Sabra Health Care REIT - Q1 2024

Transcript

Operator (participant)

Good day, everyone. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT first-quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press * followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the * 1 again. And now I would like to turn the call over to Lukas Hartwich, SVP Finance. Please go ahead, Mr. Hartwich.

Lukas Michael Hartwich (SVP Finance)

Thank you. 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 reiterating our earnings guidance for 2024, 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, 2023, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished 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 made 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. With that, let me turn the call over to Rick Matros, CEO, President, and Chair of Sabra Health Care REIT.

Richard K. Matros (CEO, President and Chair)

Thanks, Lukas. Thanks, everybody, for joining us. Hope you're all having a good day. So this quarter is really just a continuation of the last couple of quarters. Our operating performance continues to improve. Our balance sheet strength has us in a position to grow. Our skilled nursing EBITDA coverage continues to nudge up, exceeding pre-pandemic coverage. Our senior housing triple-net lease coverage continues to improve and is near pre-pandemic levels. Our top 10 is stronger than it's ever been. Our skilled occupancy is up 110 basis points sequentially, and our skilled mix is higher than it's been in several quarters. Our senior housing triple-net occupancy is higher than pre-pandemic occupancy. Our SHOP growth continues with occupancy higher than it's been since the early months of the pandemic.

Contract labor continues to improve, dropping to where we were three years ago, well below peak levels, although still higher than we want to see. Our deal flow is improving, and though it's primarily shop, we are finally starting to see some skilled nursing opportunities. In both skilled and shop, seller's pricing has moved towards buyers. While we don't have new investments to announce this quarter, based on the current activity, we expect to be in a position to announce new deals on our second-quarter earnings call. We are running better than anticipated on our forecast, including our shop performance, but since it's still very early in the year, we're going to wait until Q2 to reassess our guidance. With that, I'll turn the call over to Talya.

Talya Nevo-Hacohen (Chief Investment Officer)

Thank you, Rick. Sabra's managed senior housing portfolio, including joint ventures at share, continues to perform well. The portfolio grew by 5 communities during the quarter and 7 communities year-over-year, which were all properties previously leased to other operators, and I underscore leased. While the added communities had a limited contribution to the totals, Sabra's managed portfolio saw a 16.5% quarterly revenue growth and just over 26% quarterly cash net operating income growth on a year-over-year basis. This is driven by the trends that we've been noting for the past several quarters: growing demand, driving occupancy, and RevPAR gains, and moderating expenses. Wage growth has decelerated as open positions are filling together, reducing overtime needs and even eliminating agency usage. Sabra's same-store managed senior housing portfolio, including joint ventures at share, includes 64 properties, 43 of which are in the U.S. and the balance in Canada.

Excluding non-stabilized assets and government stimulus, the headline numbers are: same-store portfolio revenue for the quarter grew 5.8% year-over-year, with our Canadian communities growing revenue by 9.2%. Cash NOI for the quarter grew 9.5% over the first quarter of 2023, skewed down by a lower-than-usual expense item in the first quarter of 2023. Cash NOI for the quarter increased 16.7% in our Canadian communities. RevPOR in the first quarter of 2024 increased by 3.4% year-over-year, with RevPOR in our Canadian portfolio growing by 5.1% in the period. The senior housing recovery in Canada has been lacking the U.S. and is now catching up. Drivers of revenue growth in our Canadian communities outpaced our U.S. communities this past quarter on a year-over-year basis, while expense growth has come into line with our U.S. communities, particularly on a sequential quarter basis.

Our net lease stabilized senior housing portfolio continues to thrive with occupancy for the past quarter at about 90%, as Rick said, above pre-pandemic levels, and steadily improving rent coverage. Sabra's total investment in behavioral health remained approximately $800 million as we provide time for our assets to complete conversion and lease-up and reach stabilization. You will note that we have combined specialty hospitals and behavioral health in our coverage disclosure and our supplemental because, combined, these categories represent 21 stabilized properties contributing about 10.5% of Sabra's NOI, with only six behavioral properties in there. With that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Michael Lourenco Costa (CFO)

Thanks, Talya. For the first quarter of 2024, we recognized normalized FFO per share of $0.34 and normalized AFFO per share of $0.35, both up $0.02 from our fourth quarter 2023 results. Year-over-year, both normalized FFO per share and normalized AFFO per share increased 3%, representing the first year-over-year increase in both since before the pandemic.

