SBRA - NASDAQ

Good day, everyone. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2025 Sabra First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be question-and-answer session. [Operator Instructions]. I would now like to turn the call over to Lukas Hartwich, EVP Finance. Please go ahead, Mr. Hartwich.

Thank you, and good morning. 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 our earnings guidance for 2025 and 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, 2024, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at 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, CEO, President and Chair of Sabra Health Care REIT.

Thanks, Lukas, and thanks, everybody, for joining us today. Our skilled nursing and triple-net senior housing EBITDA and rent coverage continued to set new highs at 2.19 and 1.41, respectively, with behavioral hitting its highest level since year-end 2023 at 3.77. On average, coverage for our top 10 relationships was up sequentially. And while not all of them were up, there were none that we have concerns about. Specifically, as it relates to McGuire, about a year ago, they had a pretty large onetime Medicaid pickup due to some underpayments from the Michigan Medicaid system. In the absence of that, their coverage would not show a drop in the current period. Our contract labor continues to improve. While not quite down to pre-pandemic levels, it is lower than it's been at 4.5 years. Labor still is difficult, but certainly moderating at a much quicker pace than we would have anticipated. Our skilled occupancy is up 80 basis points sequentially, with our skilled mix up 10 basis points. Our triple-net senior housing occupancy is up 50 basis points sequentially. Talya will discuss SHOP results in detail. Our deal pipeline continues to be busier than in a very long time, still primarily SHOP, but with enough opportunities that we're able to bid on newer vintage assets with attractive yields. We have a mix of deals with existing operators and are also entering into new relationships with proven operators we've been cultivating relationships with. While we don't usually comment on awarded deals, given our experience in closing awarded deals, we wanted to provide a sense of the volume we hope to close on this quarter by noting the more than $200 million, which have been awarded to us. That's more than we did in all of 2024 with more coming as we speak. There's nothing new to note as it pertains to Medicaid, other than we're looking forward to this summer's Medicaid rate increases. And with that, I'll turn the call over to Talya.

