Sabra Health (SBRA) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, November 3, 2026

CALL PARTICIPANTS

• EVP finance - Lukas Michael Hartwich
• CEO, president, and chair - Richard K. Matros
• Chief Financial Officer - Michael Lourenco Costa

TAKEAWAYS

• Normalized FFO -- $0.39 per diluted share for the third quarter, representing an 8% increase year over year.
• Normalized AFFO -- $0.41 per diluted share, reflecting 8% growth compared to the prior year.
• Same Store SHOP Cash NOI -- grew 14.6% year over year, driven by higher occupancy and strong rate growth.
• SHOP Cash NOI Margin -- 34.9% for the quarter, which management identified as a leading figure in the healthcare REIT sector.
• Total Year-to-Date Investments -- $747.2 million in closed acquisitions with an estimated initial yield of 8.0%.
• Awarded Investments -- $425 million in pending deals, including $385 million in SHOP and $25 million in skilled nursing, with a 7.0% estimated yield.
• Senior Housing Operating Portfolio (SHOP) Sequential Performance -- revenue increased 10.3% and cash NOI grew 8.5% compared to the second quarter of 2026.
• Same Store SHOP Occupancy -- rose 160 basis points year over year to 89.2% for the total portfolio.
• Domestic SHOP Occupancy -- increased 211 basis points to 86.9% year over year.
• Canadian SHOP Occupancy -- reached 93.9%, representing the 10th consecutive quarter with occupancy above 90%.
• SHOP RevPAR Growth -- increased 7.3% year over year, supported by consistent pricing power and higher acuity services.
• SHOP Operating Expenses -- rose 4.7% year over year, primarily due to increased costs for repairs, maintenance, and incentive management fees.
• Net Debt to Adjusted EBITDA -- 4.54x as of Sept. 30, 2026, a reduction from 4.61x at the end of the previous quarter.
• Liquidity -- approximately $1.2 billion, including $36.2 million in unrestricted cash and $873.5 million available on the revolving credit facility.
• ATM Program Activity -- 15 million shares remain outstanding under forward sales agreements at a weighted-average price of $19.53 per share.
• Avamere Rent Transition -- effective Oct. 1, 2026, annualized cash rent for the transitioned portfolio increased from $48 million to $53 million.
• Skilled Nursing EBITDARM Coverage -- 2.52x, reflecting ongoing operational improvements and rent optimization.
• Senior Housing - Leased EBITDARM Coverage -- 1.58x for the third quarter.
• Specialty Hospitals and Other Coverage -- 3.91x, with the behavioral health segment showing coverage between 3x and 4x.
• Quarterly Cash Dividend -- $0.30 per share declared, representing a 73% payout ratio of third quarter normalized AFFO.
• 2026 Guidance Update -- midpoint of normalized FFO was raised to $1.545 and normalized AFFO to $1.605 per share.
• Straight-Line Rent Write-offs -- $6.2 million recorded during the quarter, largely associated with the Avamere portfolio transition.
• Triple-Net Cash Rental Income -- $93.5 million for the quarter, excluding a $10.2 million one-time payment of deferred rents.
• Investment Strategy Yields -- management reported that unlevered IRRs for current SHOP investments range from 11% to 15%.

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RISKS

• Darrin Smith stated, "There has definitely been cap rate pressure on the senior housing side that we have seen in the industry throughout the year," though he noted that this pressure appears to have moderated recently.

SUMMARY

Sabra Health Care REIT, Inc. (NASDAQ:SBRA) reported a strategic shift toward its Senior Housing Operating Portfolio (SHOP), which is projected to reach 40% of the portfolio by year-end 2026 and 50% by the end of 2027. Management indicated that this transition will result in the senior housing portfolio outweighing the skilled nursing portfolio for the first time in company history. The company reported $747.2 million in year-to-date investments and an additional $425 million in awarded deals, which are expected to support a year-over-year earnings growth rate of 7% to 8% at the midpoint of 2026 guidance. Management is also focused on optimizing its skilled nursing segment through fair market rent resets upon lease expirations between 2027 and 2031. Leverage continues to trend downward, reaching 4.54x as the company utilizes its at-the-market equity program to fund a robust pipeline of value-add and stable assets.

• Management expects the transition toward a higher SHOP concentration to continue without interference.
• CEO Matros noted that the skilled nursing portfolio will likely provide outsized earnings contributions as leases are reset to fair market value through 2031.
• The company is prioritizing value-add opportunities, including senior housing assets with 80% occupancy that offer significant net operating income upside.
• CFO Costa reported that the $0.30 per share dividend is well covered, representing 73% of normalized AFFO.
• Management stated that RevPAR growth is being driven by higher acuity levels and the ability of operators to charge for complex care.
• The behavioral health segment has been narrowed to five psychiatric hospitals, which management indicated may eventually be sold if the pricing is compelling.

