes from the line of Juan Sanabria from BMO Capital Markets. Your question please.

Juan Sanabria -- BMO Capital Markets -- Analyst

Just hoping to spend a little bit more time on Avamere. Is it possible you guys could give us a sense of how that portfolios EBITDAR has trended over time. I don't know if you can give like a T3 or T12 kind of pre-COVID in today, just to give us a sense of the degradation in cash flows and kind of what is potentially possible to get back to you to try to gauge how much rent could be cut and just the level of confidence in not having a material effect, given it is your largest tenant.

Rick Matros -- Chair, President and Chief Executive Officer

Yes, well, they were actually trending up prior to COVID they were trending up, just because well, for two reasons. There were trending up because of some operational initiatives that we're taking home and they were trending up because of PDPM, just like all the rest of our tenants. So they are actually on the upswing. And really if you think about it they made it through 16 months or so of the pandemic and had-their low point in occupancy in December of 2020 was 70%, they improved to about 74.5% going into the summer. So they had some pretty decent gains and then you have these really severe admission restrictions that we haven't seen anywhere else in the country and Oregon and Washington and really unrelated to how much COVID was actually happening that was just sort of this reaction that the things have and they dropped from 74.5% to 67%, just under 67%.So over 300 basis points lower than they are low in December. So that really just threw them for a loop. Up until then, they were holding serve. So, I think these COVID units in the pop and occupancy in the time, hopefully if they need to get back. So our whole focus is they rely on coverage before, but they were able to hold serve through the pandemic until sort of recent events. And so that's why we say on a go forward basis when we make a final determination that it's not going to be material because they were able to hold serve and we're just looking to have a little bit more breathing room because they're always going to be some bumps in the road.

Juan Sanabria -- BMO Capital Markets -- Analyst

Any color on kind of where the coverages is Q3 basis and what do you think is a healthy coverage? I get that they can get bad bit like just to keep them at a healthy level, just to get it sense how big the rent cut could be is?

Rick Matros -- Chair, President and Chief Executive Officer

I don't want to negotiate with Avamere on the phone right now.

Juan Sanabria -- BMO Capital Markets -- Analyst

Okay, fair enough. Okay.

Rick Matros -- Chair, President and Chief Executive Officer

So we'll get there. I think before the pandemic and before the sort of trending upwards with PDPM they were around just slightly above one time and so you want them to be a little bit higher than that, but we're not going to give them an adjustment that takes them to 1.5 times, is not like that that's not going to happen.

Juan Sanabria -- BMO Capital Markets -- Analyst

Okay. And then just with regards to the seniors housing business overall, given the labor cost pressures, what kind of flow through to NOI do you expect from incremental occupancy given the cost pressures, or said differently, how do you think about margins getting back to where they were previous to the pandemic?

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

Well, I think. There's a lot of math that goes into this. So you've got occupancy and you've got rates for on the revenue line, and the rate is where operators are really thinking what they can manage, what they have to manage now in order to cover labor costs, and other words passing through labor cost and labor increases. And what we're hearing is everywhere from what we would expect to hear on rate increases, which are, call it, sort of the 5% annual rate increase to something more substantial. It really is going to depend on the type of building and the level of the QE and the length of stay in those buildings. But there is a sense, I just came back from a day and a half of the NIC Conference in Houston and there is definitely sense among the operators with whom we spoke that some portion, if not the entire portion of these labor costs can be put through to residents, particularly coming in, we are seeing consistently that positive leasing spreads. In other words, our new leases were being written at higher than rent in place rents. So that's the good news, there appears to be an ability do that. That suggests that the operators are not going to eat the entire cost of labor and have come out of their margin. How much will be able to offset by the top line is going to be a function, not just of rate but have continued occupancy increase. That's why I said, there is a lot of math here, but that's the best I have right now.

Rick Matros -- Chair, President and Chief Executive Officer

The other point I would make, one is that our operators are doing deep discounts like some of the competitors are. So they're -- and you see on the rates that we put in the supplemental that's all held up really well. They even tell you the feedback knowing that they actually able to build occupancy without sacrificing rates to get that occupancy back up.

Juan Sanabria -- BMO Capital Markets -- Analyst

So just to confirm the positive lease spreads that you're seeing versus in place that I think that's, that's new and that historically hasn't been the case, because I mean typically leaves that is more acute, but are you seeing street rates for new customers moving up or is that kind of holding flat at best?