Thank you, Rick. Sabra's managed senior housing portfolio held up well in the first quarter of 2025 despite an expectation that seasonality would be back and would drive a dip in operating results. Revenue, cash NOI and margin were flat on a sequential basis for the total managed portfolio, including non-stabilized communities and joint ventures at share. The senior housing industry continues to gain ground post-pandemic with more units occupied than ever before, according to Rick, having absorbed significant inventory that came online starting just before and continuing during the pandemic. With little new supply expected to be delivered in the next few years, we see continued opportunities for internal as well as external growth in senior housing. Sabra's same-store managed senior housing portfolio, including joint ventures at share and excluding non-stabilized assets, continued its strong performance in the first quarter. The key numbers are: revenue for the quarter grew 6.3% year-over-year; first quarter occupancy in our same-store portfolio was 85.4% compared to 82.6% in the first quarter of 2024. Notably, our domestic portfolio occupancy was 83%, gaining 340 basis points of occupancy during that period, while our Canadian portfolio occupancy was 90.9%, adding 140 basis points of occupancy in the same period, having ramped up occupancy ahead of our U.S. portfolio. RevPOR in the first quarter of 2025 increased 2.8% year-over-year for the same period. In our Canadian portfolio, where occupancy has been in the low 90% for a few quarters, RevPOR grew 4.9% this quarter on a year-over-year basis, demonstrating the impact of scarcity value. Importantly, as RevPOR and occupancy continue to rise, export declined 1.1% across the same-store portfolio. Cash NOI for the quarter grew 16.9% year-over-year in the same-store portfolio. In our U.S. communities, cash NOI grew 14.4% on a year-over-year basis, while in our Canadian communities, cash NOI in the quarter increased 24.7% over the same period, demonstrating the power of operating leverage. The trends that we have been seeing for the past year continue. Senior housing operators are tactically deploying the levers of occupancy and rate to maximize revenue and expenses remain steady, causing NOI to grow and export to decline. Our net lease stabilized senior housing portfolio continues to do well with continued solid rent coverage, reflecting the underlying operational recovery. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Talya. For the first quarter of 2025, we recognized normalized FFO per share of $0.35 and normalized AFFO per share of $0.37 compared to $0.34 and $0.35, respectively, for the first quarter of 2024. Normalized FFO and normalized AFFO totaled $85.2 million and $88.2 million this quarter, respectively, which represents a year-over-year increase of 7% and 9% for normalized FFO and normalized AFFO, respectively. I would like to highlight a few key components of this quarter's earnings. Cash rental income from our triple net portfolio totaled $90 million for the quarter, up from $89 million in the first quarter of 2024 despite disposing of $115 million of real estate from our triple net portfolio last year. Cash NOI from our managed senior housing portfolio totaled $24.1 million for the quarter compared to $19.1 million in the first quarter of 2024. This increase was driven primarily by strong occupancy, NOI and margin gains in our same-store portfolio as well as the impact of our addition of eight properties to this portfolio in 2024 through acquisitions and transitions. Interest and other income was $10.1 million for the quarter compared to $8.9 million in the first quarter of 2024. Cash interest expense was $25.4 million, in line with the first quarter of 2024 and our 2025 guidance run rate. Recurring cash G&A was $10 million this quarter, which matches our 2025 guidance run rate. As noted in our earnings release, we have reaffirmed our previously issued 2025 earnings guidance, and the results for this quarter are in line with our assumptions underlying that guidance. Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 5.19x as of March 31, 2025, a decrease of 0.08x from December 31, 2024, and a decrease of 0.36x from March 31, 2024. This improvement in leverage is driven primarily by the continued NOI growth in our managed senior housing portfolio, accretive capital recycling and prudent use of our ATM to fund growth. We have been proactively using the forward feature under our ATM to raise equity when our share price presents an attractive opportunity to lock in an accretive cost of capital to fund the deal flow, we see in our pipeline. During the quarter, we issued $84.3 million on a forward basis at an average price of $17.32 per share after commissions. And in total, we currently have $110.5 million outstanding under forward contracts at an average price of $17.32 per share after commissions. We expect to use the proceeds to close on the investments we have been awarded and to do so on a leverage-neutral basis. As of March 31, 2025, we are in compliance with all of our debt covenants and have ample liquidity of over $1 billion, consisting of unrestricted cash and cash equivalents of $22.7 million, available borrowings under our revolving credit facility of $917.3 million, and the $110.5 million outstanding under forward sales agreements under our ATM program. As of March 31, 2025, we also had $297.7 million available under our ATM program. Finally, on May 5, 2025, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on May 30, 2025, to common stockholders of record as of the close of business on May 16, 2025. The dividend is adequately covered and represents a payout of 81% of our first quarter normalized AFFO per share. And with that, we'll open up the lines for Q&A.

[Operator Instructions] Your first question comes from the line of Nick Yulico with Scotiabank. Your line is open.

This is Elmer Chang on with Nick. Congrats, Talya, on the upcoming retirement. My first question is on how you're thinking about dispositions throughout the year? I think you expected a $50 million skilled nursing facility sale in the near term from last quarter's call. Is that still on the table? And if so, when would you expect that to close and maybe how has delayed timing put pressure on the pricing for that sale?

We still expect that to close. It's just an estate that there's a lot more regulatory hoops to jump through come through and there won't be any change on the proceeds that we're expecting. So, it's going to just be one of those. It will happen when it happens, but it's on course to happen. Beyond that, it's just ordinary course of business for us, like it used to be, which would be sort of $50 million to $100 million a year, but we don't have much in the way that's targeted right now.

Okay. Thank you. And then second question is just on SHOP. I was just wondering how you're thinking about the trajectory of RevPOR and expense growth throughout the year as the portfolio approaches that high 80% occupancy level given operator synthesize growing occupancy during the quarter. And it sounds like -- it seems like the U.S. business may have less pricing power. So, how are you just thinking about how those two levers are trending -- will trend throughout the year?

What we're seeing -- what we expect, subject to whatever might happen in the political arena right now, labor, which is the largest expense is stable. And as a function of export is decreasing because occupancy is increasing. I actually think that as occupancy continues to rise, and we expect it to rise throughout -- across all the spectrum of senior housing, both in the U.S. and Canada, pricing is going to be -- is going to also get increased just because that's the lever that's going to be available to. Because the higher the occupancy, the higher the price you can actually start to demand once you cross a certain threshold. So, I think there are significant tailwinds on both occupancy and RevPOR, and I think expenses, right now, I'd say, hold as they are subject to unknowns.

