Q2 2024 Sabra Health Care REIT Inc Earnings Call

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Rachel Smith: Thank you and have a great day. Rachel Smith. All right, thanks for having me. Thank you again and have a great day.

Christina: Good day, everyone. My name is Christina and I'll be your conference operator today at this time I would like to welcome everyone to the Sabra second quarter 2024 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.

Rachel Smith: Rachel Smith Oh.

Christina: A question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question you can press star one again.

Unknown Speaker: There's a calm before the storm I know it's been coming for some time When it's over so they say It'll rain a sunny day I know, shining down like water I won't know, have you ever seen the rain I won't know, have you ever seen the rain Coming down on a sunny day Yesterday and days before The sun is cold and rain is hot I know, been that way for all my time Still forever on it goes Through the circle fast and slow I know, it can't stop, I wonder I won't know, have you ever seen the rain I won't know, have you ever seen the rain Coming down on a sunny day I won't know, have you ever seen the rain I won't know, have you ever seen the rain Coming down on a sunny day Some one told me long ago, there's a calm before the storm, I know, it's been coming for some time Well it's over so they say, it'll rain a sunny day, I know, shining down like water I want to know, have you ever seen the rain, I want to know, have you ever seen the rain Coming down on a sunny day, yesterday and days before, sun is cold and rain is hot, I know, been that way for all my time Still forever on it goes, through the circle fast and slow, I know, it can't stop, I wonder I want to know, have you ever seen the rain, I want to know, have you ever seen the rain, coming down on a sunny day I want to know, have you ever seen the rain, I want to know, have you ever seen the rain, coming down on a sunny day I want to know, have you ever seen the rain, I want to know, have you ever seen the rain, coming down on a sunny day, Someone told me long ago, the sails are calmed before the storm I know it's been coming for some time, well it's over slowly say, it'll rain slowly stay I know, shining down like water, I won't know, have you ever seen the rain Coming down on a sunny day, yesterday and days before, sun is cold and rain is hot I know, been that way for all my time, till forever on it goes, through the circle fast and slow I know, it can't stop I wonder, I won't know, have you ever seen the rain Coming down on a sunny day, I won't know, have you ever seen the rain Coming down on a sunny day [music] Someone told me long ago There's a calm before the storm I know It's been coming for some time When it's over, so they say It'll rain a sunny day I know Shining down like water I want to know Have you ever seen the rain? I want to know Have you ever seen the rain?

Lukas Hart: I would now like to turn the call over to Lukas Heart, which SVP of Finance. Please go ahead, Mr Hart, which.

Unknown Speaker: Coming down on a sunny day Yesterday and days before, When it's cold, and rain is hot, I know It's been that way for all my time, Till forever upon it goes Through the circle fast and slow, I know It can't stop, I wonder. Have you ever seen the rain? Coming down on a sunny day Yeah, I want to know, Have you ever seen the rain?

Lukas Hart: Thank you and good morning.

Lukas Heart: 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.

Lukas Heart: Our results of operations, including our earnings guidance for 2024, and our expectations regarding our tenants and operators and our expectations regarding our acquisition disposition and investment plans.

Lukas Heart: 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.

<unk> the risks listed in our Form 10-K for the year ended December 31 2023.

Lukas Heart: As well as in our earnings press release included as exhibit 99, one to the form 8-K, we furnished to the FCC yesterday.

Lukas Heart: We undertake no obligation to update our forward looking statements to reflect subsequent events or circumstances and you should not assume later in the quarter that the comments, we make today are still valid.

Lukas Heart: 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 Sabra health Dot com.

Lukas Heart: Our Form 10-Q earnings release and supplement can also be accessed in the investors section of our website.

Unknown Speaker: I want to know Have you ever seen the rain? Coming down on a sunny day, Some one told me long ago, there's a calm before the storm, I know, it's been coming for some time Well it's over so they say, it'll rain a sunny day, I know, shining down like water I want to know, have you ever seen the rain, I want to know, have you ever seen the rain Coming down on a sunny day, yesterday and days before, sun is cold and rain is hot, I know, been that way for all my time Still forever on it goes, through the circle fast and slow, I know, it can't stop, I wonder I want to know, have you ever seen the rain, I want to know, have you ever seen the rain Coming down on a sunny day, I want to know, have you ever seen the rain, I want to know, have you ever seen the rain Coming down on a sunny day Some one told me long ago, there's a calm before the storm, I know, it's been coming for some time Well it's over so they say, it'll rain a sunny day, I know, shining down like water I won't know, have you ever seen the rain, I won't know, have you ever seen the rain Coming down on a sunny day, yesterday and days before, sun is cold and rain is hot, I know, been that way for all my time Still forever on it goes, through the circle fast and slow, I know, it can't stop, I wonder I won't know, have you ever seen the rain, I won't know, have you ever seen the rain Coming down on a sunny day, I won't know, have you ever seen the rain, I won't know, have you ever seen the rain Coming down on a sunny day, Some one told me long ago, there's a calm before the storm, I know it's been coming for some time Well, it's over so they say, it'll rain a sunny day, I know, shining down like water I want to know, have you ever seen the rain?

Rick Matrice: And with that let me turn the call over to Rick Matrice, CEO, President and chair of Sabra Health care REIT. Thanks, Lucas Good day, everybody. Thanks for joining US we appreciate it as noted in our press release the quarter demonstrated progress in all key areas guidance was increased our shop cash NOI growth was 17, 7% our senior housing.

Unknown Speaker: I want to know, have you ever seen the rain? Coming down on a sunny day, yesterday and days before, the sun is cold, and the rain is hot, I know, been that way for all my time. Still forever on it goes, through the circle fast and slow, I know, it can't stop. I wonder. I want to know, have you ever seen the rain? I want to know, have you ever seen the rain? Coming down on a sunny day? I want to know, have you ever seen the rain coming down on a sunny day? Some one told me long ago, "There's a calm before the storm." I know it's been coming for some time.

Unknown Speaker: When it's over a sunny day, it'll rain a sunny day. I know, shining down like water. I want to know, have you ever seen the rain? Coming down on a sunny day Yesterday and the days before, the sun was cold, and the rain was hot. I know, it has been that way for all my time. Still forever on, it goes, through the circle fast and slow. I know it can't stop, I wonder.

Unknown Speaker: I want to know, have you ever seen the rain? Coming down on a sunny day. I want to know, have you ever seen the rain? Coming down on a sunny day. Someone told me long ago, there's a calm before the storm, I know, it's been coming for some time. When it's over, it'll rain a sunny day, I know, shining down like water.

Christina: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, you can press star one again. I would now like to turn the call over to Lukas Hartwich, SVP of Finance. Please go ahead, Mr. Hartwich.

Christina: Good day, everyone. My name is Christina, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sabra second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Lukas 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 our future financial position and results of operations, including our earnings guidance for 2024, 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 31, 2023, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.

Rick Matrice: Skilled nursing occupancy increased our EBITDAR rent coverage increase for both senior housing leased assets in our skilled nursing portfolio.

Our skilled nursing portfolio continues to surpass prepaid debit levels and.

Lukas Hart: And in fact coverage is higher than when we hit our occupancy high in 2019, which was approximately 200 basis points higher than it is today, all of which bodes really well for the future. None of our top 10 operators had improved rent coverage with mcgwire being the only one that didn't that came in at a strong 1.79 EBITDAR coverage with no concerning.

Lukas Hart: Leverage ticked down we announced approximately $136 million in new investments Medicaid rate increases on a weighted basis are estimated to be roughly 7%, which is 200 basis points higher than last year's increases.

Speaker Change: 71% of Sabra States had new effective.

Lukas Hart: Medicaid rates.

Lukas Hart: On July 1st year every year the other six states are spread.

Rick Matrice: Different months of the year.

Speaker Change: The Medicaid rate increase for our top five sniff tenants was actually 10, 6%.

Rick Matrice: And then of course Medicare has finalized its market basket increase of four 2%.

Rick Matrice: Additionally, our skilled nursing mix was up 110 basis points, our labor costs, including contract labor for that asset class are now at their lowest levels since March of 2021 and agency is now down 50% from a year ago.

Lukas Hart: Skilled nursing EBITDAR margins are now higher than pre pandemic margins and again, that's where the occupancy is still about 200 basis points lower than prepaid debit occupancy. So we would fully expect to see margins and coverage continue to improve.

Speaker Change: One comment on where to make all our behavioral segment.

Speaker Change: Our rent coverage was down but if you look at the last five quarters, it's always up and down in the behavioral segment you have to think about it a little bit differently than skilled nursing and senior housing, which are actually very predictable businesses pad debits notwithstanding.

Lukas Hart: The behavioral business is very dynamic much shorter length of stay but also has a breakeven point at much lower occupancy.

Rick Matros: And you should expect going forward to see that move up and down a little bit more than you would expect to see in our skilled nursing asset class or our senior housing asset class. In terms of our investment pipeline, we're starting to finally see some skilled nursing opportunities in the pipeline, and we expect that to increase over the course of the coming months. We're also seeing an uptick in the behavioral space. And with SHOP's cap rates much more attractive relative to our cost of capital, we'll continue to invest in SHOP as well.

Lukas Hart: <unk>.