INDUSTRY GLOSSARY

• SHOP: Senior Housing Operating Portfolio; communities managed by third parties where the REIT receives the operating income.
• NOI: Net Operating Income; total revenue minus operating expenses.
• FFO: Funds From Operations; a measure used by REITs to define cash flow from their operations.
• AFFO: Adjusted Funds From Operations; FFO adjusted for recurring capital expenditures and non-cash items.
• RevPAR: Revenue Per Available Room; a metric used to measure the performance of a property.
• EBITDARM: Earnings before interest, taxes, depreciation, amortization, rent, and management fees.
• ATM Program: At-the-market equity offering program; a method for a company to raise capital by selling shares into the existing secondary market.

Full Conference Call Transcript

Operator: Good day, everyone. My name is Piercy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Healthcare REIT Third Quarter 26 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. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Lukas Michael Hartwich, EVP finance. Please go ahead, mister Hartwich.

Lukas Michael Hartwich: Thank you, and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding 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, 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 12/31/2025.

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 that reflect subsequent events or circumstances and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investors section of our website at sabrahealth.com.

Our form 10 q, earnings release, and supplement can also be accessed in the Investors section of our website. And with that, let me turn the call over to Richard K. Matros, CEO, president, and chair of Sabra HealthCare REIT.

Richard K. Matros: Thanks, Lukas, and thanks everybody for joining us this morning. Our same store SHOP cash NOI margins were 34.9%, which is best in class. Our RevPAR growth was stellar again for the quarter along with solid cash NOI growth and occupancy increases. We have closed on $750 million in investments to date, all of which is SHOP except for $100 million which was skilled nursing. We have $425 million awarded and expect more to come before year end. All of that but $24 million to shop. Our skilled nursing and senior housing triple net rent coverage continues to get better.

As we continue to move forward towards 40% SHOP exposure going to 50% by year-end 2027 our senior housing portfolio will outweigh our skilled portfolio for the first time. As that exposure drifts closer to 40%. We see no barriers that would prevent this from continuing. That said, we believe it is important to have that diversity in the portfolio As we have demonstrated, our skilled portfolio offers more earnings growth than 2.5% escalators that we have seen historically. Our focus on optimizing rents was evident in our July announcement. And we are currently assessing other opportunities.

Additionally, as you look to our lease expirations, we expect to see rent increases in those portfolios as rents get reset to fair market given how much higher than fair market rent coverages currently are. The strategic focus that we have had as a result has resulted in 7% to 8% year-over-year earnings growth at the midpoint of guidance this year. Certainly a mark we feel good about and bodes well for that portfolio's contribution to future earnings. With that, I will turn it over to Darrin.

Darrin L. Smith: Thank you, Rick. Sabra's senior housing operating portfolio had another great quarter with continued growth. The total senior housing operating portfolio including non stabilized communities and joint venture assets at share: sequential revenue growth of 10.3% and sequential NOI growth of 8.5%. These statistics demonstrate sequential improvement in operating results that reflect our SHOP's continued growth and strong performance. During the third quarter, Sabra invested $222.8 million adding 7 SHOP communities to Sabra's portfolio. Subsequent to quarter end, Sabra invested an additional $140.7 million added 4 SHOP communities bringing total year to date investments to over $747 million with an estimated yield of 8%.

Additionally, Sabra has another $125 million of additional awarded investments, nearly all SHOP, which should close in the near future. In addition to the over $1.17 billion in closed and awarded investments, Sabra has an additional $260 million of SHOP investments that we are actively pursuing. On a year over year basis, Sabra added 18 SHOP communities, an 18% increase by number of assets and over 60% increase in total SHOP NOI. Deal flow shows no signs of slowing, and Saba remains competitive on new investments. Moving on to the same store portfolio. Sabra's same store SHOP portfolio, including joint venture assets at share, continued its strong performance in the third quarter.

The key numbers are Revenue for the quarter grew 9.3% year-over-year with our Canadian communities growing revenue by 7% in the same period. Third quarter occupancy in our same store portfolio was up 160 basis points to 89.2% year-over-year, Notably, our domestic portfolio occupancy increased 211 basis points to 86.9% during that period, while our Canadian portfolio grew 77 basis points to 93.9% in the same period. Marking the 10th consecutive quarter where occupancy was over 90%. RevPAR in the third quarter continued to rise with an increase of 7.3% year-over-year with our Canadian portfolio increasing 6% in the same period.

