Earnings call transcript: Sabra Healthcare REIT beats Q2 2025 forecasts

Sabra Healthcare REIT Inc. (SBRA), a healthcare REIT with a market capitalization of $4.33 billion, reported its second-quarter 2025 earnings, surpassing market expectations with an earnings per share (EPS) of $0.27, compared to a forecast of $0.18, marking a surprise of 50%. Revenue also exceeded predictions, reaching $189.15 million against an anticipated $181.53 million, a 4.2% surprise. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.18, indicating strong operational performance. Despite the positive earnings report, the stock experienced a slight decline, closing 1.06% lower at $18.41, though it saw a premarket uptick of 2.55%.

Key Takeaways

• Sabra reported a significant EPS surprise of 50%.
• Revenue exceeded expectations by 4.2%.
• The stock showed mixed reactions, declining slightly after the earnings announcement but rising in premarket trading.
• The company updated its 2025 earnings guidance, reflecting confidence in future performance.
• Sabra is focusing on expanding its senior housing portfolio and transitioning its Holiday portfolio to new operators.

Company Performance

Sabra Healthcare REIT demonstrated robust performance in Q2 2025, with both EPS and revenue surpassing market expectations. The company’s focus on strategic transitions and expansions in its senior housing portfolio appears to be yielding positive results, with revenue growth reaching nearly 10% over the last twelve months. This performance is set against a backdrop of increasing demand for senior housing driven by demographic trends. InvestingPro data reveals the company has maintained dividend payments for 15 consecutive years, currently offering an attractive 6.52% yield.

Financial Highlights

• Revenue: $189.15 million, surpassing forecasts by 4.2%.
• Earnings per share: $0.27, exceeding expectations by 50%.
• Normalized FFO per share: $0.37, a 6% improvement year-over-year.
• Cash rental income increased by $2.3 million from the triple net portfolio.
• Cash NOI from managed senior housing portfolio was $25.3 million.

Earnings vs. Forecast

Sabra’s actual EPS of $0.27 exceeded the forecast of $0.18, resulting in a 50% earnings surprise. This marks a significant achievement compared to previous quarters, highlighting the company’s strong operational performance. Revenue also exceeded expectations, coming in at $189.15 million compared to a forecast of $181.53 million.

Market Reaction

Despite the positive earnings and revenue surprises, Sabra’s stock closed down 1.06% at $18.41. However, in premarket trading, the stock showed a positive movement, rising by 2.55% to $18.88. With a robust gross profit margin of 67.41% and strong profitability indicators, InvestingPro analysis suggests the stock is currently trading near its Fair Value. This mixed market reaction could reflect investor caution or broader market trends affecting the sector. For deeper insights into Sabra’s valuation and growth potential, investors can access comprehensive Pro Research Reports covering 1,400+ top stocks through InvestingPro.

Outlook & Guidance

Sabra updated its 2025 earnings guidance, projecting net income of $0.77-$0.79 per share and FFO of $1.52-$1.54 per share. The company is targeting a $1 billion investment to expand its SHOP portfolio to 30%. These projections indicate confidence in continued growth and operational improvements.

Executive Commentary

CEO Rick Matros highlighted the company’s strategic positioning, stating, "The momentum continues. We’re finding ourselves in the second round and touring on every asset that we’re interested in." This reflects Sabra’s proactive approach in asset acquisition and market positioning.

Risks and Challenges

• Potential fluctuations in Medicare and Medicaid reimbursements could impact revenue.
• Labor market stabilization remains a concern, despite improvements.
• The limited new senior housing inventory may constrain growth opportunities.
• Economic uncertainties and inflationary pressures could affect operational costs.
• Competitive bidding for senior housing properties may increase acquisition costs.

Q&A

During the earnings call, analysts inquired about the transition strategy for the Holiday portfolio and the stabilization of the labor market. Executives addressed concerns regarding Medicare/Medicaid reimbursements and detailed their investment pipeline and acquisition strategy, underscoring their commitment to strategic growth.

Full transcript - Sabra Healthcare REIT Inc (SBRA) Q2 2025:

Greg, Conference Operator: Good day, everyone. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to the twenty twenty five Sabra Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

I would now like to turn the call over to Lucas Hartwich, EVP Finance. Please go ahead, Mr. Hartwich.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT: 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 ks for the year ended 12/31/2024, as well as in our earnings press release included as Exhibit 99.1 to the Form eight ks 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 dot 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 Healthcare REIT.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Thanks, Lucas, and thanks everybody for joining us today. We appreciate it. I’ll start first with the holiday transition. As many of you know, our our relation with holiday goes back to 02/2015. We had a number of really good years with holiday, and the pandemic hit.

