"Sabra Health Care REIT" Q2 2026 Earnings Call - Leverage Drops to 4.61x as SHOP Momentum and Avamere Rent Step-Ups Fuel Upgraded 2026 Guidance

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

Lukas Hartwich, EVP Finance, Sabra Health Care REIT: 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 our earnings guidance for 2026, 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 31st, 2025, 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. 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 Investor section of our website at sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the Investor section of our website. With that, let me turn the call over to Rick Matros, CEO, President, and Chair of Sabra Health Care REIT.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Thanks, Lukas. Welcome everybody to our second quarter earnings call. First, on to investment activity. We closed approximately $600 million in investments, including $100 million in skilled nursing. We’re closing on an additional $100 million in SHOP investments. Our pipeline is as active as it’s ever been. The deals that we’ve done have been closed at attractive yields. We’ve got an immense amount of deals that we’re looking at. We’re able to remain competitive within the range of deals that we currently announced. Going to operations. Our consolidated, unconsolidated, and same-store SHOP cash NOI margins continue to grow. Our triple-net skilled portfolio again shows increased rent coverage, as does our top 10 in total. Our triple-net senior housing did show a drop in occupancy and coverage, that was specifically due to the transition of a high-performing asset from triple-net to SHOP.

Without that, the results would be still quite strong, but essentially be flat. We expect Medicaid rates taken together to come in around 2% as rates continue to revert to pre-pandemic levels as we have been articulating. Even at that level, rate growth continues to feed the momentum of improved performance. The final rule for the Medicare market basket came in at 2.4%, the same as the proposed rule, which met expectations. We don’t see any regulatory changes that would create any new hurdles, and we’re particularly pleased to see leverage drop to 4.61. With that, I’ll turn the call over to Darrin.

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: Thank you, Rick. Sabra’s Managed Senior Housing portfolio had another great quarter with continued growth. The total Managed Senior Housing portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 9.6%, cash NOI growth of 14.4% with margin expansion of 130 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra’s Senior Housing portfolio. During the second quarter, Sabra invested $274.1 million, adding four properties to Sabra’s Managed Senior Housing portfolio, three skilled nursing communities, the redevelopment of a senior housing community, and the acquisition of the operations of one senior housing property converting to managed senior housing. Subsequent to quarter end, Sabra invested an additional $223 million, adding seven properties to Sabra’s Managed Senior Housing portfolio, bringing total year-to-date investments to roughly $599 million with an estimated initial cash yield of 7.5%.

Lukas Hartwich, EVP Finance, Sabra Health Care REIT: Additionally, Sabra has another $100 million of additional awarded managed senior housing and skilled nursing investments, which should close prior to year-end. In addition to the $700 million in closed and awarded investments, Sabra has an additional $330 million of managed senior housing investments that we are actively pursuing. On a year-over-year basis, Sabra added 21 assets to our Managed Senior Housing portfolio, a nearly 24% increase by number of assets and nearly 76% increase in total managed senior housing NOI. Deal flow continues to be extraordinarily robust, and Sabra remains competitive on new investments. Moving on to the same-store portfolio. Sabra’s same-store Managed Senior Housing portfolio, including joint venture assets that share, continued its strong performance in the second quarter. The key numbers are: revenue for the quarter grew 8.6% year-over-year, with our Canadian communities growing revenue by 7.8% in the same period.

Second quarter occupancy in our same-store portfolio was up 170 basis points to 88.2% year-over-year. Notably, our domestic portfolio occupancy increased 170 basis points to 85.7% during that period, while our Canadian portfolio grew 160 basis points to 93.2% in the same period, marking the ninth consecutive quarter where occupancy was over 90%. RevPAR in the second quarter continued to rise with an increase of 6.6% year-over-year, with our Canadian portfolio increasing 5.9% in the same period.

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: While RevPAR and occupancy continued to grow, ExpPAR increased 4.1% for the same period, providing for cash NOI growth of 13.7% on a year-over-year basis. With $700 million in closed and award investments to date, a very robust pipeline, and industry tailwinds at our backs, we should continue to see solid growth in our portfolio. With that, I’ll turn the call over to Michael Costa, Sabra’s Chief Financial Officer.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Thanks, Darren. For the second quarter of 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.40, compared to $0.38 and $0.39, respectively, in the first quarter. Year-over-year, our second quarter normalized FFO per share and normalized AFFO per share posted increases of 3% and 5%, respectively. For the quarter, total cash NOI was $144.3 million, compared to $138.7 million in the first quarter. This $5.6 million sequential improvement was a primary driver of our sequential normalized AFFO per share growth and reflects continued operational improvement in our managed senior housing portfolio and the benefits to our triple-net portfolio from diligent portfolio management. Cash NOI from our managed senior housing portfolio was $44.6 million this quarter, compared to $39 million last quarter.