While RevPAR and occupancy continue to grow, expenses increased 4.7% for the same period. providing for cash NOI growth of 14.6% on a year-over-year basis. The increase in expenses was driven primarily by repairs and maintenance, sales and marketing, and incentive management fees while labor continues to grow less than 3%. With over $1.17 billion in closed and awarded investments to date, a very robust pipeline and industry tailwinds on our backs, we should continue to see solid growth in our portfolio. And with that, I will turn the call over to Michael Lourenco Costa, Sabra's Chief Financial Officer.

Michael Lourenco Costa: Thanks, Darrin. For the third quarter of 26, recognized normalized FFO per share of $0.39 and normalized AFFO per share of $0.41 compared to $0.38 and $0.40 respectively in the second quarter. Year over year, our third quarter normalized FFO per share and normalized AFFO per share each posted an increase of 8%. Cash rental income from our triple net portfolio increased $1.2 million on a normalized basis compared to the second quarter. Cash rental income was $93.5 million for the quarter, excluding a $10.2 million payment of deferred rents received in the quarter.

On a normalized basis, our second quarter cash rental income was $92.3 million after adjusting for $1.8 million of out of period revenues primarily related to the Avamere rent reset. SHOP cash NOI was $48.4 million this quarter compared to $44.6 million last quarter. This increase reflects both the contribution from recent investment activity including 7 communities added during the quarter and continued same store occupancy gains and rate growth. Interest and other income was $3.2 million for the quarter, compared to $5.8 million in the second quarter. The decrease was primarily due to repayments of loans in the second and third quarters. Cash interest expense was $26.8 million for the quarter compared to $27.4 million in the second quarter.

The decrease reflects lower borrowings under our credit facility during the period. Normalized cash G and A was $10.6 million for the quarter, compared to $10.7 million last quarter. During the quarter, we wrote off $6.2 million of straight line rent receivables and lease intangibles primarily due to the transitioning of the former Avamere portfolio. This amount was normalized in our quarterly results. We have updated our 2026 earnings guidance and increased the midpoint of our per share normalized FFO and normalized AFFO by $0.005. At the midpoint, this represents year over year per share growth of 7% for normalized FFO and 8% for normalized AFFO. Now briefly turning to the balance sheet.

Our net debt to adjusted EBITDA ratio was 4.54x as of 09/30/2026, compared to 4.61x at 06/30/2026. As we have stated previously, our strategy is to naturally lower our leverage over time without sacrificing earnings growth. This quarter's results reflect that strategy in action, and it is a strategy we will continue to employ. As of 09/30/2026, we had approximately $1.2 billion of liquidity, and we were in compliance with all of our debt covenants.

In addition to $36.2 million of unrestricted cash and cash equivalents and $873.5 million of available borrowings under our revolving credit facility, We had $292.5 million related to shares outstanding under forward sales agreement under our ATM program, which consisted of 15 million shares at initial weighted-average price of $19.53 per share, net of commissions. Additionally, we have $332.7 million of availability remaining under the ATM program. During the quarter, we issued 6.5 million shares in settlement of certain outstanding forward sales agreements under our ATM program, at a weighted-average price of $17.89 per share net of commissions, resulting in net proceeds of $116.2 million.

These proceeds, together with cash on hand, were used to fund our investment activity during the quarter. Finally, on 11/02/2026, Sabra's board of directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on 11/30/2026, to common stockholders of record as of the close of business on 11/13/2026. The dividend is well covered and represents a payout of 73% of our third quarter normalized AFFO per share. And with that, we will open up the lines for Q&A.

Operator: We will now begin the question-and-answer session. You would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is now open.

Juan Sanabria: Hi. Good morning out there. Just curious if you could, Rick or Darrin, elaborate on the optimization in skilled nursing, and maybe that includes the behavioral hospitals Is that just, rent increases upon expiration, which you heard in the prepared remarks? Does that include further potential sales or monetizations of the assets? To accelerate this transition towards SHOP NOI?

Richard K. Matros: Yeah. Hey, Juan. Thanks. So it is just skilled nursing, and there are a couple that we are currently working on. 1 is another transition. Similar to the ones that we talked about in July. And the other is a lease that is coming up in the not too distant future. And the operators involved are interested in negotiating an extension sooner or later, and that extension would carry with it an increase in rent. Simply given where rent coverage is for that portfolio today. And what we would normally you know, put a put a new lease at for a skilled nursing operator, you know, somewhere around 1.5x. So that is really where the upside is.

And if you look at our lease expiration schedule, we have got between 2027 and 22 thousand and 31. We have a big chunk of leases coming up, so you should expect us to take advantage of that in the same way that we have been taking advantage of to date. And, again, for the same reasons. So, does that answer your question, Juan?