And during the pandemic, they were acquired by Atria. Still, from our perspective, managed really, effectively given how tough the circumstances were during the pandemic. Since the pandemic ended, however, we just haven’t seen the same kind of uplift that we’ve seen, in the rest of our SHOP portfolio. So that was really why we decided to make the change. We have been looking for new opportunities to expand our relationship with Discovery and with Inspiris, and this is perfect for that.

And, and we have been developing a relationship with sun sun Sunshine. So it all worked out really well for us. So we look forward over time to improve performance from the portfolio. And of course, breaking up such a large portfolio large for us into smaller pieces is helpful as well. Moving on to reimbursement, we now know what most of our Medicaid rate increases are going to be on average.

It’ll be somewhere in the 3.5% range, but our top five skilled nursing tenants, which are about 50% of our skilled facilities are averaging just above 5%. So another good year for us on Medicaid rate increases. The Medicare market best that I think as everybody has seen got finalized upward from 2.8 to 3.2, which is pretty unusual, but, we’re happy, of course, that that that that’s happened. In terms of investments, I just want to reconcile a couple of numbers going back to the last call and to, the NAREIT conference. So on the prior on the last quarterly call, we talked about $200,000,000 in awarded deals.

So those are all either have been closed or in the process of closing. So that pipeline is closing as expected, just some of it didn’t close by the time we had this call. I also talked about at NAREIT that we are actively working on another $300,000,000 in investments at that time. The total number that I’ve talked about that we talked about in our earnings release of about $350,000,000 in close, about to be closed or awarded deals includes a chunk of the deals from that $300,000,000 that we decided to fully proceed on. In addition to that, we have released hundreds of millions of dollars worth of deals that we’re looking at on a weekly basis.

So we feel really good about our target of $4,500,000,000 in investments this year. We feel particularly good about our goal of getting SHOP from 20% to 30% and expect that to be accomplished at least on a run rate basis sometime in 2026. It requires a billion dollars in investments. So by the end of this year, we’ll be somewhere around halfway there. We are finally starting to see some skilled opportunities that we feel worth the time for us to spend on.

And hopefully, we’ll be transacting on some skilled opportunities over the remainder of this year as well. Moving on to operations, just another really strong quarter. Our triple net rent coverage was up significantly in all asset classes, new highs in skilled and senior housing triple net, our occupancy and skilled mix in the skilled portfolio continues to increase, Our contract labor and our employment levels are now at pre pandemic levels. So all in all, everything’s really trending in the right direction. We love the investment activity that we have and look forward to finishing out the year and going into ’26 on a good growth momentum.

And with that, I will turn it over to Talia.

Talia, Sabra Healthcare REIT: Thank you, Rick. Sabra’s managed senior housing portfolio continues to grow and at nearly 21% of our total annualized cash NOI, it is a meaningful contributor to our earnings growth. As Rick stated, Sabra has closed on $122,000,000 of senior housing investments so far this year and has been awarded about $220,000,000 more in senior housing investments, most of which are expected to close by the end of the year. Deal flow remains very strong and Sabra’s cost of capital allows us to bid competitively for senior housing properties. In the first quarter, we were pleased with the tailwinds that offset a typical seasonal cooling of demand.

In the second quarter, we saw an uptick in positive momentum. Key operating statistics such as cash NOI and cash NOI margin are up five point three percent and seventy basis points respectively on a sequential basis for the total managed portfolio, including non stabilized communities and joint venture assets at share. With the opportunity to develop new inventory constrained by the high cost of capital, building materials, and labor, we do not see a near term catalyst that will reverse the supply versus demand equation that exists right now. Today, we believe that acquiring well performing newer senior housing communities geared to the taste of the baby boomer generation will be additive to Sabra’s portfolio for years to come. Now let me turn to the same store portfolio numbers.

Sabra’s same store managed senior housing portfolio, including joint venture assets at share and excluding non stabilized assets, continued its strong performance in the second quarter. The key numbers are revenue for the quarter grew 5.6% year over year. Second quarter occupancy in our same store portfolio was 86% compared to 84.6% in the 2024. Notably, our domestic portfolio occupancy was 83.5% gaining 190 basis points of occupancy over the same period. RevPAR in the 2025 increased 3.9% year over year for the same period.