This increase reflects both the contribution from recent investment activity and continued occupancy gains, rate growth, and margin expansion in the same store managed senior housing portfolio. Cash rental income from our triple-net portfolio was $94.1 million for the quarter, compared to $89.8 million in the first quarter. During the quarter, we exercised our option to reset the rent under our lease with Avamere to a fixed amount tied to the portfolio’s historical performance. This increased the annualized fixed cash rent to $48 million and was retroactive to February 1st, 2026, which compares to $41 million of cash rent paid in 2025. This added $3.2 million of rental revenue during the quarter, which includes $1.6 million of out-of-period revenues that we normalize in our quarterly results. We also recognize a $1.6 million increase in cash rental income from several smaller portfolio initiatives, including rent resets, lease amendments, and lease extensions.

Our ongoing proactive portfolio management generally flies under the radar, but provides meaningful benefits to our earnings profile and portfolio quality and are a direct product of the incredible work that the Sabra team does day in and day out. In addition, recent triple-net acquisitions and investments added $823,000 of cash rental income sequentially. Offsetting these increases was a reduction of $1.3 million as a result of the CommuniCare sale announced last quarter and a $226,000 reduction related to the transition of a triple-net senior housing facility to our managed senior housing portfolio. Interest and other income was $5.8 million for the quarter, compared to $10 million in the first quarter. The decrease was primarily due to reduced interest income from the discounted payoff of the RCA mortgage loan discussed in our July 21st business update.

Cash interest expense was $27.4 million for the quarter, compared to $26 million in the first quarter. The increase reflects higher borrowings under our credit facility to fund completed investment activity. Normalized cash G&A was $10.7 million for the quarter, compared to $11 million last quarter. This modest decrease is the result of incurred expenses in the first quarter related to hosting our 2026 operator conference, partially offset by an increase in performance-based compensation expense this quarter. This quarter, we recorded a $102.4 million provision for loan losses and other reserves. This is primarily related to the discounted payoff of the RCA mortgage loan discussed in our July 21st business update, and this charge was excluded from our normalized quarterly results. During the quarter, we moved the leases with two tenants from cash basis accounting to accrual basis accounting.

Accordingly, we realized a $3.1 million recovery of straight-line rent receivable and lease intangibles, of which $3 million is normalized in our quarterly results. This will have a positive impact on FFO going forward and, more importantly, reflects the continued strengthening of these operators’ underlying performance and payment history. We also wrote off $1.3 million of straight-line rent receivable from a triple-net senior housing facility that was transitioned to our managed senior housing portfolio during the quarter. This amount was also normalized in our quarterly results. As noted in our July 21st business update, we increased our earnings guidance for 2026 and have reaffirmed that earnings guidance. At the midpoint, this represents approximately 7% year-over-year growth in normalized FFO per share and 8% year-over-year growth in normalized AFFO per share. Briefly turning to the balance sheet.

Our net debt to adjusted EBITDA ratio was 4.61 times as of June 30th, 2026, compared to 5.04 times at March 31st, 2026. This meaningful improvement reflects the payoff of the RCA mortgage loan and continued earnings growth within our portfolio, positioning us comfortably below our previous target leverage of five times. We had approximately $1.3 billion of liquidity at quarter end, consisting of $231.6 million of unrestricted cash and cash equivalents, $682.5 million of available borrowings under our credit facility, and $411.8 million related to shares outstanding under forward sale agreements under our ATM program. As of June 30th, 2026, we were in compliance with all of our debt covenants. We continued to use the forward feature under our ATM program to efficiently fund future investment activity and preserve balance sheet flexibility.

During the quarter, we utilized the forward feature of our ATM program to allow for the sale of up to 921,000 shares at an initial weighted average price of $20.72 per share, net of commissions. As of June 30th, 2026, 21.4 million shares remain outstanding under forward sale agreements at an initial weighted average price of $19.24 per share, net of commissions. We have $334.1 million of availability remaining under the ATM program. Finally, on August 3rd, 2026, Sabra’s board of directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on August 31st, 2026, to common stockholders of record as of the close of business on August 14th, 2026. The dividend is well covered and represents a payout of 75% of our second quarter normalized AFFO per share. With that, we’ll open up the lines for Q&A.

Operator: We will now begin the question and answer session. To ask a question, simply press star, followed by 1 on your telephone keypad. Our first question will come from the line of Farrell Granath with Bank of America. Please go ahead.

Farrell Granath, Analyst, Bank of America: Hello, thank you for taking my question. My first one is really just diving in a little bit deeper to your same-store SHOP guidance. I know maintaining that low to mid-teens, with now the first half of the year averaging about 14.1% same-store NOI growth. As we’re heading now into peak leasing season, wanted to touch base on really how you’re feeling about the current market conditions, especially when we’ve seen the stabilization in same-store SHOP NOI guidance kind of across the peer set.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah, sure, Farrell. In terms of our SHOP guidance, we’ve reaffirmed that low to mid-teens growth rate that we put out earlier this year. As you noted, we’ve been right firmly within that range. We continue to see opportunities for upside in that portfolio, but also at the same time, want to preserve that flexibility with how the rest of the year pans out. As we get further into the year and we have more visibility on what the second half is going to hold for us, it’s something that we’ll revisit.