This sequential increase was driven by the following: a $1.8 million sequential increase in cash rents received, with the majority coming from stronger collections from cash-based tenants compared to the fourth quarter, a $1.3 million reduction in normalized cash G&A expense, primarily related to performance-based compensation true-ups that occurred in the fourth quarter, $900,000 of business interruption insurance income related to a property that suffered fire damage last year, and a $600,000 improvement in NOI from our managed senior housing portfolio due to improved performance, as well as the transition of five facilities to our managed portfolio that were previously leased on a triple net basis. This was partially offset by a $500,000 increase in cash interest expense due to higher outstanding borrowings under our revolving credit facility. As Rick noted earlier, our first quarter performance came in slightly better than what we had forecast in our 2024 guidance estimate.

While we are pleased with this outperformance, given it is early in the year, we feel it's most prudent to reaffirm our full-year 2024 guidance ranges at this time, and we will revisit these ranges for our second quarter earnings call. Our full-year 2024 guidance ranges on a diluted per-share basis are as follows: net income $0.53-$0.57; FFO $1.33-$1.37; normalized FFO $1.34-$1.38; adjusted FFO $1.38-$1.42; normalized adjusted FFO $1.39-$1.43. As a reminder, our guidance does not assume any acquisition or disposition activity. Now, briefly turning to our balance sheet, our net debt-to-adjusted EBITDA ratio was 5.55 times as of March 31, 2024. As our portfolio continues its recovery from the pandemic, we expect this to result in improvements to both our earnings as well as our leverage.

As of March 31, 2024, we are in compliance with all of our debt covenants and have ample liquidity of $914 million, consisting of unrestricted cash and cash equivalents of $60 million and available borrowings of $854 million under our revolving credit facility. Finally, on May 8, 2024, 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 31, 2024, to common stockholders of record as of the close of business on May 20, 2024. The dividend is adequately covered and represents a payout of 86% of our first-quarter normalized AFFO per share, and this payout percentage is expected to improve over the course of 2024. And with that, we'll open up the lines for Q&A.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, please press * then the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Austin Wurschmidt from KeyBanc. Please go ahead.

Austin Todd Wurschmidt (Analyst)

Hey, good morning, everybody. Just wanted to hit on the shop. And just with respect to that, I wanted to clarify. The low-to-mid teens that you said kind of felt right last quarter. I know you didn't provide explicit guidance, but kind of pointed towards that low-to-mid teens growth. Does that include the contribution from the unconsolidated joint venture portfolio, and is that a same-store figure?

Michael Lourenco Costa (CFO)

It does include the contribution from the joint ventures. It's not a same-store number. It's a year-over-year number on a comparative basis.

Austin Todd Wurschmidt (Analyst)

Got it. This includes the benefit from the transition of these five facilities that are now moved from a triple net lease to the RIDEA structure?

Michael Lourenco Costa (CFO)

That's right. If you also think about it, these were triple net assets before that we transitioned. They weren't performing as triple net assets. They weren't contributing anything to our NOI in 2023.

Austin Todd Wurschmidt (Analyst)

Got it. That's helpful. And then just another one for me, clarification. So has there been any change to the cash NOI contribution from Signature Healthcare? It looked like the quarterly cash NOI number came down a bit. So just curious if there's anything there.

Michael Lourenco Costa (CFO)

Yeah, it was just a timing issue, really. Excuse me. It was just a timing issue in the first quarter. Since we're on a cash basis, we record revenues when the cash comes in the door. And part of their March payment came in shortly after March 31, but that's simply it.

Austin Todd Wurschmidt (Analyst)

There'll be a catch-up payment that gets them on par with the prior kind of quarterly run rate in the second quarter that we should expect?

Michael Lourenco Costa (CFO)

Yeah, we would expect the on-balance second quarter to be a little bit higher because of the fact that you have that catch-up payment plus the regular payments during the quarter.

Austin Todd Wurschmidt (Analyst)

Got it. Thank you.

Operator (participant)

Your next question comes from the line of Joshua Dennerlein of Bank of America. Your line is open.