RevPAR grew 6.8% this quarter on a year over year basis in our Canadian portfolio where occupancy has been above 90% for over five quarters, demonstrating the pricing power that comes with elevated occupancy. Importantly, as RevPAR and occupancy continue to increase, export declined 70 basis points across the same store portfolio driven by controlled costs and occupancy increases. Cash net operating income for the quarter grew 17.1% year over year in the same store portfolio. In our U. S.

Communities, cash NOI grew 17.6% on a year over year basis, while in our Canadian communities, cash NOI for the quarter increased 15.9% over the same period. The trends that we have been seeing for the past year continue. Senior housing communities continue to fill up and operators are balancing rate and occupancy to maximize revenue. With cost structure stable and revenue increasing, cash NOI and margin are growing. Our net lease stabilized senior housing portfolio also continues to do well with sequentially improving rent coverage, a reflection of continued strong operating results.

And with that, I will turn the call over to Michael Costa, Sabra’s Chief Financial Officer.

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: Thanks, Talia. For the 2025, we recognized normalized FFO per share of $0.37 and normalized AFFO per share of $0.38 compared to $0.35 and $0.37 respectively for the first quarter. The current quarter results represent a 6% improvement over the same period in 2024. Normalized FFO and normalized AFFO totaled 89,200,000 and $91,600,000 this quarter respectively, which reflects strong sequential growth from increased NOI in both our triple net and managed senior housing portfolios. Cash rental income from our triple net portfolio increased $2,300,000 from the first quarter.

This was a result of a $1,400,000 increase in percentage rents received, with the remainder being primarily driven by contractual annual rent increases. These percentage rents will vary from quarter to quarter, and therefore, this increased level of percentage rent should not be assumed to be part of our earnings run rate. During the quarter, we updated our estimates of collectability for certain leases within our triple net lease portfolio and moved the leases for two tenants, Avamere National, from cash basis back to accrual, resulting in a net increase in normalized straight line rental income of 454,000 for the quarter. Cash NOI from our managed senior housing portfolio totaled $25,300,000 for the quarter compared to $24,100,000 last quarter. This increase was driven by the strong sequential revenue and margin gains in our same store portfolio.

Interest and other income was $10,300,000 for the quarter compared to $10,100,000 last quarter. Cash interest expense was $25,800,000 compared to $25,400,000 last quarter. Recurring cash G and A was $9,400,000 this quarter compared to $9,500,000 last quarter. As noted in our earnings release, we have updated our 2025 earnings guidance on a diluted per share basis as follows: net income $0.77 to $0.79 FFO $1.52 to $1.54 normalized FFO $1.45 to $1.47 AFFO $1.47 to $1.49 and normalized AFFO of $1.49 to $1.51 This updated guidance increases our midpoint of normalized FFO and normalized AFFO to $1.46 and $1.5 respectively. This represents an increase in our normalized FFO midpoint of $0.15 and an increase to our normalized AFFO midpoint of $05 At this updated midpoint, we expect both normalized FFO per share and normalized AFFO per share to increase approximately 54% respectively over 2024.

It is important to note that our guidance only includes completed investment, disposition and capital markets activity. We are also reaffirming the following assumptions included in our previously issued guidance. General and administrative expense of approximately $50,000,000 which includes $11,000,000 of stock based compensation expense. Ignoring the impact of acquisitions and dispositions, cash NOI growth for our triple net portfolio is expected to be low single digit, in line with contractual escalators. Additionally, our guidance assumes no additional tenants are placed on cash basis or moved to accrual basis for revenue recognition.

Cash NOI growth for our same store managed senior housing portfolio is expected to be in the low to mid teens. Our updated guidance also assumes that cash interest expense is approximately $102,000,000 and that the weighted average share count is approximately $241,500,000 and 242,500,000.0 for normalized FFO and normalized AFFO respectively, which is in line with this quarter’s weighted average share count after adjusting for the timing of ATM issuances during the quarter. Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was five times as of 06/30/2025, a decrease of 0.19 times from 03/31/2025, and a decrease of 0.45 times from 06/30/2024. As we have previously stated, the growth in our managed senior housing portfolio would provide us a pathway to get to our long term average target leverage of five times without having to access the equity market to delever our balance sheet, and this is precisely what has happened.

And now that we’ve achieved that, we will evaluate our long term average leverage target as earnings continue to improve. 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 $186,600,000 on a forward basis at an average price of $17.86 per share after commissions. In total, we currently have $266,500,000 outstanding under forward contracts at an average price of $17.69 per share after commissions. During the quarter, we settled $29,900,000 of outstanding forward contracts to help fund investment activity during and immediately after the quarter.