Speaker Change: And the coverage is still quite strong at 369, and so there's a lot of breathing room. There. So we have no concerns about that.

Lukas Hart: You should expect going forward to see that.

Lukas Hart: Move up and down a little bit more than you would expect to see in our skilled nursing asset class or a senior housing asset class.

Lukas Hart: In terms of our investment pipeline, we're starting to finally see some skilled nursing opportunities in the pipeline and expect to increase over the course of the coming months. We're also seeing an uptick in the behavioral space and with sharp cap rates much more attractive relative to our cost of capital will continue to invest in.

Lukas Hart: The shop in shop as well.

Rick Matros: At this point in the year, we expect to continue to execute on the course we set before the year began and create a much stronger base from which to grow in 2025. And with that, I'll turn the call over to Talya. Thank you, Ray.

Lukas Hart: At this point in the year. We continue we expect to continue to execute and of course, we set before the year began and create a much stronger base from which to grow in 2025 and with that I'll turn the call over to Italia.

Italia: Thank you Rick.

Talya Nevo: Sabra's 82-property managed senior housing portfolio, including joint ventures that share, had a very strong quarter. On a sequential quarter basis, the managed portfolio, in total, including non-stabilized communities, had 9.3% quarterly cash NOI growth and 1.7% cash NOI margin increase. And that's sequential.

Italia: Fabry is 82 property managed senior housing portfolio, including joint ventures, It's sure had a very strong quarter on a sequential quarter basis. The managed portfolio in total, including non stabilized communities had 9.3% quarterly cash NOI growth and one point.

Italia: 7% cash NOI margin increase in that sequential this is a product of flattening expenses and continued occupancy and revpar gains the trends, we have been noting for the past few quarters.

Talya Nevo: This is the product of flattening expenses and continued occupancy and REVPOR gains, the trends we have been noting for the past few quarters. Sabra's same-store managed senior housing portfolio with joint ventures that share includes 70 properties, 46 of which are in the U.S. and 24 in Canada, excluding non-stabilized assets. The headline numbers are same-store portfolio revenue for the quarter grew 6.8% year over year, with our Canadian communities growing revenue by 9.6%.

Italia: <unk> same store managed senior housing portfolio with joint ventures. It sure includes 70 properties 46 of which are in the U S and 24 in Canada, excluding non stabilized assets. The headline numbers, our same store portfolio revenue for the quarter grew six 8% year over year.

Italia: With our Canadian communities growing revenue by 9.6% cash NOI for the quarter grew 17, 7% year over year, and nine 9% sequentially and our Canadian communities cash NOI for the quarter increased 23, 9% over second quarter of 2020.

Talya Nevo: Cash NOI for the quarter grew 17.7% year over year and 9.9% sequentially. In our Canadian communities, cash NOI for the quarter increased 23.9% over the second quarter of 2023 and 20.1% sequentially. REVPOR in the second quarter of 2024 increased by 3.1% year over year, while EXPOR decreased by 70 basis points, a function of stabilizing expenses and growing occupancy in both the U.S. and Canada.

Italia: Three and 20.1% sequentially.

Lukas Hart: <unk> core in the second quarter of 2024 increased by three 1% year over year, while ex pork decreased by 70 basis points, a functioning of stabilizing expenses and growing occupancy in both the U S and Canada.

Michael Costa: Canada's senior housing recovery has accelerated, with occupancy exceeding 91% this past quarter and cash NOI margin at nearly 32%. While occupancy has been strong for several quarters, expense control has moved into focus as the path to gain margin and grow cash NOI. Domestically, the story is similar, but the opportunity to reap the benefit of operating leverage is even greater given the potential for occupancy growth. As Rick mentioned, our Net Leased Stabilized Senior Housing Portfolio continues to thrive with consistently rising rent coverage, reflecting the underlying operational recovery.

Lukas Hart: Canada is senior housing recovery has accelerated with occupancy exceeding 91% this past quarter and cash NOI margin at nearly 32% while occupancy has been strong for several quarters is expense control has moved into focus as the path to gain margin and grow cash NOI.

Speaker Change: Lastly, the story is similar but the opportunity opportunity to reap the benefit of operating leverage is even greater given the potential occupancy growth.

Lukas Hart: As Rick mentioned, our net leased stabilized senior housing portfolio continues to thrive with consistently rising rent coverage, reflecting the underlying operational recovery <unk> total investment in behavioral health remained relatively static this quarter, we have begun to see more interest in these asset classes Rick mentioned.

Michael Costa: Sabra's total investment in behavioral health remains relatively static this quarter. However, we've begun to see more interest in this asset class, as Rick mentioned. Investors and operators are increasingly interested in the segment, and brokers have committed focus and are accelerating activity. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer. Thanks.

Michael Costa: For the second quarter of 2024, we recognize normalized FFO per share of $0.35 and normalized AFFO per share of $0.36, both up one penny from our first quarter results. The sequential increase was driven by the following. Higher cash rents collected of $4.5 million, primarily related to first quarter cash basis rents that were collected in the second quarter, and $1.8 million of improved NOI from our managed senior housing portfolio. This was partially offset by a $2 million increase in cash G&A as a result of truing up performance-based compensation expense estimates and a $900,000 increase in cash interest expense due to higher outstanding borrowings under our revolving credit facility during Additionally, last quarter, we recognized $900,000 of business interruption insurance income that was non-recurring.

Rick Matrice: Investors and operators.

Lukas Hart: Are increasingly interested in the segment and brokers have had.

Michael Costa: Has that committed focus and our our accelerating activity and with that I will turn the call over to Michael Costa Sovrans Chief Financial Officer.

Michael Costa: Thanks Tanya.

Michael Costa: For the second quarter of 2024, we recognized normalized <unk> per share of <unk> 35, and normalized <unk> per share of 36 cents.

Lukas Hart: Both up one penny from our first quarter results.

Speaker Change: The sequential increase was driven by the following.

Michael Costa: Higher cash rents collected a $4.5 million primarily related to first quarter cash basis rents that were collected in the second quarter and $1.8 million of improved NOI for our managed senior housing portfolio.

Speaker Change: This was partially offset by a $2 million increase in cash G&A as a result of Truing up performance based compensation expense estimates and a $900000 increase in cash interest expense.

Lukas Hart: Due to higher outstanding borrowings under our revolving credit facility during the period.

Lukas Hart: Additionally, last quarter, we recognized $900000 of business interruption insurance income that was nonrecurring.

Michael Costa: While there are various moving parts in our numbers this quarter, many of which are non-recurring, what shines through is that the earnings growth we have experienced over the last two quarters was driven by the continued improvement in our managed senior housing performance, which translates to 6% year-over-year growth in both normalized FFO and normalized AFFO per share. Because of this improvement and the continued stability in our triple net portfolio, our outlook for the remainder of the year has improved, resulting in an increase to our 2024 normalized FFO and normalized AFFO per share guidance.

Speaker Change: While there were various moving parts in our numbers this quarter, many of which are nonrecurring, which shines through is that the earnings growth. We've experienced over the last two quarters was driven by the continued improvement in our managed senior housing performance, which translates to 6% year over year growth in both normalized <unk> and normalized <unk> per share.

Speaker Change: Because of this improvement the continued stability in our triple net portfolio our outlook for the remainder of the year has improved resulting in an increase to our 2020 for normalized <unk> and normalized <unk> per share guidance.

Michael Costa: Our updated full year 2024 guidance ranges on a diluted per share basis are as follows. Net income $0.52 to $0.55. FFO, $1.33 to $1.36, normalized FFO $1.36 to $1.39, adjusted FFO $1.39 to $1.42, and normalized adjusted FFO of $1.41 to $1.44. I would like to highlight a few data points that are embedded in our updated guidance.

Speaker Change: Our updated full year 2024 guidance ranges on a diluted per share basis are as follows.

Speaker Change: Net income 52 to 55.

Speaker Change: S F O $1 33 to $1.36 nor.

Speaker Change: Normalized <unk> of $1.36 to $1.39.

Speaker Change: Adjusted <unk> of $1.39 to $1 42.

Speaker Change: And normalized adjusted <unk> of $1.41 to $1 44.

Speaker Change: I would like to highlight a few data points that are embedded in our updated guidance.

Michael Costa: First, our triple net cash NOI run rate for the second half of the year is approximately $90 million per quarter, which is consistent with the actual results of the first half of 2024. Second, our recurring cash G&A run rate for the second half of the year is $10.4 million per quarter, which is also consistent with the actual results of the first half of 2024. Excluded from recurring cash GNA is stock compensation expense, which we expect to be approximately $2.5 million per quarter in the second half of 2024.

Speaker Change: Our triple net cash NOI run rate for the second half of the year is approximately $90 million per quarter, which is consistent with the actual results of the first half of 2024.

Speaker Change: Second our recurring cash G&A run rate for the second half of the year is $10 $4 million per quarter, which is also consistent with the actual results for the first half of 2024.

Lukas Hart: Excluded from recurring cash G&A is stock compensation expense, which we expect to be approximately $2 $5 million per quarter in the second half of 2024.

Michael Costa: Lastly, our guidance assumes year over year same store cash NOI growth for a managed portfolio to be in the mid to high teens. Our guidance incorporates all announced investment and disposition activity, as well as the announced activity under the At-The-Market Equity Offering Program and does not assume additional investment, disposition, or capital transactions beyond those already disclosed.