Farrell Granath, Analyst, Bank of America: Okay. Thank you. I also just wanted to touch on, in the press release, there have been mention about additional or a few value add opportunities, especially in the SHOP pipeline. I was curious if you can just dive in a little bit deeper of how you’re evaluating those, and kind of what are the hurdles that need to be reached for them to become under LOI, or for you to move forward with a transaction of a value add?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Sure. We’ve discussed previously that we were interested in investing in opportunities where there’s a bit of a turnaround opportunity, but nothing monumental. The upside opportunities here encompass six properties and about 713 AL memory care units with an average age of five years. Five of the properties are located in desirable Atlanta suburban markets, and the sixth is located in a solid Denver market. Occupancy is roughly 80%, and the expected year one yield is, say, roughly 6%. We see a clear path to stabilization in the next year or two, with stabilized yields around 9% and teen IRRs. All of these are being purchased well below replacement cost. Both of these opportunities are with existing relationships and the incumbent operator.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: An additional data point I’ll give you, Farrell, is a lot of this stuff that we’ve been buying over the last couple of years has been high 80s or 90-ish occupancy. The value add for us is maybe closer to 80%. It’s not 70 or 65%.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Right.

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

Operator: Our next question will come from the line of Seth Bergey with Citigroup. Please go ahead.

Seth Bergey, Analyst, Citigroup: Hey, thanks for taking my question. I just wanted to kind of talk about the pipeline of future opportunities that you’re seeing. I think you mentioned kind of the $100 million of SHOP opportunities and maybe $300 million of visibility after that. Just what’s the mix between Skilled and SHOP in that pipeline, and where are you seeing the most kind of opportunity today?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: The $100 million that we referred to, we’re in the process of closing. That’ll take our total for the year to $700 million. The other $300-plus we’re working on is all SHOP. Most everything else we see in the pipeline that’s under review, which exceeds $1 billion as we sit here today, is almost entirely SHOP.

Seth Bergey, Analyst, Citigroup: I guess just a quick follow-up on that. Within SHOP, should we expect to see additional kind of value add acquisitions, or where are you seeing the most opportunity with SHOP today?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah, I would say the bulk of it will be stabilized, which is really what we’ve been articulating. Given the volume of investments that we’re doing, we will continue to look for value add as well, because as Darrin noted, that takes us from to low double digit IRRs, which is great, but it takes us to mid-teens on the IRR. We’re going to continue to look for those opportunities.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Great. Thank you.

Operator: Our next question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: Thanks. Good morning out there. Rick, I guess with the RCA loan now behind you, what are sort of the latest thoughts of exiting the behavioral segment altogether? I know it’s something you’ve talked a little about and kicked around. Just curious what the latest thoughts are there.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah, sure, Austin. The bulk of what we have left is Signature Behavioral, the psych hospitals. Everything else is kind of in the process of going away, and it’s only a few things. As it pertains to Signature Behavioral, as I mentioned before, they are interested in taking us out. They’ve been a very reliable tenant for nine years now. It’s a completely different situation than RCA, obviously. We’ll see. We’d be open to it, to having them take us out. It’s going to have to be something that’s compelling to us. Assuming that happens, then we’re pretty much out. I think our other category, which is mostly a couple of hospitals and a rehab hospital, and those coverages are off the charts, so they just kind of knock it out of the park, will be down to 4% or 5%.

We’ll be 95% senior housing and skilled nursing.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: That’s helpful. Any sense around what proceeds or pricing could look like on Signature taking you guys out or out of the bulk of that segment altogether?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Not yet, we are confident that if there’s a deal to be done, we’ll have a really nice return on that investment.

Austin Wurschmidt, Analyst, KeyBanc Capital Markets: Thanks for that. Last one is just on the billion-dollar kind of future pipeline you mentioned entirely within the managed senior housing. Is that mostly one-off type opportunities? Are there any portfolio transactions in there that you’re evaluating? Just what comprises that kind of longer term pipeline?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah, there’s a couple smaller portfolios, say 3-5 assets tops. The most of it, though, is single asset opportunities.

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

Operator: Our next question will come from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

Juan Sanabria, Analyst, BMO Capital Markets: Hi, good morning. Just on the guidance that was reiterated from 721, could you just talk to what’s included in terms of the acquisitions closed subsequent to quarter end? I think you said they were in a six cap, if they’re not included, why?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. Everything that was included in our guidance from two weeks ago now, everything that was closed as of that date was included in there. Everything that’s closed in the last two weeks is effectively included in that same guidance. If you think about where we were two weeks ago, we had a good line of sight into what the rest of the year was going to shape up as, what the second quarter was going to shape up as. That was all factored into that guidance. The investments that were made subsequently in that two-week intervening period wouldn’t move the needle for 2026. For 2027 beyond, yes. Given that it’s only five months, it wasn’t going to move the needle.

Juan Sanabria, Analyst, BMO Capital Markets: How much was closed subsequent to the 721, those last two weeks? What’s the dollar amount?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: I’d have to get that for you, Juan.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: We’ll get it for you while we’re on the call.

Juan Sanabria, Analyst, BMO Capital Markets: Great. Thanks. Just as a follow-up, just curious how we should think about ExpPAR going forward and sort of the operating leverage inherent in the portfolio.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: In terms of ExpPAR, this quarter, we saw a little bit of spike in that, and it was a mix of things. There’s choppiness with things like repairs and maintenance, which is kind of a constant factor in this type of business. We saw some increases in things like incentive management fees, was actually kind of a good outcome, seeing an increase there because it just shows that our operating partners are exceeding our expectations and their expectations for those portfolios. I would say, outside of lumpiness, when you have things like repairs and maintenance, the ExpPAR growth should return. Our expectation is that it should return to what we’ve been seeing in the last couple of quarters, 2%, somewhere in that range.