We expect to use the proceeds from the outstanding forward contracts to close on the investments we’ve been awarded and do so on a leverage neutral basis. Subsequent to quarter end, we enter into a new five year $500,000,000 term loan and use those proceeds to repay our $500,000,000 5.25% unsecured bonds that were set to mature in 2026. The interest rate on this term loan is floating at SOFR plus 120 basis points, and we can currently enter into interest rate swaps that fix SOFR at 3.44%, effectively fixing the rate on this loan at 4.64% for the full term. The term loan also contains an accordion feature that can increase the total available borrowings to $1,000,000,000 subject to terms and conditions. Pro form a for this financing, our weighted average maturity on our debt increases from four years to nearly five years, and our weighted average interest rate decreases 10 basis points from 4.14% to 4.04%.

The successful financing not only address an upcoming maturity at a lower rate, but the effective rate is meaningfully lower than we would have achieved had we used the unsecured bond market. As of 06/30/2025, we’re in compliance with all of our debt covenants and have ample liquidity of approximately $1,200,000,000 consisting of unrestricted cash and cash equivalents of $95,200,000 available borrowings under our revolving credit facility of eight thirty seven million dollars and the $266,500,000 outstanding under forward sales agreements under our ATM program. As of June 30, we also had $109,300,000 available under the ATM program. Finally, on 08/04/2025, Sobr’s Board Director declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on 08/29/2025 to common stockholders of record as of the close of business on 08/15/2025.

The dividend is adequately covered and represents a payout of 79% of our second quarter normalized AFFO per share. And with that, we’ll open up the lines for Q and A.

Greg, Conference Operator: All right. Looks like our first question comes from the line of John Kibluchowski with Wells Fargo. John, your line is open.

John Kibluchowski, Analyst, Wells Fargo: Thank you. Good afternoon.

Analyst, Wells Fargo: Maybe my first one, Rick, the opening remarks, I thought your color was really helpful on the investment guide. At NAREIT, you spoke to the $200,000,000 and the $300,000,000 and you know, now it’s kind of we’re back into a $3.50 number. It sounds like you’re still confident that you can get to about 500,000,000 for the year, which I think is is even more positive than you are at NAREIT. Am I thinking about that correctly?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: It’ll be somewhere in the 400 to 500 range. Some of just depend on timing. My guess is there’ll be some deals that may close like on January 1, maybe tax reasons or whatever else, but it’ll be close.

John Kibluchowski, Analyst, Wells Fargo: Okay. That’s helpful. And then I I think

Analyst, Wells Fargo: do you think that the rest of that number would be comprised of skilled nursing deals? And I I what’s kind of keeping those from entering the pipeline so far? Like, how close are you on pricing?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: It’s well, pricing isn’t an issue at all. It’s actually just finding deals that we think are good deals, you know, quality assets, in in the right markets. A lot of the stuff that we looked at, just isn’t good. And I think that if you look at if you look at our triple net portfolio, whether you look at the skilled portfolio or the senior housing portfolio between the merger from a number of years ago and all the cleanup that we did, subsequent as a as a function of that and the pandemic of selling assets and transitioning assets, we’ve got a really great core of operators now as evidenced by our coverage. Our coverage is stronger than most out there.

And so, you know, we’re really being particular about, you know, the quality of the assets that we’re bringing into the portfolio. So I think it’s fair to say that the majority of it will probably still be SHOP, but we are definitely focused on working on the skilled side and trying to get some deals on there. But I still think it would be weighted a little bit more towards shop and skilled, but we certainly wanna do more skilled.

Analyst, Wells Fargo: K. Very helpful. And then maybe last one.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Yeah. Other yeah. The other thing I should just note is we’re still not interested in building a loan book, which is how some of these deals are getting done. We’re not interested in doing sort of complex JV kind of structures or mezz debt or anything like that. We’re just not interested in doing that.

We just want to do straightforward, kind of simple to understand traditional deals. And just one other comment I want to make that I’ll I know you had another piece. As I misstated in the opening remarks, we met the 5% on the Medicaid rate increase is for the top five states that we’re in, not the top five operators.

Analyst, Wells Fargo: Got it. Okay. Very helpful. And then the last part for me was just on the same store SHOP NOI. That number continues to run at the high end or maybe slightly above that sort of low to mid teens number that you’ve given.

I think you’re at seventeen percent 1H today. What’s keeping you from maybe taking that guide up? I know Michael spoke last quarter about comps were maybe slightly tougher in latter half of the year. I’m curious if you’re still seeing that quarter to date or if maybe there’s room for upside there.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: We’re hoping that there’ll be upside. We just we felt we can move guidance a little bit and still be in a position where we hope we can beat it. So we’re just being sort of moderate in our approach.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT: Got it. Thank you.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Yeah.