Lukas Hart: Lastly, our guidance assumes year over year same store cash NOI growth for our managed portfolio to be in the mid to high teens.

Lukas Hart: Our guidance incorporates all announced investment and disposition activity as well as the announced activity under the at the market equity offering program and does not assume additional investment disposition or capital transactions beyond those already disclosed.

Michael Costa: Now briefly turning to the balance sheet, our net debt to adjusted EBITDA ratio was 5.45 times as of June 30, 2024, a decrease of 0.10 times from March 31, 2024. As of June 30, 2024, we are in compliance with all of our debt covenants and have ample equity of $906 million, consisting of unrestricted cash and cash equivalents of $36 million and available borrowings of $870 million under our revolving credit facility. With the recent improvements in the cost of our equity capital, we utilize our ATM during and subsequent to the quarter to source capital to fund our announced investing activity, year to date, we utilize the forward feature under our ATM program to allow for the sale of up to 4.7 million shares at an initial weighted average price of $14.72 per share net of commissions, and currently have shares with an initial weighted average price of $15.11 per share net of commissions that are available to use to match fund our investment activity.

Lukas Hart: Now briefly turning to the balance sheet, our net debt to adjusted EBITDA ratio was 5.45 times as of June 32024, a decrease of <unk>, One zero times from March 31 2024.

Lukas Hart: As of June 30th 'twenty 'twenty four we're in compliance with all of our debt covenants and have ample liquidity of $906 million, consisting of unrestricted cash and cash equivalents of $36 million and available borrowings of $870 million under our revolving credit facility.

Lukas Hart: With the recent improvements in the cost of our equity capital, we utilize our ATM during and subsequent to the quarter to source capital to fund our announced investing activity.

Lukas Hart: Year to date, we utilized the forward future under our ATM program to allow for the sale of up to $4 7 million shares at an initial weighted average price of $14.72 per share net of commissions and currently have.

Lukas Hart: With an initial weighted average price of $15 11 per share net of commissions that are available to us to match fund our investment activity.

Michael Costa: Finally, on August 7, 2024, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on August 30th, 2024 to common stockholders of record as of the close of business on August 19th, 2024. The dividend is adequately covered and represents a payout of 83% of our second quarter normalized AFFO per share. And with that, we'll open up the lines for

Lukas Hart: Finally on August seven 2024 sovereigns board of directors declared a quarterly cash dividend of <unk> 30 per share of common stock.

Lukas Hart: The dividend will be paid on August 30th 2024 to common stockholders of record as of the close of business on August 19th 2024.

Speaker Change: The dividend is adequately covered and represents a payout of 83% of our second quarter normalized <unk> per share and with that we'll open up the lines for Q&A.

Operator: Thank you. And at this time, I'd like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster, and your first question comes from the line of Nick Ulico from Scotiabank. Your line is open.

Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Speaker Change: And your first question comes from the line of Nick <unk> from Scotiabank. Your line is open.

Elmer Chang: Hi, thanks for the questions. This is Elmer Chang, on with Nick. We appreciate more explicitly communicating your seniors' housing, managed same-story and wide-growth expectations, and you mentioned in your remarks that operating leverage seems to be improving, but is there any more color you can provide around the occupancy ramp expectations you have for the segment in the second half of this year and how that might impact REIT earnings or expense growth at operators.

Speaker Change: Hi, Thanks for the question. This is Elmer Chang on with Nick.

Nick: We appreciate more explicitly communicating your seniors housing managed same store NOI growth expectations and you mentioned in your in your remarks that operating seems that operating leverage seems to be improving but is there any more color you can provide around.

Speaker Change: The occupancy ramp expectations you have for it.

Speaker Change: The segment in the second half of this year, and how that might impact reservoir or expense growth that operators.

Nick:

Rick Matros: Well, I can tell you that we're continuing to see some consistent growth in all, in both AL and IL across the portfolio. And in fact, together, they're currently at around the same occupancy. I know our holiday portfolio hit 83% at the end of July, and that puts them 200 basis points below where they were at the end of 2019, right before the pandemic, when we were all worried about increasing supply and what we were going to do with all that supply.

Speaker Change: Well I can tell you that we're continuing to see some consistent growth.

Speaker Change: In all in both al and IL across the portfolio and in fact together there at about correlate around the same occupancy I know our holiday portfolio hit 83%.

Nick: At the end of July and.

Speaker Change: That puts them.

Speaker Change: 200 basis points.

Speaker Change: Well below where they were in at the end of 2019 right before the pandemic when we were all worried about.

Speaker Change: Increasing supply and what we were going to do with all that supply. So I think the momentum is there we're seeing similar momentum and Jon occupancy in our in Canada, where I think our Canadian portfolio is it together is at about 98% occupancy.

Rick Matros: So, I think the momentum is there. We're seeing similar momentum on occupancy in our, in Canada, where I think our Canadian portfolio together is at about 93% occupancy ahead of the number I gave you for the second quarter. And we're seeing it also in our leased portfolio, where just under three quarters of our operators in our lease portfolio are at 85% or higher occupancy. So it's, it's really, it's looking good.

Speaker Change: The number I gave you for second quarter and we're seeing it also in our leased portfolio where.

Speaker Change: Of.

Speaker Change: Ah Okay.

Speaker Change: Sure.

Rick Matros: It just seems to be growing. And the additional supply that I alluded to, which is really substantial, what came on the market kind of pre-going into the pandemic and throughout the pandemic, That's being absorbed, and that's, you know, an excess of 10% increase in supply and senior housing in total. So it's a big number, and yet these numbers are going up.

Speaker Change: Call It just under.

Speaker Change: Three quarters of our operators and our lease portfolio.

Speaker Change: 885% or higher occupancy. So it's it's really it's looking good is just seems to be growing and the additional supply that I alluded to which is really substantial but came on the market kind of creep.

Speaker Change: Going into the pandemic and throughout the pandemic.

Elmer Chang: Got it. Thank you.

Speaker Change: That's being absorbed in that.

Speaker Change: You know in excess of 10% increase in supply in senior housing in total so it's a big number and yet these numbers are going up.

Speaker Change: Got it thank you I appreciate that.

Speaker Change: And.

Rick Matros: Appreciate that and sticking to the managed segment as well on the investment side. Um... What is the, are there any high-level numbers you could put around the investment pipeline? and what that might mean for transaction activity. I know you mentioned it. You know, you're seeing more activity across the board in all segments. And then, in terms of pricing... does it have that 8% initial cash yield? Is that representative of the deals that you're seeing today?

Speaker Change: And sticking to the manage segment as well our investment side.

Speaker Change: Hmm.

Speaker Change: What is the are there any high level numbers, you can put around the investment pipeline.

Speaker Change: And what that might mean for transaction activity.

Speaker Change: You mentioned.

Speaker Change: You are seeing more activity.

Speaker Change: Across all segments.

Speaker Change: And then in terms of pricing.

Speaker Change: Does that 8% initial cash yields that representative.

Speaker Change: Deals that youre seeing today.

Rick Matros: Okay, I'll take the first and second question first. So I'd say in the market today, in general, for senior housing, cap rates are going to start at seven. If you're looking at active adults, it's going to be lower than that. My guess is it's in the sixes, but we are not pursuing active adults. So sevens, seven and a half ish on senior housing going to eight. The assets that we've been able to acquire for an eight percent yield initially, or an eight percent cap rate going in are relatively new. They're kind of five years old or younger.

Speaker Change: Okay I'll take the first the second question first so I'd say in the market today in general for <unk>.

Speaker Change: Senior housing cap rates are going to start at a seven and if youre looking at active adult is going to be lower than that it's my guess is it's in the it's in the sixes, but we are not pursuing active adult so sevens.

Speaker Change: Seven and a half ish on senior housing going to eight.

Rick Matros: So they're completely modern and they're well, we stop, and they're in good locations. I think that's where the market is because that's where the debt markets are, frankly. So the competition that used to outprice us, who drove pricing down, was really based on debt and availability of debt, so it's the cost and availability. In terms of our pipeline, we are seeing a significant amount of deal flow. I would tell you right now that there probably is probably Sabra Health Care REIT Inc.

Speaker Change: The assets, we've been able to acquire for an 8% yield.

Speaker Change: Initially, our 8% cap rate going in.

Speaker Change: Our relatively new there are kind of five years old or younger so they are completely modern and there while we stop and theyre in good locations.

Speaker Change: <unk>.

Speaker Change: I think thats, where the market is because that's where the debt markets are frankly, so the competition that you set out price us.

Speaker Change: Who drove pricing down was really base their pricing on them on that.

Speaker Change: And availability of debt towards the cost and availability in terms of our pipeline.

Speaker Change: We are seeing.

Speaker Change: Yes.

Speaker Change: A significant amount of deal flow.

Speaker Change: I would tell you right now there is probably three quarters of $1 billion of deals under review that does not mean, we're committed to them or have LOI is out on them. It just means that's what we're looking at a small portion that will proceed to LOI submitted.

Speaker Change: And then.

Speaker Change: We're being very selective of where we're placing our capital.

Speaker Change: Because our intent is to make those investments in a way that really enhances and improves sabra portfolio.