Juan Sanabria, Analyst, BMO Capital Markets: Thank you.

Operator: Our next question will come from the line of Connor Mitchell with UBS. Please go ahead.

Connor Mitchell, Analyst, UBS: Thanks for taking my question. The funding side of the transaction equation that plays into the targeted acquisitions. The stock price reacted positively following the business update in July, but it’s come back a little bit since. When you’ve experienced the improved cost of capital, does that change the type of assets that you would buy or add on to the pipeline?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: No. It doesn’t. We’ve been able to get things done at attractive yields, even given where our cost of capital was before the business update. No, it doesn’t change that at all. We’re still in a better place than we were before the update. There’s been a pullback sort of across the space. Hopefully that’ll pass soon, and hopefully having a solid core like we just announced will help as well. No, it doesn’t change that calculus. It just makes things-

Connor Mitchell, Analyst, UBS: Okay

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: a little bit more accretive a little bit sooner. That’s all.

Connor Mitchell, Analyst, UBS: Yeah, of course. Appreciate that color. Maybe just sticking on the funding side. You still have room to run with the forward ATM, the spot ATM, and then now your leverage profile is lower. Focusing on the equity issuances from the forward ATM or the regular ATM, or do you kind of look at the debt as more of an opportunity to bring the leverage profile back up to that five times target that you were mentioning?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. In terms of the leverage, we’re not looking to jack up our leverage back to 5 times with the next deal we do. Right? The beauty of having our leverage where it’s at right now is that it gives us plenty of cushion, as deals come up and as we finance additional opportunities that if the equity markets aren’t cooperating, we could still execute on those transactions without being concerned about where our leverage level is at. It just gives us a lot of breathing room in that regard. With regards to the forward equity issuances that we’ve already made and that are currently outstanding, when we look at executing on the forward, it’s an internal conversation that we have with regards to what our line of sight is and our visibility is into investment opportunities.

If the stock price and the cost of equity at that point in time makes sense and allows us to transact on these opportunities accretively, that’s when we look to lock in that cost of capital. Said differently, what we’ve already locked in in terms of forward ATM proceeds would allow us to close on all the things that Darrin was talking about earlier at an accretive price. That’s just going to be our philosophy going forward. If we see the stock market, and our equity price cooperating with us, vis-a-vis our investment opportunities, we’ll continue to proactively take advantage of that.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Going back to Wad’s question, we closed on $223 million in the last two weeks.

Operator: Our next question will come from the line of Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra, Analyst, Mizuho: Good afternoon. Thanks for taking the questions. Just my first one, going back to the value add assets that you’ve bought. I know you flagged this maybe a quarter or two ago of shifting away, but I’m just stepping back and wondering what’s compelling you to go down kind of a bit more risk on into this value add kind of segment where there’s a lot of competition, cap rates are compressing. You’ve already sort of grown your Correct me if I’m wrong, I think your SHOP revenue is now 30-plus%. It seems like you’re in a good spot. I’m almost wondering, like, does it make sense to actually pause and just now see the benefits of the hard work you’ve done the last, call it, two years?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Well, a couple of things, Vikram. I appreciate the question. One, we’re not doing very much of it. Two, there’s not really risk attached to it because the value add that we’re doing it is already at 80% occupancy. You’re already at your leverage inflection point in terms of the revenue pull-through that you get as you get additional residents into the facilities. We’re only doing these with operators that we currently have relationships with and have already proven to us what they can do with other assets that were in the exact same place. There’s a clear path to going from 80% to 90%, say, on these assets. If we were doing stuff that was at 65%, then I would really take your point and say, "Okay, we’re not going to do that." We’re not going to do that.

Again, it’s a small number relative to the amount of volume that we’re doing, and it’s relatively stabilized with a clear path to even improved stability. Does that answer your question?

Vikram Malhotra, Analyst, Mizuho: Yeah. No, that’s helpful. I was just saying you kind of had a year and a half ago stated you’d like to be close to 35%, 40% SHOP. I think you’re there now. I’m sort of wondering, you have a lot of embedded growth, the next two years through the SHOP pool. Is it actually almost more accretive to just pause here and just see the benefit of the organic growth that everyone’s going to see the next two years? That’s kind of the point I was trying to get at.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: No. I get it. Again, if we were doing, I guess, true value add with much lower occupancy, I would agree with you, but we’re not doing that. The other point I would make is, we said that we wanted to be at a 40% SHOP NOI run rate by the end of this year, but that’s not where we want to end. We want to continue to grow that SHOP exposure. We’re not content to be where we are now, even though the 450 basis point improvement in SHOP NOI exposure from last quarter was significant. Again, we’re not taking real risk here. Again, we’re doing this with operators that we’re currently partnered with, that have taken assets that are very much like these and taken them to the next level.