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

I'm sure, asking rates are moving up in general, certainly with the operators whom I spoke. There are operators that are providing discounts to pull the occupancy. You can see from the steady increases in occupancy at least within our portfolio that we're seeing, we're seeing good traction on occupancy increases as well as but I would. I'd characterize as the pent-up demand significant increases versus pre-pandemic period, higher conversions to move-ins compared with 2019. So, there is positive momentum on the lease and everything indicates that is continuing at least so far. So there is a sense, you can actually start to push rates more than has been pushed into the sort of the typical is more like that 4% to 5% pre-pandemic. Now we're seeing hearing operator say they can do more.

Rick Matros -- Chair, President and Chief Executive Officer

And going back just change a little bit back on Avamere. The other thing I forgot to mention is that the Phase four funds haven't coming in yet as well. So in addition to the money that they were able to access all of the new COVID units to have the Phase four funds as well which goes through our comfort with receiving rent after VLC is done.

Operator

Our next question comes from the line of Amanda Sweitzer from Baird. Your question please.

Amanda Sweitzer -- Baird -- Analyst

Thanks, good morning. It looks like you granted another small tenant deferral request in September. Can you remind more information on the outlook for additional near-term rent deferrals outside of Avamere and then is there any security behind the already deferred amounts?

Rick Matros -- Chair, President and Chief Executive Officer

One there is always secured behind them, but the only other things that we've done it really just short-term in nature. We've nothing long-term anticipated just to buy them a little bit of time. So it's been really nominal and we don't see anything else right there in the horizon.

Amanda Sweitzer -- Baird -- Analyst

Okay. So in terms of rent deferrals in October, you wouldn't expect a meaningful up tick?

Rick Matros -- Chair, President and Chief Executive Officer

No.

Amanda Sweitzer -- Baird -- Analyst

And then in terms of additional skilled nursing support, are there any incremental state initiatives you're watching our find encouraging?

Rick Matros -- Chair, President and Chief Executive Officer

There aren't specific state initiative, but the most of the states are pretty flush right now on the Medicaid side, there are really in good shape from a budget perspective. So, as we get into the first part of next year and they start having discussions about annual rate increases, but now it has been a little bit more positive there because there is more money to work with and only about half to states allocated FMAP directly to skilled operators. So there is a chunk of money that a lot of the states are holding on to there as well. So no specific initiatives. The other thing though that if we try to anticipate that we may see is some more negotiations like we saw in Connecticut to increase wages and use the Medicaid program as a pass-through. So for those on the call, there are familiar, the industry worked with the union and state of Connecticut to negotiate wage increases for the employees who are state and it was all done as a pass-through in the Medicaid program and most of the 50 states have Medicaid programs that will allow for that. We've seen it happen in California number of times and it's a negotiation that's easier. I don't say it's easy but easier in some other negotiations because none of that rate increase of can be pocketed by operators. It has to get pass through directly to employees and its audited as such. So I would expect there to be more of those kind of negotiations as we go into 2022.

Operator

Our next question comes from the line of Steven Valiquette from Barclays. Your question please.

Steven Valiquette -- Barclays -- Analyst

Thanks. Hello, everyone. So just a question on the overall skilled labor environment. I found that it really across the entire post-acute healthcare provider spectrum, we've gotten some mixed signals at different stages of the pandemic, which business models may not be competing for the same type of skilled labor when you think about the home nursing or home health versus SNFs versus inpatient rehab facilities or ERS, I guess, I'm just curious to get your thoughts on the SNF sector in particular where there is overlap on competition for skilled labor across post-acute and also whether or not the acute care hospital sector is also part of that competition for the same type of skilled labor in that. Thanks for any thoughts around that.

Rick Matros -- Chair, President and Chief Executive Officer

Yes, I think most of the competition is on the high acuity post-acute space. So I think LTACs and IRFs it isn't as competitive on this when we talk about the skilled labor. It is the certified nursing assistants but on the skilled labor, It's not as competitive with senior housing or home health simply because in home health, you're not looking at the same kind of staffing level requirement that even on IRS and LTACs, LTACs are only in a handful of states. IRS is in a lot more states but they are, have a big presence, thinking about they always have big presence. I think they are best in Northern States. So I think that the larger concern is how many healthcare workers it just left the workforce. That's really the larger concern and I think for people that haven't come back to the workforce because the pandemic related benefits, I think there's a lot of optimism there that folks will come back in and that's where we've seen shortages in areas that we have ever seen shortages before, even dietary and housekeeping and laundry and things like that. It's more about the workforce and time will tell that those people there is out whether after taking a break, particularly since there has been so much time, schooling and having his career they'll come back and that's something that affects everybody and it affects skilled just because of the number of employees that you have in a skilled facility versus any of the other settings like home obviously or AL.

Steven Valiquette -- Barclays -- Analyst

Okay. That's definitely helpful. Appreciate the color. Thank you.