Your next question comes from the line of Farrell Granath with Bank of America. Your line is open.

My first one is about your guidance -- reiterating guidance. I know you made commentary about deal awarded. So, I wanted to just touch on, is any of that being contemplated? And also on the SHOP guidance, just given the execution this quarter, which tends to be seasonally softer, keeping the low to mid-teens cash NOI growth for the year?

Yes. So, in terms of the acquisitions that we announced that we're working on, those are not included in our guidance. We'll include those in our guidance once they've closed. So, you could expect, when we get into our second quarter call once those deals and potentially other ones have closed, we'll incorporate that into our thoughts around guidance. So short answer is no, they're not incorporated to the guidance currently. On your second question, we reaffirm guidance and all the assumptions underneath it. So that same that same-store growth that we -- the guidance that we gave of low to mid-teens, still stands.

Look, we want to be moderate here. So, we just want to give ourselves a little bit more time. If we have a reason to revisit for the second quarter, we'll do that.

Okay. And also just generally, in what you're seeing in the transaction market, especially with your ability to enter into a $200 million portfolio deal, what are you seeing in terms of deal flow? Are you seeing that increase and also the sellers and buyers entering into this space?

Happy to take that. And by the way, the $200 million that we've been awarded are actually not a single portfolio, but there are multiple transactions in there.

Okay.

Just to -- just for clarity sake. We're seeing a very robust pipeline of deals come to us. It's heavily biased to senior housing, which we're largely viewing -- or entirely viewing at SHOP with rare exceptions. The assets we're seeing are primarily either single assets or a few assets that can be bought bundled or not. We have started to see some large portfolios. They're kind of outliers. Oftentimes, they are things we've seen -- they are portfolios we've seen before. There are of less interest to us at the moment because we're seeing the best opportunities for us -- for multiple reasons to be in these onesie-twosie situations. What's interesting about what we're seeing is that the sellers are frequently private equity firms that provided development capital or bought assets early stage and they're at fund life and want to sell. The assets were covered enough from COVID that they can exit at an okay multiple in terms -- but they need to get capital back to their LPs, so that they can launch their next fund. And that's really the recycling of capital issue that's driving quite a bit of sales. There are occasionally situations where we're seeing some sellers who were unsuccessful, come back to the market again. And it's -- right now, it's a timing -- it's been a timing issue of getting good execution or decent execution. Sometimes it's just sufficient execution for these sellers. But assets now in the senior housing arena have recovered enough even though cap rates have risen for people to get out without having to oftentimes put additional cash into pay off debt.

And has that increased competition that you've seen as well?

The private equity buyers are largely out as buyers. There are a few that are -- they're tiptoeing around. We've seen one that's been more active. We are seeing the public REITs be active as you have seen that as well. Sometimes we actually overlap with groups that we haven't typically overlapped with in the past. But pricing has remained pretty tight from our perspective on deals where we've bid.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

On the $200 million of senior housing acquisitions, are these all deals in the U.S.? And can you just give us a sense of kind of the operating metrics where they sit today? And what sort of that may imply for kind of the future growth profile?

Well, I'm going to be cautious here in terms of giving you hard numbers because these are deals that we've been awarded and we haven't closed on them quite yet. So, first of all, they're all domestic. They're biased towards the eastern half of the United States, if that gives you an addition -- and you like good color. They all have growth embedded in them because while they are decently occupied, there is still room for growth and there's still room for RevPOR increases.

They're also a little -- they're more heavily weighted towards AL memory care than IL.

Did you want to add something, Talya?

No, I'm good.

Okay. And then just following up, Rick, you kind of referenced you haven't historically disclosed deals until they've closed. I guess, what led you to break that practice with this $200 million? And should we expect you'll continue to announce deals that have been awarded or under LOI?

We did it because, one, our track record when we get deals awarded is that we get them closed. And we felt like we've got so much great activity now, that we didn't want another quarter to go by, would have -- making sure that you all were up to speed and what we expect to see happen because we had been saying even earlier in the year that we expect to do quite a bit more than we did last year, and that was certainly our target. So, it was really specifically for that reason. We may or may not do it going forward because we'll have closed deals to announce at the rate things are going.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Talya, congratulations. First question, just -- no problem. First question is just on Genesis. I know you guys were super proactive trying to reduce exposure over the years. But if you could just remind us on how much NOI you're getting from Genesis? I know it's out of your top 10 list. And the kind of the structure that's in place and the credit behind that lease? And obviously, if you, in your paid rents to date through, I guess, May.