Juan Sanabria: It does. Thank you. And then just as a follow-up, if I may. Just curious if you can give a little bit more color on the Q4 to date transactions and the 40. The $400-plus million that is in the. In process that has been agreed to in pricing and how that may have been that may be changing, kind of the initial and longer term yield expectations on those acquisitions?

Richard K. Matros: What was the first part of the question, Juan?

Juan Sanabria: Say again. The recent deals was closed fourth quarter to date and what is kind of pending to close.

Richard K. Matros: Oh, okay. How cap rates have trended?

Darrin L. Smith: Sure. So this is Darrin. Economics in the current pipeline are. From 04/25 are similar to those completed in 2026. it is a mix of stable assets and some value add or upside opportunities. Unlevered IRRs continue to range in the low double digits to mid teens. I would say that the previously closed assets had more SNF and pref equity, some higher yielding investments. That being said, there is definitely been cap rate pressure on the senior housing side that we have seen in the industry throughout the year. However, with the rising interest rates, that pressure appears to have moderated for now.

Richard K. Matros: Thank you.

Operator: Your next question comes from the line of Jamie Feldman with Wells Fargo. Your line is now open.

Analyst: Hey, thanks for taking the question. I guess along the same lines, how have you changed your underwriting assumptions? With higher rates and then just with you know, operating conditions in the business in terms of your willingness to, underwrite better NOI growth or maybe weaker NOI growth and then exit cap rates? As you are thinking about your own IRR outlook?

Darrin L. Smith: Sure. So it is-- you know, each. The. An underwriting of each investment opportunity is very asset and market specific, number 1. Occupancy, we are still, you know, keeping occupancy or stabilizing occupancy probably up to the 92%, maybe 93.5% range. Once again, depending upon the local market As far as rate growth is concerned, you do end up with a little bit more visibility into near term rate growth that typically takes place, you know, January 1 as these plans are kind of implemented here later in the year. So those tend to be. At least they have tended to be kind of in the mid single digits for now.

But as far as exit cap rates, we are basically using what we see as a as a cap rate, a market cap rate today. So there is no sort of cap rate compression, or inflation. Yeah.

Richard K. Matros: And we will also Okay. We can as we mentioned, as we had mentioned, earlier or last call or whatever, we are looking at doing more value add, and we did do a sizable value add And when we say value add, we are not talking about facility operations, that are destabilized. We are looking at 80% occupancy in the case of the deal that we did. That obviously brings down the overall yield, but provides a lot more upside for us going forward.

So given the volume deal flow that we have and that we anticipate having next year, we can do those kinds of things here and there and still make it work for us with our cost of capital.

Analyst: Okay. Thanks for that. And then turning to Avamere, can you just remind us how much rent remains to commence? And the incremental 27 contribution? that is not yet reflected in the current cap. Or current run rate?

Michael Lourenco Costa: Sure. So when we did that transition effective October 1, that took the annualized rent from $48 million to $53 million. So we are only seeing the impact of that on 2026 numbers. Just for 3 months. That full impact is gonna be seen in 2027, obviously. And, actually, the increase year over year will be slightly higher than that because as you recall, we did the rent reset earlier in the year. So know, you should expect to see year over year the NOI generated from that lease to be, you know, call it $5 million or a little bit higher than 5 million on a year over year basis. Okay.

But it is it sounds like it is in the full Q4 run rate? It is in the full Q4 run rate. Future-- Yeah. it is in our guidance.

Richard K. Matros: Alright. Great. Q4. Mhmm.

Analyst: Okay. Thank you.

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

Farrell Granath: Hi. This is Andrew Real on for Farrell. Thanks for taking our questions. I guess, first, just with respect to the SHOP same store NOI guide, what sort of improved in the fourth quarter outlook to support moving the guide up to the mid teens? Is that mainly stronger occupancy and rate trends? Are you expecting some expense growth to moderate as well?

Darrin L. Smith: it is just overall strength in the performance of the SHOP portfolio. Yeah.

Michael Lourenco Costa: And I think more visibility. Right? Because we are talking about 2 months of forecasting here versus, you know, 9 months earlier in the year?

Farrell Granath: Okay. Thanks. Maybe 1 on the supplement. Looks like it now shows an estimated yield figure instead of initial cash yield in the investments. Also, looks like 1Q SHOP deals moved from 7.9% yield to about 9.2%. Just curious what is behind the change. And what is the new yield measuring?

Michael Lourenco Costa: I mean, in terms of what the new yield is measuring, I think the simplest way to put it is it is a Year 1 yield. Other than the situations, the limited situations like Rick articulated where we are doing some value add opportunities, in which case we are using a stabilized yield on that. And when we say stabilized, we are talking about call it Year 2 once the operator's able to go in and put their strategy in place. So it is it is by and large a Year 1 yield except for those select opportunities.