Joshua Dennerlein (Analyst)

Yeah. Hey, guys. Thanks for the time. Rick, just wanted to kind of get your take on the final minimum staffing ruling from the CMS. How do you think this plays out from here? And then just curious how we should, you know, it's a couple of years out with the phase, and just how should we think about its potential impact on your portfolio?

Richard K. Matros (CEO, President and Chair)

I think the same as we've been saying all along, and that is the rule is ludicrous on its face simply because the labor isn't available. As I think as I've stated in the past, but now it's been publicly stated by the industry and the trade association, you can expect to see both legal and legislative action to overturn this.

Joshua Dennerlein (Analyst)

Okay. And if it doesn't get overturned or it stays as is, is there any kind of thought process on how it might impact your portfolio, your operators, or are you just saying they just wouldn't be able to even find the labor?

Richard K. Matros (CEO, President and Chair)

Well, it depends on the market. Most of our buildings are actually in pretty good shape relative to it, and I think higher than national average from a staffing perspective. But as you noted, even if this were to stay in place, it's a phase-in process. It's not going to start for 2 years. It's not going to stop for another couple of years. And labor has been improving. Certainly, contract labor, as I noted, has improved dramatically. And so presumably, things will improve more. So it's a little bit hard to anticipate. But it isn't just a matter of putting a number out there that's going to leave a lot of operators in certain markets completely unable to fill positions. And so it's really got nothing to do with quality of care. It's got everything to do with punishing nursing homes. That's really what it's about.

Then the other point that's really critical here is it's a one-size-fits-all. Even in the final rule, they really didn't address the criticisms about the lack of inclusion of LPNs, which are a backbone to every operator in the business. They left that one number out there that you could fill with LPNs, but that's not the same thing. But operators staff buildings based on acuity, both in terms of total hours and in terms of the mix of those hours between RNs, LPNs, nursing assistants. You've got facilities that bring in NPs. Any evidence that you look at will tell you pretty clearly that one-size-fits-all does not work and does not lead to better quality outcomes. In addition to that, putting an arbitrary number on what staffing should be, there's no correlation between that and quality outcomes as well.

That's probably more than you needed to hear, but I wanted to make sure I covered all aspects of it.

Joshua Dennerlein (Analyst)

Yeah. Good call. I appreciate the time. I'll jump back in the queue. Thanks.

Operator (participant)

Your next question comes from the line of Michael Griffin of Citigroup. Your line is open.

Michael Griffin (Analyst)

Great. Thanks. I wanted to touch a bit on the acquisition pipeline and sort of what you're seeing out there. Obviously, you're not giving any speculative acquisitions in guidance, but if you annualize the midpoint of earnings this quarter, it gets you to kind of that low end. So how are you thinking about acquisitions, whether from a yield perspective, and how much do you think they contribute to earnings on a stabilized basis this year?

Talya Nevo-Hacohen (Chief Investment Officer)

Well, I'll tell you what we're seeing. I'm just going to elaborate on what Rick had said earlier. Deal flow is backup, so we're seeing a lot. I think we've said this in the past, that the best deals we're seeing are the ones that are coming to us off-market. And I suspect that's true for our peers as well. We are focused more on acquiring assets, although we're open to doing some loans. But that's not where we're focused. So we're seeing quite a bit, and we're seeing quite a bit from operators who would like to do repeat business. And that's really the key piece. How much we get done awaits to be seen. We'll keep everyone apprised of that. But the contribution to 2024 is really going to be dependent on when we close more than anything else.

Rick mentioned that buyers and sellers' pricing expectations have come much closer. That's generally true. And so the opportunity to do deals exists. And we're managing our balance sheet carefully, but we see opportunities that are worthwhile.

Richard K. Matros (CEO, President and Chair)

The only other point.

Michael Griffin (Analyst)

Talya, sorry.

Oh, sorry. Go ahead, Rick.

Richard K. Matros (CEO, President and Chair)

Yeah. The only other point of emphasis I'd make is that our guidance, as you know, doesn't include any assumptions about acquisitions. And my statement, my opening remarks about revisiting guidance in the second quarter because we're ahead of where we thought we'd be already has nothing to do with any assumptions about acquisitions this year. So that would just be great on top of that. But to Talya's point, the reality is if you're closing most of your stuff over the last five or six months of the year, it's going to have more of a muted impact and just serves more to fuel growth going into 2025.