Greg, Conference Operator: All right. Thank you, John. And our next question comes from the line of Farrell Granath with Bank of America. Farrell, your line is open.

Farrell Granath, Analyst, Bank of America: Thank you. Good afternoon. My question is about same store shop occupancy. I was wondering if you could add a little bit more color. So sequentially, there wasn’t much movement, if there was anything specific going on just given the 2Q tends to be a little bit stronger in occupancy growth?

Talia, Sabra Healthcare REIT: Yes. I think hi, it’s Talia. I think you have to realize that despite transitioning the holiday portfolio on April 1, so the very beginning of q two, sixteen of the 21 holiday assets remained in same store sales. We decided to do that. That had it had an impact as you can imagine just because the usual noise you have in transition.

So if if you pulled that out, the the number would have looked more exciting to you.

Farrell Granath, Analyst, Bank of America: Okay. Thank you. And then also on the comments of skilled opportunities starting to come up and looking to transact more, I was curious if you could add in a little bit more color. What’s driving that more of the opportunity opening up? Was it the OBBBA?

And also, are you hearing anything in terms of concern on health systems? And is that driving any of the conversation?

Talia, Sabra Healthcare REIT: I don’t think that we’re seeing a significant change in the volume of skilled nursing coming to market. I think you’ve we have seen for a while now, over the last few years, a significant move of transactions into the private market by owner operators with with capital backing them up outside of the REIT space. So we are seeing assets come to market in the SNF space. We’re not seeing a lot, but we are seeing some. I think the the only thing that has that has shaped the volume of deals we’ve seen has been true both on skilled and senior housing over the last few years, is the recovery in fundamental operations.

Just thinking about owners, whether or not they had financing in place, the fact is operations have recovered significantly both in skilled and in senior housing, and that allows for much more robust pricing even if cap rates have moved up somewhat from pre pandemic, but the operational recovery has been very effective in raising absolute prices.

Farrell Granath, Analyst, Bank of America: Okay. And just to confirm, you’re saying that is is the influence of kind of moving past the reconciliation bill, has that up or lifted any potential weight or concern while you’ve been having your conversations, or was that not always even a part of the conversation?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: No, that’s a non issue.

Farrell Granath, Analyst, Bank of America: Okay. Thank you.

Greg, Conference Operator: Thanks, Peril. And our next question comes from the line of Nick Yulico with Scotiabank. Nick, your line is open.

Nick Yulico, Analyst, Scotiabank: Hi, this is Elmer Chang on with Nick. First question is just on the SHOP portfolio again. How do you expect component drivers to trend in the back half of the year since as mentioned NOI growth guidance implies some slowdown given just previous comments and your remarks about employment levels returning to pre pandemic levels and maybe some potential impact from the holiday transition assets?

Talia, Sabra Healthcare REIT: I hate to try to predict the future, but right now, it all looks very positive. There’s I mean, if you follow the next statistics, there’s essentially no new inventory coming in the system. And we’re seeing very few development deals. Actually, for a while, we started seeing some. We see none right now, and we see virtually none in the pipeline in the in the markets where we’re we have been investing and where we have assets.

So with that is the fundamental context. The demand is increasing just because the number of people who are aging and ready to move in is rising. Our focus is on the care segment with most of our assets being assisted living and memory care with some IL. And I think the fundamental demand in the secondary markets and more in the middle market price point is is very well positioned and therefore likely to increase.

Nick Yulico, Analyst, Scotiabank: Okay. Thank you. And then second question on the holiday transition portfolio. You mentioned that you transitioned into trusted operators and you’ve been building a relationship with Sunshine for some time. But how are you getting comfortable with maybe diversifying the tenant base a little bit?

And then could you provide additional color on what that bidding process entails for operators looking to take on transition assets?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Well, I’m not sure what you mean by the benefit of the transition and breaking it up. I think having less having less concentration in in one operator is always helpful. So and to be able to do that when you’ve already got a preexisting relationship, in this case, with two to three operators and the bulk of the facilities. So I’m not really I think I’m not understanding your question. And in in terms of the in terms of the bidding process, whenever we look to transition, we, usually identify those operators that we think would be the right fit, and, we ask them to submit.

We give them the information they need. They submit proposals just like with any other process, and you go from there.

Nick Yulico, Analyst, Scotiabank: Okay. Yep. Thanks for that.