Vikram Malhotra, Analyst, Mizuho: That’s fair. Just maybe one more, I guess, maybe Michael, I guess on the this year, in terms of the benefits that flow through, obviously next year you’d have the bumps, you’d have, I guess, half a year, correct me if I’m wrong, of the annualized, the step-up from the transition assets, and then all the acquisitions you do and the benefit of the organic growth there. I’m just wondering, are there any big pieces we’re missing? The Street’s kind of at 6% growth, from what I can see on Bloomberg for next year. Given all the acquisitions, is there something we’re all missing? You don’t have a lot of debt coming due, doesn’t seem to be like any other. You’ve got a lot of sources for funding.

I’m just wondering, as we look at any big picture building blocks, given all the acquisitions you’ve done, we should think about next year.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. I think you named off all the major building blocks. We have a SHOP portfolio that’s increasing by size, by every quarter that passes, right? That’s going to continue in our expectation, I think the market’s expectation as well, continue to drive outsized earnings growth compared to triple net. We have an extremely healthy triple net portfolio that’s going to increase by those contractual rates. We’ve been making these acquisitions that have solid embedded growth in them. I think all those building blocks set us up to be able to deliver not just for 2027, but into 2028 and beyond, with solid earnings growth on a year-over-year basis, and that’s our overall objective.

Vikram Malhotra, Analyst, Mizuho: Yeah, I guess maybe just to clarify. Your peers who’ve also been kind of maybe, I don’t want to say taking on risk, but trying to accelerate the growth through other strategies, have all started saying, "We’re trying to create a growth profile," which used to be 4% on AFFO to more like 6+, and seems like you’re getting there. I’m just trying to figure out how sustainable is this, 5%-6% growth as we look forward into next year and beyond.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: I think it’s quite sustainable. We’re actually at 7%-8% on our upgraded guidance at the midpoint. Because in 2027, we’re really going to start to see much more of the benefit of the acquisitions that we’ve been doing, and that’ll flow into 2028 as well.

Vikram Malhotra, Analyst, Mizuho: Thank you.

Operator: Our next question will come from the line of Rich Anderson with Cantor Fitzgerald. Please go ahead.

Rich Anderson, Analyst, Cantor Fitzgerald: Hey. Thanks. Good morning. On the RCA payoff, the $100 million of, I guess, call it discount that you offered, the $200 million is essentially a capital raise at over 11% cap rate. If you apply that to a 7.5% return on redeployment, that’s about $0.05 of annualized dilution. First of all, do I have that right? Second of all, is that baked into this new guidance? Would your guidance been $0.025 greater had it not been for that transaction?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. Well, let me answer your second question first. Yes, it is factored into our guidance and those proceeds, because we don’t assume any investments over and above what’s been completed in our guidance. Effectively, we’re assuming we’re just paying down debt with those proceeds. There’s better use of our capital in the form of investments that that capital is going to be used for. That’s what’s assumed in our guidance. I think it is reasonable to assume that our guidance would’ve been higher absent that. Right?

Rich Anderson, Analyst, Cantor Fitzgerald: Yeah. Understood. I hate seeing $100 million go poof like that. I understand why you do it, but it comes through in the numbers one way or another. I just wanted to sort of get the numbers right in my model. Second, more SNF transactions are popping up into the system. I understand a lot of your future is SHOP, but you did say $100 million SNF transactions. What do you think is causing that, Rick? What’s changing in the environment that has caused more in the way of SNF opportunities passing the smell test for you guys?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: I don’t think anything’s changed. Those opportunities were off market, brought to us by existing operators. I think that’s where it’s going to come from going forward. We’re just not seeing the kind of SNF volume that we saw pre-pandemic, where guys that didn’t have to sell, looking to monetize and would sell. I think that operators got beaten up pretty badly during the pandemic, and they’ve been recouping their losses, and now they’re doing well, and they’re just not willing to put their assets on the market unless they have to for some other reason. There’s such a small amount, and I’m talking about sort of the straight down the fairway, triple net, skilled nursing, not loan investments and things like that.

Rich Anderson, Analyst, Cantor Fitzgerald: Yeah.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: There just isn’t enough available for it to go around for all of us. The private guys that are buying OpCos and PropCos can always outbid us because we’re just bidding on the real estate. I think going forward, at least in the foreseeable future, it’ll be more off-market opportunities that will come our way, hopefully. Maybe in 2027 we’ll see behaviors that revert back to sort of the pre-pandemic norm, where folks finally were doing well enough for a long enough period of time that it’s time for them to start monetizing their assets and moving on.

Rich Anderson, Analyst, Cantor Fitzgerald: Okay. Last question from me. SHOP and specifically Canadian opportunities. There’s a little bit more of a ceiling in terms of your ability to grow rents in Canada, whether it’s real regulatory stuff or social issues around rent growth for seniors. Does that make it a little bit more difficult to be active in that market, or can you still find the requisite return even going forward relative to your U.S. Pipeline. Thanks.

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: Sure. The Canadian market certainly still continues to be very active, and we’re still bullish on the Canadian market. I think the biggest issue with investing in the Canadian market, at least for us, is that cap rates still are 100 to 150 basis points or so inside of what they are in the U.S. We see better opportunity in investing in U.S. senior housing today.

