Rick Matros: Yes. So we don’t have a set number at our current cost of capital. The deals we’re seeing are accretive to us. So that’s amazing. We just want them to be accretive. And I think as we look out over the course of this year, everybody is still in recovery. So if we can do like on the skilled side, like we just did with Ignite deal in the 9% to 10% range, and we know there’s more upside, even though you might say, hey, don’t you want to start out with the biggest spread. We’re going to get a bigger spread over time as the industry continues to recover. And on the shop side, there’s still a lot of upside there as well. So it may be a little bit tighter on day one. But as long as we know the operator, we know the market, and we can see the upside there. We can see what the performance was pre-pandemic, then it’s worth it to us because as you know, as we keep kind of hammering home, we just — we need to get back to strong earnings growth.
Rich Anderson: Yes. Last question for me. You mentioned in the release 1.72x dorm coverage in your skilled space excluding provider relief funds, is that at an arrears number? Is that a third quarter or a fourth quarter number?
Michael Costa: It’s a 12-month number as of September 30.
Rich Anderson: Okay. So I took note of the fact that, that same equivalent number was 1.6x in your third quarter release, that’s quite an improvement. And it doesn’t get the benefit of the Medicare starting point in October 1, if it starts for the third quarter annualized. So what would you say the reason for that big pop in coverage? Is there any moving parts in there that we should know about? Thanks.
Rick Matros: Well, there are a couple of things. A lot of our operators experience larger than average Medicaid rates in July and August. So that starts to impact it. And labor really has moderated quite a bit again, and we always keep saying this, it’s still really tough out there. I don’t want to make light of it, but it has moderated, I think, a little bit more than we would have expected. So I think the combination of slower labor growth and stronger revenue per patient day growth, particularly on the Medicaid side is what contributed to it.
Rich Anderson: That — could you be starting to tease a 2x number if things continue to go in the right direction?
Rick Matros: From your lips, Rich?
Rich Anderson: Thank you.
Rick Matros: Thanks.
Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Your line is open.
Michael Stroyeck: Thanks and good morning. Maybe one on the SHIN portfolio. So coverage levels are now back to 2019, are spot levels mostly captured in that trailing 12-month figure at this point? And if not, should we expect any more meaningful improvement in coverages in that business?
Rick Matros: Sorry, for which portfolio?
Michael Stroyeck: For the SHIN [ph] portfolio or the senior housing lease portfolio?
Michael Costa: Got it.
Talya Nevo-Hacohen: I’m sorry, could you repeat the question? Because now that I know what portfolio you’re talking about it and probably be more constructed in my response.
Michael Stroyeck: Yes. Sorry about that. Coverage levels they’re back to 2019 in the senior housing lease portfolio. Our spot levels mostly captured in that trailing 12-month figure? And if not, should we expect any more meaningful improvement in coverages in that business?
Talya Nevo-Hacohen: I think I think we’re optimistic that coverage will continue to improve as operating leverage continues to drop more NOI to the bottom line. Very healthy portfolio.
Michael Stroyeck: Okay. Good to know. And then maybe one on contract labor. I know you mentioned it’s down pretty meaningfully in aggregate. But have you seen any pockets in your portfolio that have started to see agency labor utilization maybe come back up in recent months?
Rick Matros: Not all hand coming up. We certainly have markets where it’s still bad. But we’re not seeing increases. I mean, anecdotally, there may be a facility here or there. But by operator, we’re not really seeing increases over the past few months and temporary labor. I think over the holidays, it might — there was a little bit of a spike, but that’s not that’s not atypical for the holidays, but it came right back down.
Talya Nevo-Hacohen: We’re really seeing on the senior housing front, very almost zeroing out of agency or at least back down to sort of so-called normal levels or unaffected by the last few years because we’re seeing also at the same time, more net hires filling of physicians that have been — that have been vacant for some time, better retention, which is what the net hires is about. and overall just stronger ability to hire, retain and compensate permanent employees.
Operator: [Operator Instructions] Your next question comes from the line of Conor Siversky with Wells Fargo. Your line is open.
Connor Siversky: Hi, thank you for the time. Maybe just to bounce back on the investment environment. It’s been a pretty common theme among Health Care REIT earnings that the propensity to invest in 2024 is a dramatic improvement from, say, years prior. And in that context, it seems like Sabra’s messaging here is maybe a little bit more conservative than others. So I’m wondering, when you say that in skilled nursing, in particular, there are less high-quality opportunities coming across the desk. Do you feel that that’s more due to increased competition in the space? Or is that more of a function of just the pricing disconnect between potential sellers and buyers?
Rick Matros: I don’t think it’s necessarily either. I think that for those that don’t have to sell, they’ve just been waiting for more recovery. I really think it’s as simple as that. So we fully expect to see more opportunities in the skilled space and better quality opportunities. But if you haven’t had to sell, you might as well have hung in there and wait for top line and margins to improve more.
Talya Nevo-Hacohen: The other thing I’d add to that is we saw — there was a lot of buying by private investors in the skilled space when that rates were really cheap and bridge to HUD was slowing in unprecedented amounts. That, of course, has shifted in the last, whatever, six to eight months. And now the opportunity to provide debt or to sometimes provide equity in the sale-leaseback format has reemerged, which is where the REITs can play. And so I think that explains why you’re seeing other REITs provide various levels of debt in terms of the cap stack, and then why you’re seeing us probably have seen more opportunities on sale leasebacks.
Rick Matros: And for you to know Connor that we’re more conservative than our peers, I guess, shows the impact of the pandemic on our mentality because we’ve never been accused of being more conservative than our peers.
Connor Siversky: Understood. I appreciate the color there. And maybe one more. This is taking a bit more of a long-term forward outlook. I have seen on NIC MAP, for example, some markets for occupancy is getting quite high. And I’m wondering if we could expect to see certain states release some certificate of needs within the next several years and allow for some more construction activity. And saying that under the context too of knowing that it’s cost prohibitive at the moment to really generate a return of construction activity, but it seems like there are some markets where you’re kind of hitting carrying capacity. So just curious to or any thoughts you have on that dynamic?
Rick Matros: Yes. So it’s — what I would say, there are — obviously, there are actually quite a few markets like that. I think our portfolio in the aggregate is getting closer to 40%. 40% of the operators are or close to where their occupancy was pre-pandemic. But there is no talk right now in the States relative to change in [indiscernible]. Obviously, there’s going to be a huge crisis in the country. And as you know, we’re already seeing it in terms of the access problems in certain markets. And so there’s going to have to be something different at the state level and perhaps the federal level as well. The cost of building skilled nursing facilities is exorbitant given the level of regulation. Some states obviously have additional regulation on top of federal regulation, so it makes it even more expensive.
California is a great example of that. So — you’ve got that issue, and you’ve got the COA issue as well. So yes, so it’s just — it’s hard to see anything proactive happening at the level of the government until things get really, really bad and you have a bunch of bad headlines because people can’t get access to care. I just don’t think I think everything is more focused than ever on the election cycles in the short term. And I just don’t — we heard it, and I just don’t see it, Connor, I think it’s just people keep on growing occupancy. And then as I said, there will be some really bad headlines and then maybe there will be some changes, which will probably take years, right? So I think you’ve got a really nice run ahead of you on the skilled side for occupancy.