Rick Matros: And the only other comment I'd make on the shop cap rates is that those are going up in yields, and the business is still recovering from the pandemic, so we're looking forward to really nice growth in all those investments that we've announced.

Speaker Change: The only other comment I'd make on the.

Speaker Change: The sharp cap rates since that doesn't go with yields that the business is still recovering from the pandemic. So.

Speaker Change: We're looking forward to.

Speaker Change: Really nice growth in all of those investments that we've announced.

Elmer Chang: Got it. Okay. Thank you.

Speaker Change: Got it okay. Thank you.

Speaker Change: Next question comes from the line of Austin, where Schmidt from Keybanc capital markets. Your line is open.

Austin Wurschmidt: The next question comes from the line of Austin Wurschmidt from KeyBank Capital Market. Your line is open.

Austin Wurschmidt: Great, thank you. Um, I think you alluded to the SHOP segment, kind of, you know, instability and triple net, you know, overall driving the guidance increase, but I'm just curious if SHOP was the sole driver of the guidance increase or did any of the investment activity have a positive impact on this year's outlook as well?

Austin Schmidt: Great. Thank you.

Speaker Change: Thank you alluded to the shop segment kind of instability in triple net.

Speaker Change: Overall, driving the guidance increase but.

Speaker Change: Just curious if shop was the sole driver of the guidance increase or did any of the investment activity has a have a positive impact on this year's outlook as well.

Rick Matros: Yeah, I would say the investment impact is pretty muted this year, given that, you know, most of it is in the second half of the year, so you're not going to see a lot of uplift in our 2024 full-year numbers as a result of this. You'd expect to see more of that impact going into 2025 and beyond. So, yeah, I would say the performance in our core portfolio, our same sort of portfolio, that, you know, again, combined with stability in our triple net portfolio is really what's driving our, you know, our optimism for the back half of the year.

Speaker Change: Yes, I would say the investment impact is probably is pretty muted.

Speaker Change: For this year given that you know most of it is in the second half of the year, So youre not going to see a lot of uplift in our 2020 for full year numbers. As a result of the you would expect to see more of that impact going into 2025 and beyond.

Christina: I don't want to go that long, so, there's a call before songs I know, it's been coming far from time When it's over, so let's see, it'll rain and fall asleep I know, shine and down, I've water Good day everyone, my name is Christina and I'll be your conference operator today At this time, I would like to welcome everyone to the Sabra 2nd quarter of 2024 earnings call All lines have been placed on mute to prevent any background noise After the speakers are marked, 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 one on your telephone keypad If you would like to withdraw your question, you can press star one again I would now like to turn the call over to Lucas Hartwich, SPP of Finance Please go ahead Mr. Hartwich Thank you and good morning Before we begin, I want to remind you that we'll 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 2024 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 10K for the year ended December 31, 2023 As well as in our earnings press release included as exhibit 99.1 to the Form AK we furnished to the SEC yesterday We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances And you should not assume later in the quarter that the comments we make today are still valid In addition, references will be made during this call to non-gap financial results Investors are encouraged to review these non-gap financial measures as well as the explanation and reconciliation of these measures to the comparable gap results Included on the financials page of the Investor section of our website at sobrihealth.com Our Form 10Q, earnings release and supplement can also be accessed in the Investor section of our website And with that, let me turn the call over to Rick Matros, CEO, President and Chair of sobrihealth Carey Thanks Lucas, good day everybody, thanks for joining us, we appreciate it As noted in our press release, the quarter demonstrated progress in all key areas Guidance was increased, our shop cash NOI growth was 17.7% Our senior housing and skilled nursing occupancy increased, our EBIT Darm red coverage increased for both senior housing lease assets and our skilled nursing portfolio Our skilled nursing portfolio continues to surpass pre-pandemic levels And in fact coverage is higher than when we hit our occupancy high in 2019, which was approximately 200 basis points higher than it is today All of which bodes really well for the future 9 of our top 10 operators had improved rent coverage with the choir being the only one that didn't but came in at a strong 1.79 EVIT Darm coverage with no concerning trends Leverage tick down, we announced approximately 136 million in new investments Medicaid rate increases on a weighted basis are estimated to be roughly 7%, which is 200 basis points higher than last year's increases 71% of sovereign states had new effective Medicaid rates on July 1st of every year, the other six states are spread throughout different months of the year. The Medicaid rate increased for our top five SNF tenants was actually 10.6%.

Speaker Change: So yes.

Speaker Change: Yes, I would say the performance in our core portfolio, our same store portfolio that.

Speaker Change: Again combined with stability in our Triple net portfolio is really whats driving our optimism for the back half of the year.

Rick Matros: Got it. And then, you guys were previously a little reluctant to provide, you know, the same store NOI growth guidance for the senior housing managed assets. You discussed this mid-teens growth. I guess what's giving you the confidence to incorporate that into your assumptions more formally, and how should we think about that, you know, mid to high-teens growth versus whatever was in the initial outlook?

Speaker Change: Got it and then you guys were previously a little reluctant to provide the same store NOI growth guidance for the senior housing managed assets.

Speaker Change: You discussed this mid teens growth I guess, what's giving you the confidence to incorporate that into your assumptions more formally and how should we think about that.

Speaker Change: Mid to high teens growth versus whatever it was in the initial outlook.

Rick Matros: I'll take the first shot at it, and I just think that more time has passed since we've recovered from the pandemic. It's really as simple as that. You know, this is a business that, as I mentioned in my opening remarks, pre-pandemic, was an extremely predictable business. That predictability, as we all know, has disappeared, but it's starting to come back now. So it's really just a function of time giving us more confidence.

Speaker Change: I'll take the first shot at it.

Speaker Change: I just think that more time has passed since we've recovered from the pandemic, it's really as simple as that this is a business that as I mentioned in my opening remarks pre pandemic was an extremely predictable business that predictability as we all know disappeared, but it's starting to come back now. So it's really just a function of time, giving us more confidence.

Rick Matros: So should we expect going forward that you'll be willing to kind of give us the outlook on an annual basis for the shop portfolio, given things have stabilized a bit?

Speaker Change: So should we expect going forward that you'll you'll be willing to kind of give us the outlook on an annual basis for the shop portfolio, given things have stabilized a bit.

Rick Matros: I mean, to the extent the portfolio is stabilized when we, you know, put out our next guidance for 2025 or anywhere beyond that. If the portfolio is stabilized, it becomes a lot easier to predict that, and if we could easily predict it or more easily predict it, you know, I think it's something we definitely consider.

Speaker Change: I mean to the extent the portfolio has stabilized when we put out our next guidance for 2025 are anywhere beyond that.

Speaker Change: If the portfolio stabilize it becomes a lot easier to predict that and that would if we could easily predicted or more easily predict it I think it's something we definitely consider.

Rick Matros: I'm going to add one more thing to your response, and that is operating leverage in our senior housing managed portfolio is particularly relevant, and that's why it's a little tough for us to give you a great, you know, a very detailed and specific and narrow answer because we're at the cusp of hitting operating leverage in many of the assets in the SHOP portfolio. In some of those, we've already passed them, which is, I think, why you're seeing the incredibly strong numbers in the Canadian portfolio that I outlined. In the US, we're sort of on the cusp of that as well. And that's going to be the driver of the significant EBITDA contribution from incremental occupancy growth.

Speaker Change: I'm going to add one more thing too to your to the response and that is.

Speaker Change: Operating leverage and see in our senior housing managed portfolio is particularly relevant and that's why it's a little tough for us to give you a great a very detailed and specific and narrow answer because we're at the cost.

Speaker Change: Of of hitting operating leverage in many of the assets in the shop portfolio in some in some some of those we've already passed it which is I think why you're seeing incredibly strong numbers in the Canadian portfolio that I that I outlined in the U S.

Speaker Change: On the cost of of that as well and that's going to be the driver of the significant.

Speaker Change: Significant EBITDA contribution.

Speaker Change: Contribution from incremental occupancy growth.

Austin Wurschmidt: That's helpful. Just last one, kind of along the similar lines for operating leverage. These assets that you're seeing at 8% cap rates on the senior housing managed side, are those assets similarly where the in-place portfolio is from an occupancy and margin perspective? Or do you see outsized opportunity? Just try and understand where they are in the life cycle of the recovery to where you're stepping in. Thank you.

Speaker Change: That's helpful. Just last one kind of along the similar lines for the operating leverage. These assets that you are seeing at 8% cap rates on the senior housing managed side are those assets Similarly, where the in place portfolio is from an occupancy and margin perspective, or do you see outsized opportunity just trying to understand where they are.

Speaker Change: We are in the lifecycle of the recovery.

Speaker Change: To where youre stepping in thank you.

Rick Matros: They're in line. Some of them are doing somewhat better than others, but there is, as Rick mentioned before, a significant growth opportunity there as well over the next couple of years. So we're not underwriting to an 8% stabilized rate. We're underwriting to an 8% going in with upside. The other thing I'd point out is that

Speaker Change: They're they're in line.

Speaker Change: All of them are doing.

Speaker Change: Somewhat better, but then others, but there is as Rick mentioned before a significant growth opportunity there as well.

Rick Matrice: Oh over over the next couple of years, so we're not underwriting to an 8% stabilizer.