Rich Anderson, Analyst, Cantor Fitzgerald: Do you agree with that about just sort of whether it’s real regulatory issues in Quebec or something, or social issues elsewhere? Do you feel that, or am I maybe misstating that observation?

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: Well, we’re still seeing very positive RevPOR growth on a year-over-year basis, despite the fact that our Canadian same-store portfolio has what, been over 90% occupied for the ninth quarter, I think, in a row. There’s definitely some more regulations in Canada, certainly, than there are in the U.S. I don’t think it’s had a significant impact on rate growth to date.

Rich Anderson, Analyst, Cantor Fitzgerald: Okay. Fair enough.

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: To say it won’t in the future is a guess.

Rich Anderson, Analyst, Cantor Fitzgerald: Fair enough. I appreciate that. Thanks very much, guys.

Operator: Our next question will come from the line of Rich Hightower with Barclays. Please go ahead.

Rich Hightower, Analyst, Barclays: Hey, good morning out there, guys. A couple from me. One on Avamere and the transition there, and just give us a sense of maybe any sort of risk factor embedded in, I guess, 2026 guidance and even beyond as we think about timing for all the approvals required, if there’s any potential delay, transition expenses, anything related to that that we should be aware of.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: No, we don’t see anything going forward that’s going to impact guidance or performance. There’s a big difference when you do a transition that isn’t friendly, which was the case with the Holiday transition. A transition like this, which has been sort of planned for quite a long time. It’s completely cooperative between the two parties. In this case with Cascadia, they have already acquired other Avamere properties, non-ShopRite properties, and turned them around. Those other properties had the same exact characteristics from an upside perspective that these have. It’s really a great transition, and we really don’t have any concerns.

Rich Hightower, Analyst, Barclays: Okay. That’s great. Then, I guess maybe more broadly, just on private market competition for SHOP assets specifically. What’s your sense of what, whether it’s private or public or anybody else you’re sort of competing against. What are other buyers underwriting in your sense of things in terms of going in yields, unlevered IRRs, cash flow growth in the interim? Just give us a sense of what does it take to sort of win a deal that might be a marketed deal rather than something that comes off market?

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: Yeah, sure. I think it’s really deal specific. Oftentimes, I think if you have a strong relationship with the owner and/or the operator, even if it’s a marketed deal that provides a little bit of an edge and some insight. It’s hard to say what others are doing. We’ve certainly lost deals to competitors in the past where we’ve been scratching our head after you’d hear the announcement on what that yield was. Didn’t make sense to us as far as how they were getting there. We’ve also elected not to bid on transactions that some of our competitors have purchased as well at high six, low seven cap rates, where we just saw too much risk for the risk-adjusted return associated with that. It’s really hard to guess at what our competitors are assuming as far as a stable occupancy or rate growth.

I think it’s really transaction specific.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah, the other thing I would say is kind of like this. When it comes to our peer REITs, we all pretty much value assets similarly. There isn’t huge discrepancy there. The private guys are a little bit different, obviously.

Rich Hightower, Analyst, Barclays: Okay. Thank you.

Operator: Our next question will come from the line of Alex Bagen with Baird. Please go ahead.

Alex Bagen, Analyst, Baird: Hey, thanks for taking my question. For the first one on the G&A front, which functions is Sabra hiring for today?

Darrin Donnelly, Chief Operating Officer, Sabra Health Care REIT: We’re looking across the organization. Obviously, our investments team has been extremely busy for the last several quarters, and we continue to add resources there when necessary. We’re looking across the company to things like asset management, accounting, finance, other areas where we’re experiencing growth, particularly areas that are more impacted by our growth on the SHOP side. On the other side of that, and we talked about it a little bit on the last call, there are several initiatives we’re undertaking as we speak and have been for the last several quarters on the technology and AI side that are going to help us be more efficient and be able to perform those same duties at a larger scale without what would have previously been the requisite number of additional heads.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah. Another way maybe to think about it is we’re not looking at reductions, but particularly with the AI initiatives, we’re going to be a lot more scalable, so we won’t need to add as many positions as we might otherwise need to add in the absence of those initiatives.

Alex Bagen, Analyst, Baird: Oh, got it. That makes sense. Switching gears a bit, I think, Michael, you said that you moved two tenants from cash basis to accrual accounting. Can you tell us what is the percentage of ABR that is now on cash basis?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: It’s going to be the vast majority of our tenant base. I don’t have the number in front of me. I could get that to you after the call. We have a very small amount of tenants that are on a cash basis. Ever since this concept of cash basis accounting came into play, I don’t know when it was, 2018, 2019, one thing I always made a point to clarify is there’s tenants that are on a cash basis because of the accounting rules, but they’re paying their rent. They’re paying their full rent, and there’s not any variability in the revenues that we’re recognizing period to period. There were some that were paying varied amounts, and that created some level of variability.

The tenants we’ve put on accrual basis have been paying their contractual rent for quite some time, so they weren’t in the latter category. Right? That’s really the area we focus on, the people that weren’t paying us their full rent. Where’s our real risk there, and what can we do about those? That number is such a small amount today, even more so after some of the initiatives I referenced in my prepared remarks of transitioning tenants, resetting rents, or amending leases. That’s even further reduced because of those actions. It’s a very small amount, which is obviously a good place to be.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: We were in the high 90s on accrual.