The 1 thing I would say is when you kinda take a step back, and you look at our total closing awarded pipeline, going in yield, the Year 1 yield that we are expecting is in the low 7s. So even with those value add opportunities, the going-in yield that we are expecting in Year 1 is still competitive with our cost of capital.

Richard K. Matros: About the other Yeah. And your second part of the question, can you repeat that?

Farrell Granath: No. I think, you know, I think you answered it wondering what is behind the change, what is the measure, but I think you I think you answered the question. Yeah.

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

Austin Wurschmidt: Great. Thanks. Just going back to the earlier question about the optimization of skilled nursing. You highlighted those 2 opportunities. Can you give us a sense of just to quantify what that upside opportunity looks like from an NOI perspective? And really the timing of those you know, taking place and how much they could contribute to 2027, I guess. Thanks.

Richard K. Matros: Not yet. We cannot because we are still in the process of negotiating that. And. But I would expect that there will be it is not a full 2027 year in full 2020 year impact or pretty close to it.

Michael Lourenco Costa: So. But we are just. We are still in the process of negotiating those. Yeah. And to the extent those are completed, by the time we release our fourth quarter earnings and our 2027 guidance, those will obviously be reflected in there as well.

Richard K. Matros: Could Yeah. If there is a reason to do an update of Say again?

Austin Wurschmidt: No. I was just gonna say, could you give us a sense where the coverage ratios are for those specific leases today?

Richard K. Matros: They are well over 2x. Got it.

Austin Wurschmidt: And then, you know, you mentioned some sniff and preferred equity deals that you did subsequent to the third quarter. Are you seeing a larger number of skilled nursing investment opportunities? And is that something that is of interest to you to mix in with some of the SHOP investments in the awarded pipeline?

Richard K. Matros: No. Not at all. These are off market deals. Not seeing any uptick in sort of traditional down the fairway triple net skill deals. So. And then down the prep, the prep bowl relates to development that we are doing on the senior housing side with existing operating partners. And 1 of the reasons it works for us where as in almost every development deal that we look at, it does. They do not pencil. In the instances that we are doing deals, 1, they are with operators that have their own in house capabilities. Very often, they go on land for a while, so the base is low.

So they are they are really distinct opportunities as opposed to the beginnings of any trend on the development side. that is helpful detail for the time.

Darrin L. Smith: Yeah.

Richard K. Matros: And also Your next question. We may not wait until fourth quarter earnings to, on the optimization stuff if we have something that we can just do a business update on before then.

Operator: Your next question comes from the line of Michael Stroyeck with Green Street. Your line is now open.

Michael Stroyeck: Can you just talk a bit about the behavioral health business? You know, where is coverage for that portfolio? How did that change this quarter? And maybe any color on the kind of the near term outlook for that business would be helpful.

Richard K. Matros: So all we really have left, we are pretty much out of the substance abuse disorder business. We have signature left, which is 5 psych hospitals, so it is actually quite a different business. They have been a tenant since 2017. And so now they fit more. Without the without the substance abuse disorder business, that business fits much more aligned with our other category which includes rehab hospitals and acute hospitals. And a couple of other things that are more specialized in nature. So the coverage a much more dynamic business as is the acute hospital business. So you are going to see occupancy and coverages go up and down a little bit.

But coverage is really strong in that other category in total, it is closer to 4x and 3x. So we feel like we are in pretty good shape there. In terms of the future of our relationship with Signature, As we have said in the past, this is not it is not RCA. They have been a reliable tenant for a long time. They would like to own the real estate, but it is gotta be compelling for us. We cannot. We are not gonna we are not willing to take dilution to earnings in order to get a deal done there. So for right now, I would say they will continue to be our tenant.

And that other category is now down to 10% of the total portfolio and will continue to shrink as we grow the rest of the business. So becomes less and less impactful.

Michael Stroyeck: Got it. that is helpful. Then maybe can you provide some color on the coverage stratification you guys started disclosing this quarter? What segments or operators make up that 1x to 1.5x bucket? And are there any concerns that rent cuts could be needed on any of those assets?

Michael Lourenco Costa: No. there is no concerns that any rent cuts are needed, and I would say those buckets, it is a mix of you know, skilled nursing and senior housing that is in there.

Michael Stroyeck: K. Thanks for the time. Yep.

Operator: Your next question comes from the line of Wes Golladay with Baird, Your line is now open.

Analyst: Hello, everyone. I just wanna get a little bit more color on the deferred cash rent payment of over $10 million this quarter.