Speaker Change: Underwriting to an 8% going in with upside.

Rick Matros: The other thing I'd point out is that the investments we announced post-quarter are with Leo Brown Group, which is one of our strongest operators. We've been doing business with them for years, both from a development and an operating perspective. And so to enter into these new investments with an operator that is so familiar to us and has had so much success, I think it bodes well for growth going forward as well. Thanks, everybody.

Speaker Change: Point out is that the.

Speaker Change: The investments, we announced post quarter are with Leo Grau group is one of our strongest operators, we've been doing business with them for years, both from a development and an operating perspective and so too.

Speaker Change: Petrol into these these new investments with an operator that is so familiar to us and has had so much success I think bodes well for the growth going forward as well.

Speaker Change: Okay. Thanks, everybody.

Juan Sanabria: And your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is open. Hi, this is Robin Hain, and I'm sitting in for Juan.

Speaker Change: And your next question comes from the line of Juan Sanabria from BMO capital markets. Your line is open.

Speaker Change: Hi, This is Robin Hayes <unk> sitting in for Guam.

Juan Sanabria: Just curious, what would make you more inclined to pursue this?

Robin Hayes: Just curious what would make you more inclined to pursue portfolio acquisitions.

Christina: And then of course, Medicare is finalized its market basket increase at 4.2%. And the agency is now down 50% from a year ago. Our skilled nursing ebidarm margins are now higher than pre-pandemic margins. And again, that's with occupancy still about 200 basis points, lower than pre-pandemic occupancy. So we would fully expect to see margins and coverage continue to improve. One comment I want to make on our behavioral segment, our rent coverage was down, but if you look at the last five quarters, it's always up and down in the behavioral segment.

Rick Matros: You know, at this point, we're not, we're just not seeing quality portfolios out there, and we're not willing to take on anything that's going to create a lot of work or a lot of noise. You know, we've made a commitment to our shareholders that we are going to be predictable and disciplined and rigorous in everything that we do. And we're more than happy to do small, digestible deals and do as many of those as possible rather than take on a portfolio that, at least, the places we're seeing out there tend to require some work.

Speaker Change: At this point, we're not we're just not seeing quality portfolios out there and we're not willing to take on anything that's going to create a lot of work or a lot of noise.

Speaker Change: We've made a commitment to our shareholders.

Speaker Change: We're gonna be predictable disciplined and rigorous in everything that we do.

Speaker Change: And we're more than happy to do small digestible deals and do as many of those as possible then to take on a portfolio of at least play. So we're seeing out there tends to require <unk>.

Speaker Change: Similar.

Speaker Change: Okay.

Juan Sanabria: And on Medicaid, what's the expectation for increases next year now that inflation is coming down significantly? I guess asked differently, is there any catch up left on inflation? Um, yeah, so my guess is we may have hit a high point this year. I think next year we'll still be capturing inflation. So I think we'll still have outsized Medicaid rates next year. But certainly, over the next few years, assuming inflation moderates, those rates will moderate as well. But I think we still have some outsized rates ahead of us, and just a laugh along the way.

Speaker Change: On Medicaid.

Speaker Change: What's the expectation for increases next year in our installation for Mcdonald's significantly I guess asked differently as theyre hearing a catch up left on inflation.

Christina: You have to think about it a little bit differently than skilled nursing and senior housing, which are actually very predictable businesses. The behavioral business is very dynamic, much shorter length this day, but also has a break even point at much lower occupancy. And the coverage is still quite strong at 3.69. So there's a lot of breathing room there. So we have no concerns about that. And you should expect going forward to see that move up and down a little bit more than you would expect to see in our skilled nursing asset class or our senior housing asset class.

Speaker Change: Yes, so I think.

Speaker Change: My guess is we may have hit a high point.

Speaker Change: This year I think next year will still be capturing inflation. So I think we'll still have outsized Medicaid rates next year, but certainly over the next few years.

Speaker Change: Assuming inflation moderates those rates will moderate as well, but I think we still have some outsized rates ahead.

Speaker Change: Ahead of us.

Robin Hayes: And just the last one on the pipeline.

Speaker Change: As you would think about funding investment growth and what can we expect that from a debt to equity split.

Rick Matros: In terms of our investment pipeline, we're starting to finally see some skilled nursing opportunities in the pipeline and that's increased over the course of the coming months. We're also seeing an uptick in the behavioral space. And with shop cap rates much more attractive relative to our cost of capital, we'll continue to invest in the shop and shop as well. At this point of the year, we expect to continue to execute in the course we set before the year began and create a much stronger base from which to grow in 2025.

Michael Costa: Yeah, so as I mentioned in my prepared remarks, given the strength we've been seeing and continue to see in our cost of equity capital, that is an available and viable source of funding where we could go out, use the ATM, use our revolver, match fund investments on a leverage-neutral basis, and still make very creative investments in Sabra. No matter how you define accretion, whether it's earnings, NAV, so on and so forth.

Speaker Change: Yeah, So as I mentioned in my prepared remarks, given the the <unk>.

Speaker Change: Strength, we've been seeing and continue to see in our cost of equity capital.

Speaker Change: <unk> is a and available and viable source of funding, where we could go out.

Speaker Change: Use the ATM use our revolver match.

Speaker Change: Match fund investments on a leverage neutral basis, and still make very accretive investments to sabra.

Speaker Change: No matter, how you define accretion whether it's from earnings.

Robin Hayes: So on and so forth so as long as we have that cost of equity capital.

Michael Costa: So as long as we have that cost of equity capital and that attractive cost of equity capital, you should expect to see us use that with our revolver to fund these. You know, we had some dispositions we pointed out in our earnings release that close subsequent to quarter end, which are very attractive sources of capital. You can make a lot of accretive investments with that. It's a limited source of capital. We acknowledge that.

Talya Nevo: And with that, I'll turn the call over to Talia. Thank you, Rick. That was 82 property managed at senior housing portfolio, including joint ventures that share had a very strong quarter on a sequential quarter basis, managed portfolio in total, including non stabilized communities had 9.3% quarterly cash and a wide growth and 1.7% cash and a wide margin increase and that's sequential. This is a product of flattening expenses and continued occupancy and revs poor gains.

Robin Hayes: And the attractive cost of equity capital.

Robin Hayes: You should expect to see us use that with our revolver.

Robin Hayes: To fund these we had some dispositions we pointed out in our.

Robin Hayes: Our earnings release that closed subsequent to quarter end, which are very attractive sources of capital and you can make a lot of accretive investments is that it's a limited source of capital we acknowledge that but yes. It is a source of capital we could use.

Michael Costa: But yeah, it is a source of capital we could use to combine with those other two sources I laid out. So, as long as we have a cost of capital to be able to go out and find investments that we like, there really isn't a cap on it necessarily.

Robin Hayes: Combined with those other two sources I laid out so as long as we have a cost of capital.

Talya Nevo: The trends we have been noting for the past few quarters. Sobre's same store managed senior housing portfolio with joint ventures that share includes 70 properties, 46 of which are in the US and 24 in Canada, excluding non stabilized assets, the headline numbers are same store portfolio revenue for the quarter grew 6.8% year over year with our Canadian communities growing revenue by 9.6%. Cash and a wide for the quarter grew 17.7% year over year and 9.9% sequentially.

Robin Hayes: To be able to go out and find investments that we like.

Robin Hayes: There really isn't a cap on unnecessarily.

Speaker Change: Got it thank you.

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

Joshua <unk>: Your next question comes from the line of Joshua <unk> from Bank of America. Your line is open.

Joshua Dennerlein: Yeah, guys, thanks for the time. Yeah, I wanted to go back. I think in the opening remarks there was a comment on the behavioral Unknown Executive, Joshua Dennerlein, Talya Nevo, Michael Costa, Vikram Malhotra, Elmer Chang, Sabra Health Care REIT Inc.

Joshua <unk>: Yeah, Hey, guys. Thanks for the time.

Speaker Change: I wanted to go back I think in the opening remarks, there was a comment on the behavioral.

Speaker Change: Space EBITDAR coverage or EBITDAR coverage I think you said that 179, but could you confirm what that is today and then what was it.

Talya Nevo: In our Canadian communities, cash and a wide for the quarter increased 23.9% over second quarter of 2023 and 20.1% sequentially. Revs poor in the second quarter of 2024 increased by 3.1% year over year, while exports decreased by 70 basis points, a functioning of stabilizing expenses and growing occupancy in both the US and Canada. Canada's Senior Housing Recovery has accelerated with ICC exceeding 91% this past quarter in cash and a Y margin at nearly 32%.

Speaker Change: The prior quarter.

Rick Matros: I said three.

Speaker Change: I said 3.7 day.

Rick Matros: 3.79 Okay, all right, that makes more sense Yeah, and 3.69 actually, but if you look at the last five quarters, it does move around some. And as I stated, it's not as predictable a business because you have a much shorter length of stay with the residents in these facilities than you do in senior housing or skilled nursing, but you also have a break-even point on occupancy at about 50 to 60 percent.

Speaker Change: Three point 79, Okay, alright that makes more sense. Thank you.