Alex Bagen, Analyst, Baird: Okay. No, appreciate the color. Thank you.

Operator: Our next question will come from the line of Michael Stroyeck with Green Street. Please go ahead.

Michael Stroyeck, Analyst, Green Street: Morning. Thanks for the time. Can you maybe provide a bit of color on what drove the acceleration in RevPAR growth during the quarter? Is that greater than 6% growth rate sustainable in the near term, and has there been any broad-based change in pricing strategy among your operators, given sequential RevPAR growth was also quite a bit stronger versus historical seasonal levels?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: No, I think it’s nothing new. I think we should continue to see, as far as RevPAR is concerned, upper mid digit increases.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: It’s just the natural growth of occupancy and efficiency and a little bit of pricing power. There’s nothing strategically different that’s happened.

Michael Stroyeck, Analyst, Green Street: Understood.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Which is good news.

Michael Stroyeck, Analyst, Green Street: Yeah. Makes sense. Maybe one on the transaction market. Can you just talk about replacement costs? Where are you acquiring at, and how does that compare to, call it, 6 to 12 months ago or so?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Sure. We’re acquiring at It depends. It depends where the asset is. It depends on a lot of factors, but I think I’d say we’re acquiring at somewhere between the mid-200s per unit up to 500 per unit. I think from a replacement cost perspective, that would compare to, say, 400 to 600-plus. It’s really dependent upon where in the country those assets are.

Michael Stroyeck, Analyst, Green Street: Understood. Thanks for the time.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: In the aggregate, it’s probably somewhere around $300-plus a unit.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah.

Michael Stroyeck, Analyst, Green Street: Thanks for the time.

Operator: Our next question will come from the line of David Rodgers with Raymond James. Please go ahead.

David Rodgers, Analyst, Raymond James: Yeah. Hi, Rick. I wanted to talk about the transitions. Obviously, a very successful quarter between Avamere and the other transitions that you were able to announce. Can you maybe talk about that other $9 million? I think you’ve discussed Avamere quite a bit. That other $9 million of annualized NOI that you pick up, how much of that is recurring in nature? How much of that can you do going forward? How many opportunities do you have? Did it all hit this quarter because it was a good time to offset RCA? I guess, how did you think about kind of delivering so much in one quarter, and what are the opportunities going forward to do even more of that?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah. The whole thing’s been a little strange in terms of how quickly it’s happened. There are a couple of other opportunities that we are pursuing. My guess is there will be similar transitions there. It’s really a group of individuals. I don’t know that it’s a trend or anything, but the pandemic really burned out a lot of people. We had operators during the pandemic that said, "Take us out. We’re done. We want to retire. We’ve been doing this for decades." Now that things have been going well for a number of years on the skills front, that same thing has happened. In every single case that we’re looking at, it’s basically a CEO founder and perhaps other executive members that are ready to retire. That’s why these things also go so smoothly is it’s all very productive. They want to get taken out.

They want it to work for them. They want it to work for us. They want it to be somebody that can take over and have a smooth transition, and there aren’t any sort of cultural ruptures and things like that. It’s interesting that the pandemic just took a lot out of particularly operators that have been around for 30, 40 years.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. Dave, the other thing I’ll highlight too, we announced it this quarter with our business update. We called it out in our prepared remarks. This all didn’t come together in the second quarter. Some of it did, no doubt. Some of it came in the first quarter. They’re all so individually small, we wouldn’t have spent any time talking about in the first quarter, and stuff happened prior quarters before that, right? It’s just these are the kind of the things we’re doing day in and day out that don’t grab headlines. When we’re putting together that business update, we’re putting the pieces together and there’s a big piece missing from it. What is it? Well, it’s this stuff that we’ve never really talked about publicly, but it is extremely beneficial and extremely meaningful.

To Rick’s point, there’s going to be some of this stuff on a go forward basis, and we just are going to do the right thing in terms of improving our earnings profile and our portfolio, and we’ll all be benefiting from that.

David Rodgers, Analyst, Raymond James: Maybe just to follow up on both of those, Rick, your comment in particular that there’s people that want to get out. From a sizing perspective, are we thinking more like a couple of transitions that add up to the $9 million, or are there a couple of Avamere size transitions out there that you could envision whether they happen or not?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: These would be smaller transitions than that, and it’s a couple that we’re currently having conversations with. They’ll be much smaller than that. There’ll be some incremental benefit to us in all likelihood, but it won’t be material.

David Rodgers, Analyst, Raymond James: That’s helpful. I appreciate the added color there, and I wanted to follow up on the G&A increase. Obviously, this year a little larger than the past couple of years. It sounds like a lot of that’s related to SHOP. I guess as we think about going forward without talking about 2027, 2028 kind of guidance. The increase we see this year, is that something we would expect to see continue if you’re to buy $700 million, $800 million of SHOP a year? Are there some of these one time tech AI investments? Is it SHOP management fees that kind of bleed through? Maybe just a little more color on what that run rate looks like given what we’ve seen this year versus what we’ve seen in years past.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: One of the biggest drivers in the G&A increase, both primarily in our full year guidance numbers, is performance-based compensation. Our board sets our performance targets at the beginning of the year, and as the year progresses, we evaluate whether or not we think we’re going to meet or exceed those targets. As we put out guidance that was higher this quarter, which implies that we expect that performance to come in higher than what we had initially estimated at the beginning of the year, which drove that increase. In terms of a run rate, what we gave in terms of G&A at the beginning of the year for our guidance, that’s effectively assuming no performance-based compensation or basically at our target performance-based compensation expense. When we go into 2027 and future years, we sit down and we make an estimate.