Yes. So, we sold all but eight of the original 86 last year because we wanted to have more security going forward. We decided to sublease those eight assets to a trusted operator. Their rent was slightly less than Genesis, but because of the Genesis guarantee, Genesis makes up the stub. It's not material. So that's been going really well for us. No mis-payments. They will be our operator going forward after the lease expires. The operations have improved materially since they started, but with really that many facilities, it's pretty negligible impact on our NOI. But yes, so we're good there.

Great. Good to hear. And secondly, just on SHOP could you just remind us kind of the deferred or kind of revenue-generating CapEx that we should be thinking about this year for the in-place portfolio? And if we should be thinking about incremental kind of CapEx spend on the pipeline over and above traditional maintenance CapEx?

Well, Mike's pointing that up, I would say that because of the vintage of the assets that we acquired last year and that we're currently in the process of acquiring, there really -- there are new assets that are less than 10 years old. Most of them are five, six, seven years old. So, the CapEx requirements for the stuff that we're buying just isn't material. And when, we were asked earlier about competition, we've got so much in the pipeline that we're really -- we've really been able to be extremely selective about the assets that we want to buy. So that regardless of what happens with competition in any of the geographic areas and in the markets that we're buying, we've got really new good-looking assets to compete with anybody.

Yes. In terms of the dollars, Juan, so in terms of like regular maintenance CapEx, we've been spending on an average somewhere between, call it, $1.5 million to $2 million a quarter on our consolidated portfolio. On larger projects, that's going to be very community specific. We spent a lot last year, as we've talked about in the past. There's some deferred projects that got delayed because of the pandemic. That number was over $30 million that we spend across our entire portfolio. But we expect that number to be quite a bit lower in 2025 because of the fact that we caught up last year as well as what Rick pointed out with the newer vintage assets that we've been adding to our portfolio just naturally require less CapEx.

Your next question comes from the line of Seth Bergey with Citi Group. Please go ahead.

Hi, Seth, thanks for taking my question. I guess just going back to the pipeline kind of as you have been improving outlooks for SHOP, it sounds like there may be a little bit more competition out there for deals. Has there been any change to your underwriting criteria in terms of the type of assets you're looking at, geographies, or kind of your return expectations?

So, I actually think that there -- the competition has just shifted to being actually a smaller pool of buyers for the most part on the assets that we see in general. And then as Rick said, we're being very deliberate and picky about what we're pursuing for all the reasons that were outlined. In terms of underwriting, really nothing has changed. We're really focused on our cost of capital and looking at making sure that how we underwrite leads us to get deals that are accretive. The other element that is relevant to us when we're looking at transactions -- and believe, we're looking at a lot. I probably clear 10 coffee agreements a week, just to give you a sense of scale. So that's a lot of deals. We look at situations where we have an opportunity to buy at maybe not the highest price, because either we have a relationship and history with an operator who's involved in the deal and has an ability to effect or impact how the sale happens. And we're also looking at working with operators that have pipeline of assets that are expected to come to market in some fashion. And potentially even development opportunities someday in the future when that might make sense. We're not counting on development today, trust me. But there's -- so it's -- the assets themselves matter, but there are strategic reasons also for these specific investments in terms of the relationships and the future of our organization and opportunity to buy and invest.

Great. That's helpful. And then I guess just for the second one, your coverage level is continuing to improve, but are there any changes to your watch with respect to operators?

No, none.

Your next question comes from the line of George Dugan with Mizuho Securities.

This is Georgie on for Vikram. Just in the press release, you mentioned that you're not seeing many attractive SNF opportunities. Can you just provide more color on what makes the SNF acquisition unattractive? Like is it a location, operator, anything else that you can share?

Losing a lot of money is a good starting point, and we see a fair amount of those. Because oftentimes, what we're seeing is a nonprofit since divesting because they're bleeding cash on the asset. So that's tough because it's really tough to structure a lease around an asset that doesn't have the ability to pay rent because it's going to take time even if you get the most fantastic operator in there and the asset is fundamentally well situated. And all that is going to be a while before they're able to turn the facility around so that they can pay rent. So that's the challenge of the math around lease. And we're not doing managed assets in the SNF space.