Michael Griffin (Analyst)

Great. That's helpful. And then just a quick follow-up on that, Talya. Are you seeing any more appetite in the financing environment for SNFs? Is there any Bridge to HUD or HUD financing that's out there at favorable terms?

Talya Nevo-Hacohen (Chief Investment Officer)

We are seeing non-bank lenders interested in lending on a Bridge to HUD basis, in theory, it's Bridge to HUD. We've not been targeting that segment. We've looked at it quite a bit in the past. Yeah. And it's not cheap. The challenge that what's different now than it was, call it, a year and a half ago is that a year and a half ago, people were doing Bridge to HUD lending based on forward valuation. That's pretty much gone now. Everyone's cost of capital is too expensive to do that.

Richard K. Matros (CEO, President and Chair)

Yeah. Also to reiterate, our philosophy on loans haven't changed. That is we loan really specifically in relation to the relationships we have with operators. So how is it helpful in the current relationship when an operator's trying to grow? Is there a loan-to-own opportunity here? So we really don't have interest, even though we know there are opportunities and our peers are doing it, in building a portfolio of loans.

Michael Griffin (Analyst)

Gotcha. That's helpful, Rick. And then one last one, if I may. I know you touched on the implications of the minimum staffing mandate in a question earlier, but can you give any maybe concrete initiatives that the industry is looking at, whether it's lobbying certain committees, trying to take litigation into different courts, just kind of hard things that you're seeing on the ground as the industry gears up to fight this thing?

Richard K. Matros (CEO, President and Chair)

Yeah. So I really can't talk about that too much other than to say that everything is in place. There's the bill on the hill. It's got broad bipartisan support in terms of legal action. Much of the groundwork's been done there as well. But beyond that, I can't really talk publicly about anything else. And most of our focus or most of the industry's focus, the trade association specifically, is going to be on the legislative strategy.

Michael Griffin (Analyst)

Great. That's it for me. Thanks for the time.

Operator (participant)

Your next question comes from the line of Vikram Malhotra from Mizuho. Your line is now open.

Vikram L. Malhotra (Analyst)

Afternoon. Thanks for taking the questions. Just maybe going back to just the quarter results, I just want to understand kind of how the shop growth cadence trended. I think last call, you mentioned January, you saw 20%+ year-over-year growth and ended up at 9. So I'm just wondering what happened in February and March. And if you could, could you just give us a sense of how April has trended?

Talya Nevo-Hacohen (Chief Investment Officer)

Well, I have some spot occupancies on April. The spot occupancies for the end of April versus first quarter are probably about 1%-1.5% higher. Occupancies continuing to grow. RevPOR is. I don't have a spot number for RevPOR, but we've seen continued growth there. I think the big piece that we're seeing finally happen is expenses, specifically labor, decelerate its growth. While we're still seeing some incremental growth, largely it's the filling of vacant positions as opposed to labor rate growth. I don't have an April cash NOI number for you to share at this point.

Michael Lourenco Costa (CFO)

Yeah. And the other thing I'd say is, as we mentioned earlier and noted in the press release, it wasn't as if there was a big drop-off in the quarter. It was simply a comp issue to the prior-year quarter where repairs and maintenance were exceedingly low, and they're running at a normal run rate right now. And so normalizing for that comp and those lower expenses, we would have been in mid-teens for our growth number for the quarter.

Talya Nevo-Hacohen (Chief Investment Officer)

Yeah. I also want to underscore another thing just to clarify. The same store managed portfolio that I spoke about a few minutes ago has 64 assets in it, okay, because it also includes the unconsolidated joint ventures at share. The portfolio we talked about last quarter, that same store, had 51 assets. So we're also talking about different pools here, just to add to your challenge.

Vikram L. Malhotra (Analyst)

So would it be fair to say that, given your adjusted team's comment, for the balance of the year I'm not asking for a specific number, but that team's comment should hold true as we go through the year? Whether it's 12 or 18, I don't know. But do you see an accelerating trajectory, decelerating? How should we just think about the cadence of growth for the balance of the year?

Michael Lourenco Costa (CFO)

Yeah. I mean, it's going to be dependent on occupancy recovery. But I think what we have to continue to pivot back to, Vikram, is we reaffirm guidance. And what we reported for first quarter is in line with what we had forecast for guidance. So I think that should provide you all the information you need.