Speaker Change: 3.6 might actually but if you look at the last five quarters. It does move around some and as I say, it's not as predictable of business because you have a much shorter length of stay with the with the residents' needs facilities than you do in senior housing or skilled nursing, but you also have a breakeven.

Speaker Change: Our occupancy at about 50% to 60%. So it's a much different economic model and I understand that this is new to everybody.

Rick Matros: So it's a much different economic model, and I understand that this is new to everybody. And I think the comments and some of the notes reflect that newness, that folks aren't yet looking at it differently than senior housing and skill, but we'll take any coverage that's hovering around 3.7, right? Okay, and that, that's... That 3.79, that's stripping out the specialty hospitals and others.

Talya Nevo: While ICC has been strong for several quarters, expense control has moved into focus as the path to gain margin and grow cash and a Y. Domestically, the story is similar but the opportunity to reap the benefit of operating leverage is even greater given the potential to occupancy growth. As Rick mentioned are not least stabilized senior housing portfolio continues to thrive with consistently rising rent coverage reflecting the underlying operational recovery. Sabra's total investment in behavioral health remains relatively static this quarter. We have begun to see more interest in this asset class as Rick mentioned.

Robin Hayes: And.

Robin Hayes: So I think the comments from some of the notes reflect that newness.

Robin Hayes: <unk>.

Speaker Change: Folks are looking at it differently than senior housing at scale.

Robin Hayes: What I will tell you we will take any coverage that is hovering around 3.7 right.

Robin Hayes: Okay.

Robin Hayes: That's that.

Robin Hayes: That $3 seven nine that stripping out the specialty hospitals and other.

Joshua Dennerlein: No, it's included in there. It's what we disclosed in our supplement, Josh.

Speaker Change: No that's included in there.

Speaker Change: Okay, we disclosed it's what we disclosed in our supplement Josh.

Joshua Dennerlein: Oh, okay. Is there a big variability between those three kinds of categories?

Josh: Is there a big variability between those kind of three categories.

Rick Matros: Yeah, so hospitals have much higher coverage, but we underwrite the addiction treatment investments at two times or more. So we underwrite them at a much higher level than we do with either skilled nursing or senior housing. So there's always going to be some nice breathing room there, particularly given where the breakeven point is with occupancy.

Speaker Change: Yes, so the hubs, especially hospitals have much higher coverage, but we underwrite.

Talya Nevo: Investors and operators are increasingly interested in the segment and brokers have committed focus and are accelerating activity.

Robin Hayes: The addiction treatment.

Robin Hayes: Investments at two times or more so we underwrite them at a much higher level that we do with skilled nursing or senior housing. So theres always going to be some nice breathing room, there, particularly given where the breakeven point just with occupancy.

Michael Costa: With that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer. Thanks, Talya. For the second quarter of 2024, we recognize normalized FFO per share of $0.35 and normalized AFFO per share of $0.36. Both up one penny from our first quarter results. This sequential increase was driven by the following. Higher cash rents collected at $4.5 million, primarily related to first quarter cash basis rents that were collected in the second quarter and $1.8 million have improved NOI for a managed senior housing portfolio.

Joshua Dennerlein: Okay, and why is the break-even point so much lower, that 50% level?

Robin Hayes: Okay.

Speaker Change: Why is the breakeven point, so much lower than that 50% level.

Rick Matros: Because the rates in addiction treatment are far higher than what you have, your cost structure is, let me finish the sentence, the rates are far higher than you would have in senior housing or skilled nursing. It's like super, it's like a super high Medicare rate for everybody, but you're turning people over average length of stays, call it 20 days, 19 days.

Robin Hayes: Because the rates and addiction treatment are far higher than what you have.

Speaker Change: Your cost structure is finished.

Robin Hayes: Finished.

Robin Hayes: The rates are far higher than you would have in senior housing or skilled nursing, it's like Super it's like a super high Medicare rate for everybody.

Michael Costa: This was partially offset by a $2 million increase in cash G&A as a result of chewing up performance based compensation expense estimates and a $900,000 increase in cash interest expense due to higher outstanding borrowings under our revolving credit facility during the period. Additionally, last quarter, we recognized $900,000 of business interruption insurance income that was non-recurring. While there were various moving parts in our numbers this quarter, many of which are non-recurring, which shines through is that the earnings growth we have experienced over the last two quarters were driven by the continued improvement in our managed senior housing performance, which translates to 6% year-over-year growth in both normalized FFO and normalized AFFO per share.

Robin Hayes: Turning people over.

Speaker Change: Length of stay is call. It 20 days 19 days.

Rick Matros: So that's one; you have less clinical staff. You have similar fixed costs, but you tend to have more, more beds; you have a greater scale over which to amortize those fixed costs. You don't have very many variable costs, and your biggest cost really is a centralized customer acquisition model, which is over the whole portfolio of any recovery company. So we underwrite a much higher so-called imputed management fee on our behavioral assets.

Speaker Change: So thats one you have less clinical staff.

Speaker Change: Do you have similar fixed cost that you tend to have more more beds without.

Speaker Change: E E.

Speaker Change: You have greater scale over which to.

Robin Hayes: Amortize those fixed costs.

Robin Hayes: You don't have very much variable costs and your biggest cost really is.

Robin Hayes: On a centralized customer acquisition model.

Robin Hayes: Yeah.

Robin Hayes: The whole portfolio of any recovery company.

Michael Costa: Because of this improvement, the continued stability in our triple net portfolio, our outlook for the remainder of the year is improved, resulting in an increase to our 2024 normalized FFO and normalized AFFO per share guidance. Our updated full-year 2024 guidance ranges on a deluded per share basis are as follows. Net income, 52 cents to 55 cents, FFO, $1.33 to $1.36, normalized FFO, $1.36 to $1.39, adjusted FFO, $1.39 to $1.42, and normalized adjusted FFO of $1.41 to $1.44.

Robin Hayes: So we underwrite we underwrite a much higher so called imputed management fee.

Robin Hayes: Behavioral assets.

Joshua Dennerlein: Okay, interesting. Thank you.

Speaker Change: Okay interesting. Thank you.

Rick Matros: and happy to spend more time with you offline if you'd like.

Speaker Change: Thanks happy to spend more time with you on offline if you'd like.

Michael Griffin: Thank you. And your next question comes from the line of Michael Griffin from Citigroup. Your line is open.

Speaker Change: Thank you and your next question comes from the line of Michael Griffin from Citigroup. Your line is open.

Michael Griffin: Great, thanks. I want to go back kind of to the acquisition opportunity set. If you could give us a sense of what the accretion spread is between your acquisitions and your weighted average cost capital. And then, Talya, you made some comments on debt capital markets. Are lenders open to lending again on both seniors and skilled nursing?

Michael Griffin: Great. Thanks, I wanted to go back to the acquisition opportunity set if you could give us a sense sort of what the accretion spread is between your acquisition then your weighted average cost of capital and then <unk> I know you made some comments on debt capital markets are lenders open for lending again on that.

Michael Costa: I would like to highlight a few data points that are embedded in our updated guidance. First, our triple net cash NOI run rate for the second half of the year is approximately $90 million per quarter, which is consistent with the actual results of the first half of 2024. Second, our recurring cash GNA run rate for the second half of the year is $10.4 million per quarter, which is also consistent with the actual results for the first half of 2024. Excluded from recurring cash GNA is stock compensation expense, which we expect to be approximately $2.5 million per quarter in the second half of 2024.

Speaker Change: Seniors and skilled nursing.

Speaker Change:

Talya Nevo: So there are loans available. Certainly, the agencies are somewhat open, if nothing else. They've been open to the extent that you can meet the criteria. But I, I, It's still a challenge for people to refinance existing debt. And that's, that's, that's the single biggest challenge.

Speaker Change: So the.

Speaker Change: Gary.

Gary: Our loans available certainly the agencies are somewhat open if nothing else they've been open to the extent that we could meet the criteria.

Gary: But I I.

Gary: It's still.

Gary: It's still a challenge to get people to refinance existing debt.

Talya Nevo: Just because of debt service coverage, loan to value, and cap rates moving up means that in place values are today are not, even if your building is stabilized, are not what they were five years ago when cab rates were a six. So it's just, you know. And no one's going to buy, no one's going to buy at a six percent cap rate when their borrowing rates are going to be six and a half to seven and a half, right? There's not a lot of equity pickup, and not a lot of positive leverage from the debt there.

Speaker Change: That's the that's the single biggest challenge.

Gary: Just because of the debt service coverage loan to value cap rates moving up means that in place values are today are not even the shipbuilding is stabilized is not what it was.

Michael Costa: Lastly, our guidance assumes year-over-year, same-store cash NOI growth for a managed portfolio to be in the mid-to-high teams. Our guidance incorporates all announced investment and disposition activity, as well as the announced activity under the at-the-market equity offering program, and does not assume additional investment, disposition, or capital transactions beyond those already disclosed.

Speaker Change: Five years ago, when cap rates were our sex.

Speaker Change: Yes.

Speaker Change: Yeah.

Speaker Change: And no one's going to buy no one's going to buy at a 6% cap rate when theyre borrowing rates can it be six five to seven and a half right. There's not a lot of equity pick up and a lot of positive leverage from the debt there.