Rick Matros -- Chair, President and Chief Executive Officer

Yes. The other thing I would just point out, you all may have seen some of these trends, but the workforce issues look like they peaked at the end of 2020 and started to get better because there was a lot of optimism on the part of employees that now with the vaccine within place things will get better, but as it turned out with the percentage of people that chose not to get vaccinated then everybody starts going through it again, and that's really why a lot of the burn out really got worse and so if you look at the trends, the last several months, the peak of the burn out was worse than it was at the prior peak because of that. So I think that's why people are at least somewhat hopeful that once folks have a chance to take some time off and particularly was once everybody is vaccinated that work in the facilities that they will come back to the facility.

Operator

Our next question comes from the line of Omotayo Okusanya from Credit Suisse. Your question please.

Omotayo Okusanya -- Credit Suisse -- Analyst

My question is really more on the smooth reimbursement side, I mean you guys give some good color in regards to FMAP and sequestration and one some of those things could end, but I'm very curious what you're hearing about in regards to the following three things gelling into place, also the $10 billion emergency fund from the CARES Act, is anything left in that? Could you guys suddenly get money from any of that and also potential PDPM review by the new Head of the CMS?

Rick Matros -- Chair, President and Chief Executive Officer

Yes, so skilling in place, I think there will be an initiative and I think they've already been some discussions on the part of the trade association that represents to try to make that permanent. And hopefully given the benefit that everybody saw with skilling in place and the absence of financial impact on the acute space clearly sort of thought it, hopefully, we've got a good shot at making that permanent. I mean it's not a big issue, but it certainly helps with margins and everything else in the margins as well. So will definitely be a keen focus on that. On the fund, after Phase four, there is quite a bit less in the fund and so there is some optimism that if it stretches out longer, and as a traditional fund that they're all those money in there, there's been about $8 billion that's been returned from providers, particularly in the acute side that didn't need it. And if there was nothing left in the funds I think it there wouldn't be much optimism because given everything that's going on negotiate new money going into the funds, I think no one believes that would happen, but there is money after that. So I think it's somewhere around, I'm just rounding, somewhere around $20 million or something like that, it could be a little bit less, maybe $17 million, but it's a pretty decent number and then on, what was your third one?

Omotayo Okusanya -- Credit Suisse -- Analyst

PDPM.

Rick Matros -- Chair, President and Chief Executive Officer

Okay. PDPM, yes, I think nothing has being discussed right now about any change to review to PDPM. I think initially because everybody felt like we peaked with the December surge, it looked like maybe 2021 would be a good base here to use to try to assess if everybody was recovering to try to assess PDPM really fell out relative to expectations, but given how tough things is in 2021, I don't know if that's going to be a good base here or not. So just stay tuned on that one. We don't have any reason to believe that the new head CMS who really supported us getting that position is going to be any less reasonable with the industry on PDPM than the previous leadership.

Omotayo Okusanya -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question comes from the line of John Pulaski from Green Street. Your question please.

John Pulaski -- Green Street -- Analyst

Great, thanks for the time. Could you provide some details around the sequential deterioration in North American Health care coverage, where there occupancy today? And has it trended up or down in recent months?

Rick Matros -- Chair, President and Chief Executive Officer

Yes, that's just a matter of one quarter falling off in another quarter getting picked up. They're actually doing well. Their occupancy is recovering. They have the blend of two best skilled mix of any of our operators in the business. So yes, we feel good about North America. We don't have any issues. So there were just some timing issue there with quarters dropping off and new quarter coming on. And California has got less, I don't want to say there aren't labor pressures there are, but wage equity has been pretty good in the State of California. So there are less issues as I mentioned in my opening remarks than in a number of the other states.

John Pulaski -- Green Street -- Analyst

Okay, maybe on that point. I'm just looking down your top 10 operator list. Is geography just kind of the biggest driver and the divergent outcomes and diverging changes in these coverage levels, you see North American Avamere Genesis decline sequentially, but some other operators are stable or increasing. So what are the biggest one or two factors that are driving this divergence across operators?

Rick Matros -- Chair, President and Chief Executive Officer

Right. So the two consistent factor as were Q2 2020 dropping off in Q2 2021 dropping on. The second consistent factor was a decrease in PRS being recorded in the current quarter. The third is absolutely geography, and so Genesis with the facilities, we don't have very many facilities left Genesis just we built eight buildings, but they've had real labor pressures in those facilities and that was a factor that really impacted their coverage. So yes, geography is kind of everything, right now, when it comes to labor pressures, at least to the degree to which you are experiencing labor coverage.