We're really not seeing anybody else get much done too. Hopefully -- look, there's a Medicaid overhang, obviously, on the space. So, I think we're hopeful that as there's clarity on Medicaid, that more assets will come into the market. It's -- I mean people can go ahead and do deals and assume nothing is going to happen, but we prefer to be a little bit cautious about how we underwrote a SNF deal not knowing what's going to happen with their Medicaid revenue stream.

That's helpful. And just a second question on the SHOP portfolio, can you just provide more color on like what you expect in terms of occupancy cadence throughout the year? And what are the trends that are you seeing so far in the second quarter?

We're a month into the second quarter. So, I hesitate to extrapolate too much. I think the first quarter was flat sequentially, as I said, which is kind of the new seasonality, at least for this year, I expect things will pick up. If you think about where assets are located, let's just say, let's talk about our Canadian assets. It's unlike -- people are less likely to move in during January, February and March when there are snowstorms and it's negative 20 degrees outside, right? So, I think having -- we were at Vancouver last week, the skies were sunny and bright, nicer than Southern California. Toronto is getting better as well. I think the mood increases and move-ins will increase just -- even just in our Canadian portfolio for those reasons. And of course, any of our assets that are in the northern part of the U.S. have the same issue with winter. It's just hard to be in Minnesota and think you're going to move in January and February and March.

Your next question comes from the line of Richard Anderson with Wedbush. Your line is open.

Congrats, Talya. I guess we'll see you around for a few more quarters, though. So, on the topic of not interested in any large portfolios, Rick, is that because of the portfolios? Or is that because of your sort of commitment to all of us to sort of keep it simple and not get into a firehose drinking situation again? I'm just curious what's motivating the lack of interest in large portfolios as you see it today?

Yes. It's really that commitment. As you know very well because you've covered us for so long, we did a lot of things that we felt we had to do at the time that created a lot of noise, but it effectively repositioned us to be strong going forward. Nevertheless, it takes some time to get past that in people's minds and be an organization that people -- that is dependable and people can sort of predict more where things are going to be going. And so, we articulated that in '23 coming out of the pandemic, and we stuck to it. So, there's so many -- so much activity out there for us to take advantage of. We don't need any big swings. When we repositioned the Company with the merger and really exiting Genesis, we didn't need to do it again, and we still don't need to do. We've got a really strong portfolio. We had less SNF operator issues than I think pretty much everybody during the pandemic. And so, we just want to be predictable and keep it simple. And we can do hundreds of millions of dollars of deals and do them with deals that are under $100 million. So -- and now the deals in this sort of basket of 200-plus are close to 100 million. So, that's our commitment to you all and a commitment to ourselves. We are going to be very laser-focused on it. Will we be willing to do something larger next year or whatever? Yes, of course, we might be willing to do that. But we're -- right now, we're able to have a better balance in our portfolio between senior housing and skill than we've ever had. It drives our growth better. We still want to do skilled deals. We got the space and obviously, it will increase our average weighted yield, but we want to have that balance in the portfolio. We want to have a component of our asset base that has a strong driver of earnings, stronger driver of earnings than the 2.25% to 2.5% bumps you get on a triple net. So not so. I'm belaboring it probably a little bit, Rich, but yes.

No. I enjoyed it. Good stuff. And so next question is we're hearing some of your peers are doing some SHOP conversions. Is that a part of your strategy at all within the portfolio? Or is it going to be mostly looking for stuff externally?

We've already -- we did a bunch of that and some of it during the pandemic. There's not much left for us to do there. I mean coverage is great. We've got some legacy assets in there that are doing really well and the operators are happy. So, there might be a little bit here or there, but it's not going to be anything significant. We got -- I think we reduced our triple-net senior housing portfolio over the last several years by 1/3 or something like that. So, there's not much left there. And obviously, as we continue to grow SHOP, you'll see the triple-net senior housing portfolio drop as a percentage of our exposure and then behavioral obviously will drop as well because we're going to be allocating our capital to the two spaces that patent tailwinds, senior housing and skilled nursing.