Greg, Conference Operator: Alright. Thanks, Elmer. And our next question comes from the line of Seth Berge with Citi. Seth, please go ahead. Seth, are you there?

You might be muted. Going once, going twice. All right. We will move on. And our next question comes from the line of Austin Wurschmidt with Capital Markets, excuse me, Austin.

And Austin, your line is open.

Austin Wurschmidt, Analyst, Capital Markets: Great. Thank you. Rick, appreciate the details on the transitions. I guess I’m just curious kind of how long you’ve been evaluating transitioning these assets and when kind of you made that final decision to move forward? Because it does sound like there was a little bit of a process in selecting operators

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: for these buildings.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: But you might recall that, there was a change in leadership at Holiday. We thought that, we should give the new team time. And and look, they may do be doing a great job with other things, so I don’t wanna I don’t wanna sort of be negative about about anyone. But post the transition, despite all the we we saw a positive interactions with the new team, we just weren’t getting the results that we expected to get and that we were seeing in the rest of our SHOP portfolio. So it was really as simple as that.

And so, know, last year, we started having serious discussions about moving the portfolio. And by the end of the year, we pretty much identify a list of potential operators that could take over different pieces of that portfolio and but and targeted put the process in place and then targeted the transition date. So that was all before the end of last year.

Austin Wurschmidt, Analyst, Capital Markets: That’s helpful. And then for the five assets that you excluded from the same store pool, I mean, how impactful has the transition been? Were these already the most underperforming assets? And are you planning on investing any additional capital into those specific assets?

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: Yes. Some of those assets that are excluded more in our same store pool leading up know, the transition, so not a major change there. And it shows given, you know, how little the overall pool changed sequentially. And we have been putting capital into those assets, that entire portfolio, quite frankly, over the last couple of years. I’d have to look to see if those five assets specifically were part of that program.

I’d have to imagine they were given we need to see that performance turnaround.

Austin Wurschmidt, Analyst, Capital Markets: Got it. And then with the holiday assets transition in April, I guess, can you share kind of how I mean, the occupancy trended through the quarter and maybe what the momentum looks like into July? Just to help us understand the fact that NOI is tracking ahead, but there is this implied deceleration with presumably occupancy being a big piece of that. So just give us a sense of what that momentum looks like headed into the back half of the year?

Talia, Sabra Healthcare REIT: Sure. I’ll kind of give you the directions we’re seeing over the course of the second quarter just to give you a sense and these are just the holiday transition assets. So we saw tours, as you can imagine, decline initially, but they have definitely picked up since after after June. Move ins actually picked up starting in May. So they well, I I don’t have a measurement for before May before April, but they basically have picked up.

And move outs are declining sequential multiple months now. So the momentum is the right momentum. Tour’s up, move ins up, move outs down. And that’s that kind of put that together and you get higher occupant occupancy. So we’re anticipating that the noise of the transition is basically in the rearview mirror and we should be seeing improvement in occupancy and how that flows through the rest of the P and L.

Austin Wurschmidt, Analyst, Capital Markets: Great. Thanks for the time.

Greg, Conference Operator: Thank you, Austin. And our next question comes from the line of Vikram Malhotra with Mizuho Securities. Vikram, please go ahead.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT0: Afternoon. Thanks for taking the questions. I guess just going back to the external growth of the pipeline, kind of what you laid out, I guess, Rick implies a pretty big acceleration in the back half. And I’m wondering kind of how timing wise is more back end weighted and how sustainable is this space into 2026 given your goal of kind of hitting 30% of shop? Thanks.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Well, I don’t think that we need I don’t think the momentum is overly weighted towards the latter half because we have about three fifty million right now of that four to five that were either closed or closing or awarded. So I think it’s pretty spread it’s spread out pretty nicely over the next over these next couple of quarters. And, Talia, do you wanna talk about going into next year?

Talia, Sabra Healthcare REIT: Volume that we’re seeing is unabated, and we continue to bid, based on what we believe is fair as appropriate pricing, for Sabra given cost of capital. And we, are finding ourselves in the second round and touring, on any every asset that we’re interested in, frankly. And you’ve heard us talk about the profile of those assets, all of which, are which are, you know, newer builds, senior housing, strong markets, and opportunity for growth. So so not not bond type return for the most part. So so far, looks good.