Michael Costa: Now briefly turn to the balance sheet. Our net debt to adjusted EBITDA ratio was 5.45 times as a June 30, 2024, a decrease of 0.10 times from March 31, 2024. As a June 30, 2024, we are in compliance with all of our debt covenants and have ample equity of $906 million, consisting of unrestricted cash and cash equivalents of $36 million, and available borrowings of $870 million under our revolving credit facility. With the recent improvements in the cost of our equity capital, we utilize our ATM during and subsequent to the quarter to source capital to fund our announced investing activity.

Michael Costa: And in terms of accretion, your question on that. You know, based on the funding sources that we've sourced today, which we all disclose, what we disclose in our filings with the ATM, which is that we did that at a lower price than we're trading at today, the sales proceeds on, and so forth, you know, these investments that we've announced are over 100 basis points accretive, right? So there's some spread there to be had, and I would expect that spread to be better as we, you know, are able to use the ATM at more

Michael Costa: Yeah, and

Speaker Change: And in terms of accretion Youre question on that.

Speaker Change: Based on the funding sources that we source today, which we all disclose what we disclosed in our filings with the ATM, which is we did that at a lower price than we're trading at today.

Speaker Change: The sales proceeds so on and so forth. These.

Speaker Change: These investments that we've announced are over 100 basis points accretive right. So there's a some spread there.

Speaker Change: To be had and I would expect that spread to be better as we are able to use the ATM at more attractive prices.

Michael Costa: Year-to-date, we utilize the Ford feature under our ATM program to allow for the sale of up to 4.7 million shares at an initial weighted average price of $14.72 per share net of commissions, and currently having shares with an initial weighted average price of $15.11 per share net of commissions that are available to use to match fund our investment activity.

Michael Griffin: And as businesses continue to improve post-pandemic, that sounds good guys. I really appreciate the color there.

Speaker Change: Great.

Speaker Change: Yes.

Speaker Change: And as the business has continued to improve post pandemic right, yes, because thats a good point, because the 100 basis points or 100 basis points that I quoted was just ongoing and yields.

Michael Griffin: And then I'd just be curious to get your thoughts on the skilled mix increasing. Is this a deliberate action taken by your operators? Or is seasonality or other factors impacting this? And would you expect it to continue to increase in the future?

Speaker Change: It sounds good guys really appreciate the color there and then I'd just be curious to get your thoughts on the skilled mix increasing is this a deliberate action taken by your operators are.

Michael Costa: Finally, on August 7, 2024, Sober's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on August 30, 2024, to common stock holders of record as with the close-up business on August 19, 2024.

Speaker Change: Or either seasonality or other factors impacting this and would you expect it to continue to increase in the future.

Rick Matros: Yeah, so we still haven't hit our high in skilled mix, so I would expect it to increase seasonality, which may affect it a little bit, but basically, I think what's happening is as occupancy continues to improve, operators are able to be more selective in who they admit. I'm turning it around the other way.

Speaker Change: Yes, so we still haven't hit our high on skilled mix.

Speaker Change: So I would expect it to increase seasonality may affect that a little bit, but basically I think what's happening.

Michael Costa: The dividend is adequately covered and represents a payout of 83% of our second quarter normalized AFFO per share, and with that we'll open up lines for Q&A.

Speaker Change: As occupancy continues to improve operators are able to be more selective in who they admit it so.

Rick Matros: When you've got really low occupancy, everybody wants to get their beds filled, and they may; you may see a bigger increase in Medicaid census than you do in Medicare census in those circumstances. But the operators that we have in our portfolio are all high-acuity operators, some obviously more than others, but they all focus on the high-acuity model, which positions them really well for the future, particularly when you think about value-based reimbursement. So they are just able to be more selective in their admissions because occupancy is continuing to recover. Yeah, the other thing I'll add to that...

Speaker Change: Turning it around the other way when you've got really low occupancy everybody wants to get their beds filled.

Unknown Executive: Thank you, and at this time, I'd like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: And they may ebay.

Speaker Change: You may see a bigger increase in Medicaid census than you do in Medicare census in those circumstances, but the operators that we have in our portfolio.

Elmer Chang: And your first question comes from the line of Nick Ulico from Scotia Bank. Your line is open. Hi, thanks for the question. This is Elmer Chang on with Nick. We appreciate more explicitly communicating your seniors' housing, manage same-story NLI growth expectations. And you mentioned in your remarks that operating, operating leverage seems to be improving. But is there any more color you can provide around the occupancy ramp expectations you have for this segment in the second half of this year?

Speaker Change: Are all high acuity operators, some obviously more than others, but they all focus on the higher acuity model.

Speaker Change: Which is really what positions.

Speaker Change: Physicians and really well for the future, particularly when you think about.

Speaker Change: Value based value based reimbursement so.

Speaker Change: They just are becoming more April can be more selective in their admissions because occupancies continuing to recover.

Michael Costa: Yeah, the other thing I'll add to that, too, is that the skilled mix stat that we put out is based on revenue, and this quarter, you have six months worth of the Medicare increase that went into effect last October. So that's benefiting it as well, in addition to all the points that Rick laid out.

Speaker Change: The other thing I'll add to that too is.

Speaker Change: That skilled mix stat that we put out is based on revenue and for this quarter you have six months worth of the Medicare increase that went into effect last October.

Elmer Chang: And how that might impact red for or expense growth at operators? I can tell you that we're continuing to see some consistent growth in both AL and IL across the portfolio. In fact, together, they're about correlated around the same occupancy. I know our holiday portfolio hit 83 percent at the end of July, and that puts them 200 basis points below where they were in at the end of 2019, right before the pandemic, when we were all worried about increasing supply and what we were going to do with all that supply.

Speaker Change: So that's that's benefiting it as well in addition to all the points that Rick laid out.

Michael Griffin: Great, that's it for me. Thanks for the time.

Speaker Change: Alright, that's it for me thanks for the time.

Speaker Change: Thank you.

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

Speaker Change: Your next question comes from the line of Vikram Malhotra from Mizuho Securities. Your line is open.

Vikram Malhotra: Good afternoon. Thanks for taking the question. I just wanted to maybe get some clarifications on the 100 basis points spread you mentioned would imply cost to capital is 7%. I'm just wondering, do you kind of take an inverse of ASFO, or do you use some other methodology to calculate cost to capital? And can you give us some context of how that 100 bits compares to what you've achieved historically on deals?

Vikram Malhotra: Awesome. Thanks for taking the question I just wanted to maybe get some clarification on the 100 basis points spread you mentioned wood.

Speaker Change: Imply your cost of capital is.

Vikram Malhotra: 7%.

Speaker Change: I'm just wondering just you couldn't pick a.

Speaker Change: Inverse of ASF or do you use some other methodology to calculate cost to capital and can you give us some context on how that 100 bps compares to what you've achieved historically on deals.

Elmer Chang: So I think the momentum is there. We're seeing similar momentum on occupancy in our in Canada where I think occupancy ahead of the number I gave you for second quarter, and we're seeing it also in our least portfolio where of the, let's call it just under three quarters of our operators in our least portfolio are 85 percent or higher occupancy. So it's really, it's looking good. It just seems to be growing and the additional supply that I alluded to, which is really substantial, what came on the market kind of in pre going into the pandemic and throughout the pandemic.

Speaker Change: So in terms of how we come up with that over 100 basis point number that I quoted.

Michael Costa: So in terms of how we come up with that over 100 basis point number that I quoted, you know, it's a combination of looking at what's the AFFO expectation, and baked in consensus, baked in our guidance, and a couple of different estimates there. It factors in the dispositions that we announced as well, and the cost, if you will, relating to those, and then the cost of our credit facility. And, you know, when we do that again, we're doing it on a leverage-neutral basis.

Speaker Change: It's a combination of looking at what's the <unk> expectation.

Speaker Change: And baked in consensus baked in our guidance in a couple of different estimates there.

Speaker Change: It factors in the dispositions that we announced as well and the <unk>.

Speaker Change: Cost if you will relates to those and then the cost of our our credit facility.

Speaker Change:

Speaker Change: And when we do that again, we're doing that on a leverage neutral basis, and we're looking at it vis vis the market expectation for our earnings and what those investments incrementally.

Michael Costa: And, you know, we're looking at it vis-a-vis the market expectation for our earnings and what those investments, incrementally, or I guess on a standalone basis, produce on a per-share basis, and it's very accretive on that measure.

Elmer Chang: That's being absorbed, and that's, you know, an excess of 10 percent increase in supply and senior housing in total. So it's a big number, and yet these numbers are growing up. Got it. Thank you. I appreciate that. And sticking to the managed segment as well on investment side, what is the, are there any high level numbers to put around the investment pipeline? And what that might mean for transaction activity. I know you mentioned, you know, you're seeing more activity across the board of all segments.

Speaker Change: Or I guess on a standalone basis produce on a per share basis and is very accretive on that on that measure.

Speaker Change: Okay.

Vikram Malhotra: And then, just sorry, just how that 100 bips compares to what you may have achieved historically, just so we can model out the ramp into 25 and 26.

Speaker Change: And then just sorry, just how that 100 bps compares to what you may have achieved historically just so we can model out the ramp into 'twenty five 'twenty six.

Michael Costa: I think the best way to think about it, Vikram, is whenever we've been in a position where our cost of equity capital was trading at, you know, a premium to our NAV in the past, and we were able to execute on transactions at a similar point in time, you know, I would expect that the accretion is probably somewhere in that same neighborhood.