Michael Lourenco Costa: Is that a sign of a tenant getting healthy and going back to accrual accounting? that is actually a sign of yes, getting healthier, but then also a transition that happened with that particular operator. And as part of that transition, as part of us agreeing to that transition, combined with their, you know, stronger financial position today, you know, we require that they repay that deferred rent and gladly did to make that transaction happen. Okay. Going to the senior housing, is the RevPAR growth broad based? it is pretty strong, you know, over 7%. And what is driving that? Is it, you know, just pricing power? Is there concession burn off? Is it mix at all?

Trying to get a little bit more details on that. Yeah. it is interesting because, you know, we get the question, others get the question as well regarding pricing power. Are you gonna be able to increase rates above market when you are above 90% occupancy? And while that intuitively makes sense, we are not seeing any evidence of that within our portfolio, at least not yet. There are some facilities that are over 90% occupancy that are able to push higher rates but we have some that are in the eighties that are able to push higher rates as well.

I think probably the 1 thing that we would probably chalk up the strong RevPAR growth to most significantly is Acuity. And the ability of a lot of our operators to increase you know, take on higher acuity residents and provide the care that they need and be able to charge those levels of care accordingly. that is having a positive contribution on the RevPAR side.

Analyst: Thank you for the time. Yep.

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

Vikram Malhotra: Afternoon. Thanks for taking the questions. I guess this maybe, you know, first 1, Rick, you talked about the trajectory of 20% to 40%, now pro forma, I guess, 50%.

Richard K. Matros: I am just wondering, like, where do you see this ultimately shaking out? Meaning, at what point do you say, like, we have had enough shop growth Now you just referenced cap rates coming in, you know, perhaps taking more value add.

Vikram Malhotra: So you have, like, a good balance. You have these rent resets all adding to growth. You know, next year by just my math. You should be, you know, at least 6%, 7% FFO growth with everything you have done. So I am just wondering bigger picture, like, how big do you grow the shop platform, and just how much more risk do you take in terms of value add?

Richard K. Matros: Well, I think, we do not view ourselves taking risk on value add. it is funny how everything changes Now that people are thinking about occupancy in the 90s, all of a sudden, 80% which is actually quite stabilized. it is viewed as not stabilized. But if you are at 80% and you have got a good operator in there and a good asset, there is not much risk there. So we would like to do more of that. In terms of our SHOP exposure overall, our focus is on growing earnings, and we are gonna follow where the opportunities are.

So right now, the predominant opportunities are in SHOP, and that is why we are anticipating 12 months out, we will be closer to 50% SHOP and closer to 40% skilled nursing. We are happy to do more skilled nursing but. And we can do both. So if the shop opportunities remain what they are and there are more skilled nursing opportunities, we are just going to do both. So you know, we. We are not sort of putting any parameters on how much shop we wanna have or how much skilled nursing we want to have. We want to have a very well balanced portfolio. We like the idea of having more SHOP than skilled.

But as we all know, for those of us that have been around for a pretty long time, the outlook is great for both shop and skilled. But life happens and stuff happens, and we just do not wanna have everything We do not wanna make a bet just on 1 asset class only, particularly with the contributions that we are getting out of the skilled portfolio now. And as I mentioned earlier, you look at all these lease expiration schedule, we are gonna have outsized contributions from our skilled portfolio. Through the end of the expiration. The lease expiration schedule in 2031. So that is a good place, I think, for us to be.

So that answer your question, Vikram?

Vikram Malhotra: No. that is that is helpful. I guess just, you know, bigger picture question. We will see what the midterm outcome is today. But I am wondering, like, are there any specific states you are watching from a if there are any Medicaid growth implications or even bigger picture, like if there is a blue wave versus not? Like, any thoughts around what that may mean for skilled and the reimbursement landscape?

Richard K. Matros: Yeah. So sure, so if it is. If the chambers are split, with the Republicans holding the senate and the Dems getting the house. I do not think there will be much change. or much of a fight over anything. If the if the Dems win both the senate and the house, they have already put this paper together. it is like 81 pages on health care overall, and there is some stuff in there that we like with workforce investments. And it is not just about long term care, by the way. it is about the entire health care space. They.

We would expect that there may be things coming up like staffing again or private investment in health care facilities, so that kind of stuff. Will bubble up again. When we beat those things down, in the past, we did it with bipartisan support. Not everybody sees it that way on the DEM side. So we feel pretty comfortable with it. There will be probably a little bit more noise about it if the Dems win the Senate as well, I think, is probably the best way to put it.

The other thing I would point out is to remind everybody, every state that we are in has staffing mandates currently, and that the staffing mandate that was originally recommended at the federal level was 1 that SABRA in the aggregate already met. So it is just not a concern. So I think it is gonna be more noise than headlines than an actual impact on the day to day business.