Okay. And last for me. The Medicare, the CMS suggestion or whatever, 2.8% for fiscal year '26 is fine, I guess. It's obviously down from last year, obviously, not to be unexpected given inflation subsiding. And then you have Medicaid questions that you can't answer yet, no one can. And you layer that on top of what you've witnessed is improving coverage. I mean, is the day -- are we past sort of -- is the thrill gone, I guess, on coverage? Do we start to get sort of more of a sideways movement because the reimbursement sources are likely to slow down now on a year-over-year basis. And so, coverage is -- had a nice run, but maybe it's kind of in the rearview mirror now. What do you think of that?

Yes. No, it's a good question. I don't think we're going to be sideways for a while for a couple of reasons. One -- and we talked about this in the past, this was the year we expect to see Medicare rate and Medicaid rate increases come down. Just formulaically they're encompassing periods of time where inflation started coming down. So -- and the 2.8 is still about a full point or so higher than it was historically -- what we saw historically every year. And while we expect Medicaid certainly not to be at the seven-plus percent we saw last year, we still think it's going to be outsized. So, I think given occupancy continuing to grow, given the moderation in labor and given another set of outsized based on historical effect -- outsized Medicaid rate increases this summer, about 70% of our buildings get their Medicaid rate increases in July and August. We still should see improved coverage for a while. Now if something should happen with provider taxes that could mitigate that somewhat, so that remains to be seen. But I think it will have a relatively negligible impact for us because there's going to be a cost offset as well if the ceiling comes down. And then you'll see it start picking up again once the Medicaid rate increases get baked in. So, I think we still have some room to grow there over the course of this year, Rich.

Your next question comes from the line of Alec Feygin with Baird Equity Research. Your line is open.

So, kind of speaking for the $200 million set of deals. And Talya, you kind of talked about maybe the strategic relationship angle, but maybe any more details with are these operators that you would like to grow? Are they new operators into the portfolio? And kind of what do you expect that shadow pipeline to kind of be after these deals close?

So, the answer to question number one is, yes, yes, yes, yes. All of the above. The answer to number two is tougher to assess. And I think we'd rather close the deals and then be able to report further detail on the additional opportunities that we're looking at.

All right. Fair enough. And then secondly, can you provide some details in the maybe kind of steady decline in occupancy in the behavioral health and specialty hospitals and other segment? Kind of what are the prospects for re-leasing those spaces, if they do go dark at what rents?

It's a very different business than senior housing and skilled nursing, obviously. The breakeven point is at a pretty low level of occupancy, like under 60%. The coverage went up pretty nicely, actually, because revenue per patient day went up. And so -- but it's a very, very dynamic business. And skilled and senior housing, your occupancy is pretty predictable for the most part. It doesn't change dramatically. That's not the same with the behavioral space. So, we've got very short length of stay. It's a very dynamic business. The holidays, and shortly right after the holidays, you always see pretty significant drops because no one is coming in for rehab typically during the holidays, and that carries a little bit over into the early part of the year. So, there may be some recovery on that. So, it's just something -- the coverage is so strong. It's just at 3.77, it's just not something that we are concerned about. It's just a different kind of business. And so, we're -- for us, we're used to kind of seeing these ups and downs.

[Operator Instructions] Your next question comes from Omotayo Okusanya with Deutsche Bank.

This is Sam on for Tayo. I was just wondering if you guys could give some updated thoughts on how Medicare reimbursement for skilled nursing could impact -- could be impacted by the current intent by the U.S. government to establish a new federal budget?

Well, what we're hearing on the hill is that they're not going to touch Medicare. The President has said the same thing about Medicaid. But as we've talked about, I think the last couple of quarters, we think there is some exposure of provider taxes. But we're not seeing or hearing anything in any of the discussions that lobbies they're having on the hill relative to Medicare. And I'm not sure that the proposed rule would have come out the way if that was an issue. So, the comment period once the proposed rule came out, everything is happening like it normally happens there. So -- and we're not hearing anything from inside CMS along those lines either. So, look, we're in an environment where things change every hour apparently. So -- but that said, so I'm not making light of anything because we have our antenna up on the Medicaid, Sam, but we feel pretty comfortable with Medicare.

There are no further questions at this time. I turn the call back over to Rick Matros.

Thanks, everybody, for joining us. We're available, as always, if you want to reach out and have additional discussions. And otherwise, we'll see a bunch of you folks at NAREIT. Look forward to it. Thanks, everyone.