I can tell you the team’s out on two tours touring different two different properties this week. So the momentum continues. So, I mean, you can do the timing. I think the what we’ve talked about is being awarded as well under well in process, in terms of documentation and and and a process to close. So it’s not as back ended as you as it sounds.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT0: Okay. And then I just wanted to clarify two quick things. So one, I think you mentioned the transition assets in the pool, like I think you had mentioned, if we strip them out, they would have been different occupancy or different NOI growth. Do you mind just clarifying like if you didn’t have the transition assets, what the growth would be? And then just the other clarification essentially was that on the just the overall acquisition, You talked about the pipeline.

Just wondering does is some of that sitting in Canada as well?

Talia, Sabra Healthcare REIT: I’ll I’ll take the second part of that. So in Canada, we continue to look. It’s frankly, I’d love to do some more deals in Canada, but the challenge is that that rates are about 200 basis points lower than they are here, which means the cap rates are also a 150 ish to 200 basis points lower. So you’ve seen from some of our peers, they’re doing deals that call it a 6% going in yield or a five and a half going in yield in Canada. And that’s that pricing is just too rich for us no matter how much we might like to buy the asset.

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: Yeah. And then on your first question, like, didn’t disclose that. I get one thing I would say is that if we didn’t have those transition assets in our, you know, same store numbers, the number would be better.

Talia, Sabra Healthcare REIT: Just along the lines of what I said before about occupancy as well. Right.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT0: Thank you.

Greg, Conference Operator: All right. Thank you, Vikram. And our next question comes from the line of Alex Fagan with Baird. Alex, your line is open.

John Kibluchowski, Analyst, Wells Fargo: Yes. And thank you for taking my question. Just to circle back on the holiday transition, can you articulate maybe some of the NOI upside that you’ve already captured and will continue to capture throughout this year next?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Look. I I think, we’re not gonna get specific about that because it really requires a crystal ball. I think listening to one of our peers call, they’re seeing nice improvement in the transition they went through a year later. So we fully expect it to improve, but to specify how much it’s gonna improve and what that time frame is, there’s no way we can be right about that answer. So it’s too much specificity you’re looking for with a crystal ball.

John Kibluchowski, Analyst, Wells Fargo: Okay. Fair. No no crystal ball. So that that’s totally fair. Second for me Appreciate that.

On the actual pipeline, maybe just speak on the mix of assets, whether they’re IL, AL, campus, and is it new operators or existing operators? Just maybe some more details there.

Talia, Sabra Healthcare REIT: Are you talking about deals that we’re seeing in the market or that we’re evaluating or ones that are that were In the pipeline, that 220,000,000. Okay. So those, some of them are deal transactions with groups we know and have and our trusted, operators. Some are groups with whom we are been working to establish a relationship, and so it’s an opportunity for us to do something. And most of the they are all institutional quality assets being sold typically for vintage issues by institutional owners.

John Kibluchowski, Analyst, Wells Fargo: Alright. Well, thank you.

Greg, Conference Operator: All right. Thank you, Alec. And our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, your line is open.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Yes. Good afternoon, everyone. Just

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: a couple

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: of really quick just a couple of really quick ones. Community Care, the rent coverage there kind of declined slightly. Just kind of curious if you give us an update on on how they’re doing and if there’s anything we should be paying attention to there.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Yeah. Nothing that we’re really concerned about. They’ve they’ve, had some challenges in one of their states as a lot of operators are, and so they’re focused on divesting a few facilities. And and that that that’s basically all there is to it. So they’ll be fine when that occurs.

Talia, Sabra Healthcare REIT: 1.77 times coverage is not something we’re complaining about either.

Analyst, Wells Fargo: Right.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Right. But in terms of and pay it off. Right. But but they but they, you know, they’ve been working on these these facilities, and, it’s just not happening the way they would like it to. And we we we’ve been in that market with others besides them, and it’s a it’s a tough market that that that these particular facilities are in.

So we have no you know, they’re a good sized company. They’re very strong. They’re a good operator. We love working with them. And so we’re very confident that once they divest a few of these things, they’ll be good.

But, again, as Talia said, even with the reduction, there’s no concerns.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Are these your assets that that they’re to be divesting?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Yes.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Okay. Gotcha. That’s helpful. And then second of all, again, just with all the questions around debt ceiling and and, you know, fiscal deficits and stuff like that, is that do you see any risk where we were kind of ending up in a sequestration situation a year or two from now, and what what impact did that have on Medicare?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: I I don’t think so, but, you know, that stuff’s really, really hard to tell. But, you know, I think that we’ve done our lobbying groups have done a really fantastic job for us. And, with all these Medicaid cuts in the bill, you know, we were carved out. We understand it may put pressure on state governments, but we were carved out. The upward revision in the Medicare market path basket was a good sign.