John Pulaski -- Green Street -- Analyst

Yes. And maybe last one from me. I won't hold you to a point estimate, but just some thoughts. So if occupancy just kind of continue to improve, but the full impact of recent labor resets finally flow through these trailing 12-month numbers a year from now, what is coverage look like across the portfolio. I'm struggling with such a lagged concept of EBITDAR right now.

Rick Matros -- Chair, President and Chief Executive Officer

So we like to see our EBITDA coverage north of 1.4 in the aggregate and we were pretty much around there in the aggregate before the pandemic, but if the labor pressures abate to the extent that we would like to season a date, the new normal could be 123 EBITDAR coverage unskilled. So that just remains to be seen. We don't believe it's going to get down to one times or anything like that, and that's primarily because there are too many dynamics that work right now that it would just push occupancy up. The number of skilled beds continues to decline. The pandemic is actually going to accelerate that, you've got the demographics, which we're all aware of, yes, I mean, you basically have a space that prior to the pandemic was projected to be fully occupied by about the middle of the decade. And so that's going to put the industry the place it's hasn't been in decades really from an occupancy perspective. So, I think that's going to help quite a bit on the labor pressure side and it's because people are going to be able to pay more for labor that's going to help the labor issue as well. So, yes. So over of the long-haul maybe coverage is a little bit wider, but it's not going to get to a point that to be the dangerous was going to call as all of us to do some significant restructurings and long-term rent reductions.

Operator

Our next question comes from the line of Daniel Bernstein from Capital One. Your question please.

Daniel Bernstein -- Capital One -- Analyst

But I guess good afternoon or good morning to you West Coast. I guess the only question I had, I wanted to go back to the vaccine mandate. When you say or any percent of your, I guess the operators are 80% of the employees are vaccinated it, it seems like it's a large number that you could potentially lose. So if you have any specific examples where your operator actually put in a vaccine mandate, and what the attrition was from the employee standpoint, maybe they did that in conjunction with wage increases or some other mechanisms to retain employees. Just trying to get a better grasp of what the risk is that we will see a lot of employee attrition within skilled nursing.

Rick Matros -- Chair, President and Chief Executive Officer

Right. So Enlivant, Holiday, Genesis, Atria, we have a number of smaller operators, some of our Board members are Juniper they saw low single digit attrition and they didn't have to raise wages to do it. So that was all really pretty consistent with all those operators and some of the smaller operators that we've talked to you. Literally you feel like it's going to be a bigger issue which is holding back some of the other operators from sort of jumping on the mandate, but it just hasn't been. So that's really what we've seen consistently among the operators. So, call it low to mid-single digit attrition. That's it.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then real quick on the $2 billion pipeline you said, real estate acquisitions and loans or are you looking at more of a kind of doing more like the RCA mortgages, the short term structured.

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

The RCA loan was somewhat unique. As you know we've not done a transaction like that in the past really, and it's not something we hold that is going to be typical for us.

Operator

Our final question for today comes from the line of Joshua Dennerlein from Bank of America. Your question please.

Joshua Dennerlein -- Bank of America -- Analyst

On the question Rick. In the past you've talked about the occupancy recovery in senior housing and skilled nursing. Just kind of curious, your latest thoughts on when we get back to that pre-pandemic level and does labor play any factor and how you're thinking about these days?

Rick Matros -- Chair, President and Chief Executive Officer

Yes, so on the senior housing side. I have been saying that by the end of 2022, we should be in pretty good shape. I think we still feel that way. Senior housing, and on skilled prior to the Delta surge, I felt like we be there by the end of the first quarter 2022 that obviously is not going to happen and the labor pressures have put more stress on that. So right now, our best guess on skilled days, it's also about the end of the year. So even though there is a lot more pent-up demand, I think on the skilled side as it turns out, because of all these other factors, maybe they both up in wind up a relatively good place at about the same time.

Operator

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

Rick Matros -- Chair, President and Chief Executive Officer

Thanks very much. Thanks all for joining us today. We're always available as you all know up for follow-up and there. I know we're seeing a bunch of folks at least virtually at NAREIT. So we look forward to having those meetings and to having additional discussions. Have a great day and stay safe.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

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

Rick Matros -- Chair, 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

Richard Anderson -- SMBC -- Analyst

Nick Joseph -- Citi -- Analyst

Juan Sanabria -- BMO Capital Markets -- Analyst

Amanda Sweitzer -- Baird -- Analyst

Steven Valiquette -- Barclays -- Analyst

Omotayo Okusanya -- Credit Suisse -- Analyst

John Pulaski -- Green Street -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Joshua Dennerlein -- Bank of America -- Analyst

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