We sit down with our board, we come up with a performance target, and where we land relative to that will determine whether we have an increase over that number. I think probably the run rate we gave for our initial guidance is probably a decent starting point, adjusted upwards a little bit for inflation and the like. To your point on additional AI initiatives and stuff like that is going to add some G&A cost to us, especially upfront. What that is to be determined. It’s been very incremental to this point. That’ll add a little bit to it, but we expect to be saving on the efficiency gains at the same time.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Yeah. The only other point I’d make, Dave, is even in the absence of AI initiatives which will make us more scalable, any adds with the growth of SHOP would be incremental because we built our platform over 10 years ago. Everything that we’ve done over the last 10 years to add to that platform, both on the human resource side and on the system side, has been incremental. The AI piece of it will just make that a little bit better.

David Rodgers, Analyst, Raymond James: All right. Yeah. Thank you both.

Operator: For questions, press star one on your telephone keypad. Our next question will come from the line of John Kilichowski with Wells Fargo. Please go ahead.

John Kilichowski, Analyst, Wells Fargo: Good afternoon. Thanks for taking my question. Rick, back on some of your comments on the value add stuff. You talked about the 80% occupied versus maybe something in 70%, 65%, noted that it’s far less risky. However, there still is some risk. It’s not tracking with the rest of the SHOP universe that’s kind of mid to high 80s at this point. I guess what explains that occupancy delta? Is it just in that part of its lease up process and you’re seeing occupancy momentum gains maybe year-over-year, or are these assets stuck at 80% and there’s something operationally that you and your operators can do that the previous owner isn’t capable of?

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: It could be a number of factors. It could be a relatively new facility that’s still in lease up and everything’s been going fine, they’re just not all the way there yet. It could be a facility that has an operator that just wasn’t very good. We’re bringing in an operating partner that has a track record with us, understands that market, which is an important consideration. It’s usually one of those two factors, Dan.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. The only thing I’d add to that is, sometimes you’ll see ownership, who’s hired an operator, the ownership wants to meddle in operations, where they should be kind of staying a little bit more hands off. Oftentimes they’ll be limiting marketing funds, other different things, instead of just letting the operator do their thing and focus on leasing up and getting it stabilized.

John Kilichowski, Analyst, Wells Fargo: Okay. Thank you. Then my second one, Mike, you gave some helpful color in the opening remarks, but plenty of moving parts in the quarter between the Avamere, Cascadia step-ups that are to come. You’ve got the re-tenanting. We also have some straight line adjustments. Could you just walk through what’s a fair run rate number for your revenue items and your straight line number, given what’s happened in the quarter versus what’s due to happen post quarter end?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: You’re referring specifically to Avamere?

John Kilichowski, Analyst, Wells Fargo: Yeah. All the above. If you could touch on what’s included in the quarter number as far as Avamere’s concerned, but also if any of that $9 million was already included. I think most of it’s after. Also, at the same time, the earnings impact from the transition. Is there anything due to come after or is that all captured within 2Q? And the accrual numbers as well, the cash basis, the tenants flipping to accrual.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yeah. I could give you a couple of those items and have to get back to you on probably the straight line number. In terms of the $9 million, about $1.6 million we saw hit in the second quarter. That’s due to a variety of things, namely timing of some of these things being completed. Some of that $9 million got effectuated post quarter end. That’s probably the best way to think about it. I would say, going into 2027, you should assume that full $9 million, right? Like I said, about $1.6 was recognized in this quarter. For Avamere, I think the best way to think about it like a two-step reset, right? We triggered the rent reset retroactive to February 1st. That took the rent from $41 million to $48 million.

We expect the transition to close sometime later on this year, at which point that $48 goes to $53, right? You can make your own assumptions on the timing of that, whether it’s sometime late third quarter, early fourth quarter, what have you. Going into 2027, however, that number would be $53 million.

John Kilichowski, Analyst, Wells Fargo: Okay. Is the $1.6 a quarterly number or an annualized number?

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: That’s a quarterly number. That’s just we recognize an additional $1.6 million in this quarter related to those initiatives.

John Kilichowski, Analyst, Wells Fargo: Okay. Thank you.

Michael Costa, Chief Financial Officer, Sabra Health Care REIT: Yep.

Operator: This concludes the question and answer session. I’ll hand the call back over to Rick Matros for closing comments.

Rick Matros, CEO, President, and Chair, Sabra Health Care REIT: Thanks everybody for joining us. We’ll look forward to follow up with you and hope the remainder of your summer is great, and I know we’ll see a bunch of you at the Nareit Conference in September. Thanks again.

Operator: This concludes today’s call. Thank you all for joining. You may now disconnect.