Richard K. Matros (CEO, President and Chair)

We don't see any trends, Vikram, that are going to get in the way of either meeting or exceeding guidance.

Vikram L. Malhotra (Analyst)

Yeah. I mean, it just sounded like you had earlier mentioned you exceeded kind of your expectations, but you were being conservative, I guess, just early on. And then it seems like the shop comp should get easier through the year, given what you mentioned about expenses. So it sounds like you're, I mean, I'm not putting words in your mouth, but it sounds like if you take those components, you could, numbers could go higher. But that's just the way I was thinking about it. Just to clarify on the acquisitions, let's just say you do see in the US portfolios you like more real estate portfolios as opposed to loans. Can you just talk about how you're thinking about funding these going forward?

Michael Lourenco Costa (CFO)

Sure. I think it's going to be dependent on a couple of things. I think, first off, if we're looking at SNF deals, given where our stock is trading currently relative to our NAV and just on a yield basis, that is a source of capital we could use to fund SNF deals, use that to match fund with our line of credit. To the extent there's any sales proceeds that come in, there's not a ton out there still, but there's always some sales proceeds in the normal course of business that'll also be capital that's available for us to redeploy into other assets.

If we see SHOP deals or we see senior housing deals that we could pair up with skilled nursing deals, when we look at that on a blended basis, they would have to make sense on a blended basis, on a blended yield basis for us to use the ATM. But we think there's opportunities there as well when you look at the totality of our investment pipeline.

Vikram L. Malhotra (Analyst)

Got it. Okay. And then just sorry, one last, just to clarify, any sense of the Medicare ruling that I think comes out in June or July from the initial proposal? Any sense of how the comments, how the kind of push to get a number higher, how that plays out?

Richard K. Matros (CEO, President and Chair)

We're still in the comment period, and it won't come out until August. It's usually around the first week of August. So we'll see. But I would anticipate it to be where it is now. I don't anticipate it being lower, but I think the odds are greater that it stays where it is as opposed to going higher, but not lower.

Vikram L. Malhotra (Analyst)

Got it. Okay. Thank you.

Operator (participant)

Your next question comes from the line of Rich Anderson of Wedbush. Please go ahead.

Rich Anderson (Analyst)

Hey. Thanks. Good morning, everyone. So back to minimum staffing. You had 46,000 comments. CMS said thanks for that and went ahead with it anyway. I know a lot of your peers in the REITs and operators are saying, "We hope that they'll come to their senses." And we can all agree it's crazy what the requests are here, what the mandate would be. But what could possibly change CMS's direction now, another 1,000 comments? I mean, I don't understand what more the industry could do to change the direction, or is it more of a political thing where if we have a change of administration, maybe that incites a change? But separate from that, how does this not go through as it stands today?

Richard K. Matros (CEO, President and Chair)

We believe we can successfully address the issue legislatively. Because you're right, they essentially ignored all the comments, and they rushed to get this out because there's no way, given 40-50 thousand comments, that they could have thoughtfully reviewed all of those and gotten this final rule out when they did. So it's left the industry with no position, with no option rather than to take legislative action and potentially legal action as well.

Rich Anderson (Analyst)

Okay. And then as it relates to your portfolio, have you done any work to say, "Well, this percentage is subject to the three-year phase, and this is five years, and this percentage might actually be exempt from the legislation as it currently stands"? Have you done that work yet? Do you have an idea of what it might be from a geographic standpoint?

Richard K. Matros (CEO, President and Chair)

No. I think it's premature to do that work, Rick, not just because people are still recovering, but the impact of this, if it doesn't go away, is 2-5 years out. So we've got some time right now to see if the remedies, if you will, that the industry is going to undertake to get rid of this mandate takes hold. I think there'll be plenty of time. If we succeed in that effort, great. If we don't succeed in that effort, we'll still have plenty of time to do as you suggest.

Rich Anderson (Analyst)

Okay. And then last for me, switching to shop, same store. I understand comps in February and March and all that, but you said off to a good start in the first quarter, going to take a look at guidance next quarter. Does shop figure into that as well? Is that outperforming? I think you said in the line.

Richard K. Matros (CEO, President and Chair)

Yeah. Yeah. Our shop is somewhat ahead of our internal forecast guidelines.