Vikram Malhotra: Okay. Great. And then, sorry, just if I can clarify 1 thing. Assuming this trajectory continues and you are, you know, headed to then pro forma, let's say, 60% shop, meaning in terms of acquisition next year. Just remind us, like, capital available to fund incremental deals into Q1 27, and then what is your order preference would be? Like, would you be doing more dispositions? Would you use leverage? Just remind us sort of the preference of funding all of this.

Michael Lourenco Costa: Yeah. I mean, in terms of financing, I think between our cash on hand, availability on our line of credit, and what we have raised on the ATM, We have enough capital to close everything we need to close through early 27, you know, call it Q1. Or even early Q2 of 27. And then going forward, I think when you look at investment opportunities that come our way, we would look to fund them similarly, you know, use our credit facility to fund the debt portion of it, call it, you know, 35. 30% to 35%.

And the rest would come from either retained earnings or from, you know, raising equity in the ATM or even the traditional ways that there is enough volume to do so. From the disposition side, look. You are always gonna have some level of disposition. I think that is something every company should be doing and looking at their portfolio and pruning it off periodically. I would not expect it to be of a meaningful volume. it is not gonna be of a volume that is gonna allow us to fund our existing. Our entire pipeline. Or anything like that. It will be part of the equation, but albeit a small part of it.

Your next question comes from the line of Seth Bergey with Citi.

Operator: Your line is now open.

Seth Bergey: Hey. Thanks for taking my question. I guess, I just wanted to go to kind of the pipeline how much of the awarded pipeline is either off market or some existing operators that are kind of already with you?

Darrin L. Smith: Sure. So the off market transactions we have been doing, to the beginning of the year, we have been averaging about 30%. Off market. And then as far as. As existing operators, we are only changing operators in about 35% of the total closed and awarded. Opportunities. So 65% the incoming operator would be staying in place.

Richard K. Matros: And then maybe last year last year, last year, we had almost no off market deals, and we have intentionally developed relationships where we can do more off market. So we have jumped from about 0% to 30% just in the last year.

Seth Bergey: Great. And then maybe going back to some of your earlier comments on occupancy and 90%, how should we kind of think about kind of the operating leverage and the incremental margin flow through as you kind of achieve higher occupancy within some of the more stabilized assets.

Richard K. Matros: So where occupancy currently is, you are gonna see it minimum 50% pull-through. To the margin as you get to 92%, 93%. that is gonna grow probably to 70-plus percent. Just not that much more cost associated with bringing in just a few residents. So those are probably good numbers. But we have already to be clear, we have already surpassed the operating leverage mark. So that pull through has already started to happen. Which is really 1 of the reasons that we have got sector high cash NOI margins. Great.

Seth Bergey: Thank you.

Operator: Your next question comes from the line of David Rodgers with Raymond James. Your line is now open.

David Rodgers: Hey, Rick. Good morning out there. I think you addressed this maybe a couple of questions ago, but maybe ask it in a different way. 40-some-odd percent of your skilled expirations are kinda after 2035, and I think Ensign's been out there desiring to buy some assets out of their REIT partner portfolios. I do not know if they have approached you or not, but how do you think about some of the long dated SNF assets and maybe offloading some of those to continue to accelerate the growth in the company overall, but keep some of the near term opportunities that you mentioned earlier in the call?

Richard K. Matros: Yeah. At this point, we feel like we have pretty much cleansed the portfolio of anything that we did not wanna retain on the skilled side. So we will see what the environment looks like. But as we sit here today, I would not anticipate any material dispositions with our skilled operators. I mean, the space has such a nice runway ahead of it. But the environment may change over the over the next couple of years. We have got time obviously, to make those judgments. We are not having those conversations with anybody right now. To answer your question about that with Ensign. So we will see. We will be open minded about it.

And then just a quick follow-up on the lease senior housing portfolio.

David Rodgers: Any opportunities there as well for rent resets, transitions to managed, anything like that would benefit you as well.

Richard K. Matros: We have pretty much done as much as can be done there. If there is any other opportunity, it is going to be incremental. So, basically, for that piece of the portfolio, which is down to about 7% of our NOI right now, are legacy operators that like everybody else, kinda went through hell during the pandemic. They are doing really well now. They are good operators. And so they are content with where things are. We are happy to have them as operators. We are not going to force them out of the portfolio. Just because they are triple net. So you are just going to see that number continue to shrink as a percent. Thank you.

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

Juan Sanabria: Thanks for, the extra time. Just curious on the SHOP side of the business. How you are thinking about cost as a result of your tech and data initiatives, and how you think about expenses trending from here?