There’s no kinds of dialogue with CMS that is causing us any concerns as we look out over the next year plus. So, you know, I think we’re in a really good place. And the other thing, Tayo, I think to remember is the whole space is in a different place now relative to the continued decline in supply and the continued increase in occupancy. So the space also can afford there’s there’s a lot more cushion there. You look at our rent coverage.

Right?

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Yep.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: There’s so much more cushion that this space has that it hasn’t had before. And as occupancy continues to increase, we’ve already passed that inflection point with the operating leverage. So that pull through for every additional patient just gets stronger and stronger. So, you know, it’s it feels really, really good right now even when we look out to the next couple of years because I would anticipate as inflations come down just like we saw this year’s Medicaid rate increases lower than last year’s Medicaid rate increases, those will moderate more over the next couple of years. And the market basket for Medicare will moderate as well.

But that moderation comes at a time when the industry is finally very, very healthy again.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Got you.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Thank you.

Greg, Conference Operator: Thank you, Tayo. All right. Our next question comes from the line of Michael Stroyak with Green Street. Michael, your line is open.

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: Thanks and good morning. Maybe on the labor side, what sort of wage increases are you seeing your operators pass along to employees today? And is there any difference in wage growth between your SNF and senior housing portfolios?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: No, it’s all somewhere, give or take, 4% -ish. Pretty sure. And it’s been that way now for we’re we’re probably going into year three with that with those kind of wage increases. To refresh it for everybody, it was real it was 2022 where there were huge, huge adjustments in the wage basis for employees across the board in both spaces. And then in ’23, it really moderated down to sort of mid single digit, which demonstrated that what the what our operators did in ’22 is effective, and it’s held steady since then.

And the fact that we’ve been able to get to pre pandemic, employment levels and temporary agency levels at that level of wage increases, you know, I think is, kind of proves the point that it’s all worked.

Michael Costa, Chief Financial Officer, Sabra Healthcare REIT: Yeah. That that makes sense. I guess, there any states or markets where you are seeing a particularly tight labor market, either on the skilled nursing or senior housing side?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Can’t pinpoint one really off the top of my head. I mean, everything’s better. There are different some degrees as to how much better, but we’re not we don’t we’re not this is sort of not undue suffering going on in any particular market.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT1: Got it. Thanks for the time.

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Yes. Thank you.

Greg, Conference Operator: Thanks, Michael. And it looks like our final question today comes from the line of Seth Berge at Citi. Seth, your line is open.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT2: Hi. Thanks for taking my question. Think in talking about kind of the opportunities that you’ve been awarded, some of them are with new operators, some of them are with existing. Can you talk a little bit about, your selection criteria for new operators?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Well, the one, we spend a lot of time with them prior to even looking at a deal with them. So we get to know them. We get to understand how they operate, the kind of markets they picked, and most importantly, what do their outcomes look like from a quality perspective. So it’s really all those things. It’s pretty traditional stuff, really.

But the other characteristic I would say is we have a lot of really good we have a lot of really good operators that don’t aren’t interested in growing that that much. You know, they’re happy with their portfolios. So part of part of what we’ve been looking for with new operators that op is our operators that want to actively grow so that we have a higher number of operators within our existing portfolio that we can depend on, to grow with and not just always look for new operators.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT2: Great. And then just I think on the last call you mentioned kind of as outlook for SHOP has improved that there’s actually been a smaller pool of buyers. I’m just kind of curious as you look out there for investment opportunities kind of how the buyer pool has changed if if at all?

Talia, Sabra Healthcare REIT: The buyer pool has changed very little over the last, call it, year, certainly six months. You have primarily the REITs and you have private capital in the market as well. The private equity funds do that there are plenty that have stepped away from the sector, and there are there are some that are coming in. But I’d say they’re coming in in a small way and not trying to do not not trying to do something big right away. And there are some that like Harrison Street that’s been consistently in the space, and they remain consistently in the space.

Lucas Hartwich, EVP Finance, Sabra Healthcare REIT2: Great. Thank you.

Greg, Conference Operator: Alright. Thank you so much, Seth. And that does conclude our Q and A session today. I will now turn the call back over to Rick Medros. Rick?

Rick Matros, CEO, President and Chair, Sabra Healthcare REIT: Thank you, and thank you all for joining us today. As always, we’re available for more dialogue, And, we look forward to talking with you and enjoy the rest of the summer. Take care.

Greg, Conference Operator: Thanks, Rick. This concludes today’s conference call. You may now disconnect.

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