Rich Anderson (Analyst)

Okay. And your internal forecast guidance are for what on a same store, if you can remind me? I just don't remember.

Michael Lourenco Costa (CFO)

Sorry. You're asking what our same store NOI growth assumption in our guidance is?

Austin Todd Wurschmidt (Analyst)

Yeah. For SHOP.

Michael Lourenco Costa (CFO)

Yeah. I mean, like I answered earlier on the call, Rich, what we have talked about on previous calls was we didn't put that number out, right? But what other folks are saying is mid-teens growth on an NOI basis year-over-year, and that feels reasonable given our portfolio.

Rich Anderson (Analyst)

Okay. I'm sorry I missed that part of it.

Richard K. Matros (CEO, President and Chair)

Okay. That's all right.

Rich Anderson (Analyst)

Thanks very much.

Operator (participant)

Your next question comes from the line of Alec Feygin of Baird. Your line is now open.

Alec Feygin (Analyst)

Hello. Thank you for taking my question. First one for me, can you talk a little bit, give some color on maybe the NOI growth between IL and AL and where that's been trending?

Richard K. Matros (CEO, President and Chair)

Well, we're not going to give the specific numbers, but I would say, as we've talked about in the past, they're fundamentally different businesses. So the AL growth is going to be stronger than the IL growth simply because you've got more tools to impact the revenue line than you do in an IL, which effectively isn't really a healthcare facility, even though there's been acuity creep, which is why we got the PLR letter back in 2020. And the other point I would make is that the IL portfolio never got hit as hard during the pandemic as the AL, so there's less recovery to be had there.

Alec Feygin (Analyst)

Got it. And we noticed you combined the two and that occupancy was down quarter-over-quarter. Was that driven by any one of them more or less?

Michael Lourenco Costa (CFO)

No. I think that was really just we go through all of our disclosures periodically, especially in our supplement. What we saw was that we were an outlier given that level of granular detail. We basically made our disclosures conform to what our peers show.

Alec Feygin (Analyst)

Got it. That's it for me. Thank you.

Operator (participant)

Your next question comes from the line of Michael Stroich of Green Street. Please go ahead.

Michael Stroyeck (Analyst)

Thanks. Good morning. Could you just share where spot occupancy and coverage levels for the SNF portfolio sit today? And then just assuming the company can get spot occupancy back to pre-COVID levels in that, call it, 82% range, how sizable of an impact would you expect for that to have on coverages?

Richard K. Matros (CEO, President and Chair)

It's going to be pretty sizable. On the last call, on our year-end call, Rich Anderson asked if, given that dynamic that you're talking about, is it possible even to get to a consolidated 2x coverage? I'm not going to say definitive yes there, but it's clearly going to have a material impact on coverage. With coverage higher now than pre-pandemic occupancy, our margins are back to where they were pre-pandemic occupancy, which means the pull-through on that operational leverage has actually settled in at a lower occupancy level. That's all positive for us. It's hard to really just sit here and say this is what the exact impact is going to be on coverage two years from now if occupancy is 300 basis points higher, but it's clearly going to have a material impact.

Michael Stroyeck (Analyst)

Got it. Okay. And then maybe just one more on the SHOP portfolio. How much labor vacancy is there in that portfolio? Or maybe said differently, is there still quite a bit of staffing in terms of headcount needed in order to be able to achieve the occupancy upside there?

Talya Nevo-Hacohen (Chief Investment Officer)

I think the answer is no. I think that the opportunity to actually hire labor full-time, reduce overtime, and eliminate agency has been very important and has been very actionable. So I would say that based on what I've seen, our operators are already kind of 80%-90% occupancy, the range on stabilized assets. They're all positioned to take advantage of operating leverage, kind of alluding to what Rick just said, because they've staffed up to actually be able to fill.

Michael Lourenco Costa (CFO)

Yeah. So no one's holding back on admissions because of labor issues in the SHOP portfolio.

Michael Stroyeck (Analyst)

Okay. Great. Thanks for the time.

Operator (participant)

Again, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions at this time. I turn the call back over to Rick Matros.

Richard K. Matros (CEO, President and Chair)

Thank you all for joining us as always. We're available for additional conversations if you want to talk offline. In the meantime, hope you all have a great day. Thank you.

Operator (participant)

This concludes today's conference call. You may now disconnect.