Michael Lourenco Costa: So in terms of the cost that we are incurring at the corporate side, I mean, I think it is really incremental in the grand scheme of things. You know, we are making investments today. We have a lot of the infrastructure already in place, adding to it incrementally, as I mentioned. So I do not see that as being anything that is gonna meaningfully move the needle from a cost perspective. Obviously, from an efficiency perspective, we fully believe that to be the case.

On the corporate side as we continue to take on more operators, as we continue to expand that portfolio, You know, the initiatives that are happening at the facility level, I think, is more speaks more to your question in terms of expenses. Look. I think all those initiatives are done with an eye towards making operations more efficient. Whether that is on the housekeeping side, whether that is on the you know, the caretaker side, whatever it may be, it is all with an eye towards improving the efficiency and the ultimate delivery of care there. Thanks.

Juan Sanabria: And just 1 last 1 for me. There was a mention of kind of value add investment opportunities. So just curious on how you guys think about CapEx for the shop business on a per unit per year basis presumably those maybe having some deferred CapEx. And any thoughts about why you guys do not include shop CapEx now that SHOP is 40% of the business in your FAD calc? I think most of the peers do that.

Michael Lourenco Costa: I mean, in terms of the FADCalc, years ago, we decided we did not wanna put FAD in our in our supplement or anywhere else just because the SEC prohibits you from showing it on a per share basis. Now with that said, as we talked about before, the numbers are all there. Right? We do disclose what our CapEx is. We just go through our nonrecurring CapEx. So the math is all there. If somebody really wants to calculate what FAD is, on an apples to apples basis with a competitor, or a peer of ours, I should say.

We just do not wanna disclose it because we cannot show it on a per share basis. that is simply it.

Richard K. Matros: And in terms of CapEx spending, right now, everything that we have been buying is less than 10 years old, including the value add stuff. So there is not much in the way meaningful CapEx spend. I think it is reasonable to assume as time goes by, and the amount of newer assets kind of dwindles a little bit, you will pick up some older assets, and they will require more CapEx spend going forward.

Juan Sanabria: And then you will have some, I guess, on how much you guys think is the appropriate amount to spend on a per unit per year basis?

Richard K. Matros: Yeah. It depends. It depends on the age of the property, but it is, I guess, rule of thumb is around $1.2 thousand to $1.5 thousand.

Juan Sanabria: Thank you.

Operator: Your next question comes from the line of Michael Goldsmith with UBS. Your line is now open.

Michael Goldsmith: Good afternoon. Thanks a lot for taking my question. Maybe sticking with value add shop investments that you have already closed. Can you give us an update on how those assets are actually tracking relative to the original underwriting? And are you still comfortable with that 1- to 2-year stabilization timeline? And roughly 9% stabilized yield? Thanks.

Darrin L. Smith: Yes. Yes. Yes. So the they are actually performing ahead of underwriting projections, both from an occupancy perspective and an NOI. So you know, it is still early days, but so far, so good.

Michael Goldsmith: Got it. And then just to clarify the comment made earlier, I think around that, you know, when you get to 90% occupancy, you get pricing power and you are not seeing it. Are you was the purpose of that comment to suggest that you are seeing pricing power before you hit 90% occupancy? Just wanted to clarify that.

Michael Lourenco Costa: I mean, the comment was more directly around the, you know, 7 plus percent RevPOR growth we saw this quarter. Was not because our portfolio is over 90%. We are seeing facilities that have occupancy in the eighties being able to drive, you know, higher than average rate growth.

Richard K. Matros: Right? So it is not directly correlated today.

Michael Lourenco Costa: it is not directly correlated with, you know, being over some occupancy threshold. that is a Right.

Richard K. Matros: So once you get into the lower nineties, I think the. This intuitive assumption. It seems on everybody's part that there will be pricing power and there may be. We are not saying there will not be. We are just not there yet on occupancy. So the fact that our REVPOR has been strong as it is been. it is not just this quarter, by the way. Without that bodes really well going forward.

Michael Goldsmith: Thank you very much.

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

Austin Wurschmidt: Yeah. Hi. Thanks for taking the follow-up. I just wanted to go back to something discussed on the first quarter call around the landmark assets that were intended to be sold. Where does that stand? Has anything been completed on that front? And just looking for a general update. Thanks.

Richard K. Matros: Yes. A bunch of that stuff is gone. there is a couple left that are dwindling out, and that is kinda it. Now you are rounding.

Operator: There are no further questions at this time. I would now turn the call back to Rick Matros for closing remarks.

Richard K. Matros: Thanks for your time today. Appreciate your continued support, and we look forward to seeing a lot of you at NAREIT in a few weeks. Take care.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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