Vikram Malhotra: I think the best way to think about it vikram is whenever we been in a position where our cost of equity capital was trading at a.

Speaker Change: Premium to our NAV.

Vikram Malhotra: In the past and we were able to execute on transactions at a similar point in time.

Speaker Change: I would expect that the.

Elmer Chang: And then in terms of pricing, does, you know, that 8 percent initial cash yield, that representative of, of gills that you're seeing today? Okay, I'll take the first, the second question first. So I'd say in the market today, in general for senior housing, cap rates are going to start at a seven. And if you're looking at active adult, it's going to be lower than that. It's my guess is it's in the, it's in the sixes, but we are not pursuing active adults.

Speaker Change: Accretion is probably somewhere in that same neighborhood.

Vikram Malhotra: Got it. And then maybe a higher level question for you or for Rick, I guess now that we're clearly past COVID and you're starting to grow again, tenant health is no longer as much of an issue. I'm just wondering, in the history of five years, how the AFFO growth trajectory may differ from that history. And I know in the past, we've talked loosely about a 5% AFFO growth trajectory over a multi-year period. I'm just wondering, is there anything that would change that higher or lower going forward?

Speaker Change: Got it and then just.

Speaker Change: Maybe a high level question for you or for Rick I get it.

Speaker Change: Now that you know, we're clearly past COVID-19 and Youre starting to grow again.

Elmer Chang: So seven, seven and a half ish on senior housing going to eight. The assets that we've been able to acquire for an eight percent yield initially or eight percent cap rate going in are relatively new. There are kind of five years old or younger. So they're completely modern and they're well we stop and they're in good locations. I think that's where the market is because that's where the debt markets are, frankly.

Speaker Change: Tenant health is no longer as much of an issue I'm just one.

Speaker Change: There's three to five years <unk> growth trajectory may differ from from history, and I know in the past we've talked loosely about a 5% core growth trajectory over a multiyear period I'm. Just wondering is there anything that would change.

Speaker Change: Change that higher or lower going forward.

Speaker Change: I think.

Speaker Change: Once.

Rick Matros: Our managed portfolio, you know, fully stabilizes, and it becomes more predictable in terms of its growth prospects. You know, that AFFO per share growth, and absent any additional investments, of course, that'll contribute to it, you know, absent any additional investments, I think that, you know, 5% is probably not an unreasonable expectation for a steady state portfolio, but keep in mind, none of us are, neither Sabra nor our peers are steady state portfolios.

Speaker Change: Our managed portfolio fully stabilizes and it becomes more predictable in terms of its growth prospects.

Speaker Change: That <unk> <unk> per share growth and absent any additional investments of course that will contribute to it.

Elmer Chang: So the competition that you say outpriced us or who drove pricing down was really based there pricing on debt, and availability of debt to its cost and availability. In terms of our pipeline, we are seeing a significant amount of deal flow. I would tell you right now there's probably three quarters of a billion dollars of deals under review. That does not mean we're committed to them or have otherwise out on them.

Speaker Change: Absent any additional investments I think that.

Speaker Change: 5% is probably not an unreasonable expectation for a steady state portfolio, but keep in mind none of us.

Rick Matros: We're constantly in the business of looking for additional opportunities to increase that. So we can't sit here and say it's going to be 5%, you know, because things are going to change that. But I think that's an okay assumption on a steady-state portfolio. The other point that I'd make is to remember

Speaker Change: Neither <unk>, nor our peers are steady state portfolios, where we're constantly in the business of looking for additional opportunities to increase that.

Speaker Change: So we can't sit here and say, it's going to be 5% because things are going to change that but I think that's an okay assumption on a steady state portfolio.

Rick Matros: The other point that I'd make is, remember, we're at a very different inflection point with these asset classes. There's no new supply.

Speaker Change: I figured I'd make is remember we're at a very different inflection point with these asset classes.

Rick Matros: Occupancy is going to exceed pre-pandemic levels, and margins should exceed pre-pandemic levels. We've already seen that on the skilled nursing side. So, and we're going to, in addition to doing skilled nursing investments and some behavioral investments, we're going to continue to do retail investments. And so that particular component of our portfolio is going to continue to have a disproportionate impact on our earnings growth. So, you know, we're pretty optimistic about it without putting sort of a fine point on what exactly the number may be.

Elmer Chang: It just means that's what we're looking at. A small portion that will proceed to L.O.I, submitted and then we're being very selective of where we're placing our capital because our intent is to make those investments in a way that really enhances and improve Sabra's portfolio. Neil, the other comment I'd make on the shop cap rates is that those are going in yields and the business is still recovering from the pandemic. So we're looking forward to really nice growth and all those investments that we've announced. Got it. Okay. Thank you.

Speaker Change: No new supply.

Speaker Change: Occupancy is going to exceed pre pandemic levels margins should exceed pre pandemic levels, we've already seen that on the skilled nursing side. So.

Speaker Change: In addition to doing skilled nursing investments, it's a behavioral investments we're going to continue to do shop investments and so that particular component of our portfolio is going to continue to have a disproportionate impact on our earnings growth. So.

Speaker Change: Good.

Speaker Change: So we're pretty optimistic about it without putting a fine point would exactly the number may be.

Speaker Change: Great. Thank you.

Speaker Change: Okay.

Rick Matros: Question comes from the line of Austin Wurschmidt from Keybank Capital Market. Your line is open. Great. Thank you. I think you alluded to the shop segment and stability and triple net overall driving the guidance increase. But I'm just curious if shop was the sole driver of the guidance increase or did any of the investment activity has a positive impact on this year's outlook as well. Yeah, I would say the investment impact is probably is pretty muted for this year given that most of it is in the second half of the year.

John Kilschowski: And your next question comes from the line of John Kilschowski from Wells Fargo. Your line is open. All right.

Speaker Change: And your next question comes from the line of John Carroll Schatsky from Wells Fargo. Your line is open.

John Kilschowski: Hi, thank you. Maybe could you give us the cap rate on the purchase option for the loan you made this quarter, and then of the $750 million you mentioned under review, what percentage of those are under the loan-to-owner structure? I know recently that hasn't been much of a strategy, but curious if those deals are starting to get more attractive here.

Speaker Change: Hi, Thank you.

Speaker Change: Maybe could you give us the cap rate on the purchase option for the loans you made this quarter as that of the $750 million you mentioned under review what percentage of those are under the load to our structure I know recently that hasnt been much of a strategy, but curious if those deals are starting to get more attractive here.

Rick Matros: The only along with the purchase option we currently have is the one that we just closed that you mentioned. We're not in the business of making those; that was an off-market situation. That was with an operator with whom we've had a great deal of success who came and wanted to operate them. They make sense from a strategic perspective for us as an investment, both from a location and from the state of that situation as well as from the operator themselves. That rate is hard to say because it'll be upwards of 9%, I expect, based on the lease structure that we anticipate having.

Speaker Change: Okay.

Speaker Change: The only.

Speaker Change: Well under the purchase option. We currently have is the one that we just closed it was.

Rick Matros: So you're not going to see a lot of uplift in our 2024 full year numbers as a result of the you'd expect to see more of that impact going into the 2025 and beyond. So yeah, I would say the performance in our core portfolio are same sort portfolio that again combined with stability in our triple net portfolio is really what's driving our optimism for the back after the year. Got it. And then, you know, you guys were previously a little reluctant to provide, you know, the same store or ROI growth guidance for the senior housing managed assets.

Speaker Change: That you mentioned.

Speaker Change: We're not in the business is making those that was an off market situation.

Speaker Change: That is with the operator.

Speaker Change: That with whom we've had a great deal of success and payments wanted to operate these they make sense from a strategic perspective from assets and investment banks.

Speaker Change: Location from the state of the situate from that situation as well and the operator themselves.

Speaker Change: Cap rate is hard to say because.

Speaker Change: We meet it'll it'll be upwards of 9% I expect them based on the lease structure that we anticipate having yes.

Rick Matros: You discuss this mid teens growth. I guess what's giving you the confidence to incorporate that into your assumptions more formally and how should we think about that, you know, mid high teens growth versus whatever was in the initial outlook.

Rick Matros: And the other point I make, just to reiterate our position, is that we totally get why some of our peers are putting so much capital to work on loans, but unless there's a strategic value to us, we're just in a different place, that's all. And all of our investments are going to be focused on contributing to earnings growth. The loans for us, at this point, in our organization's stage of development, are basically short-term money that's got no growth to it, and really, there's only a downside there. So you're just not going to see us putting money to work in that fashion.

Speaker Change: I wanted to make just to reiterate our position as one we totally get why some of our peers are putting so much capital to work on.

Speaker Change: Loads, but unless it is a strategic value to us we're just in a different place that's all.

Rick Matros: I'll take the first shot at it. And I just think that more time has passed as we've recovered from the pandemic. It's really as simple as that. You know, this is the business that, as I mentioned in my opening remarks, pre pandemic was an extremely predictable business. That predictability, as we all know, disappeared, but it's starting to come back now. So it's really just a function of time giving us more confidence.

Speaker Change: And all of our investments are going to be focused on contributing to earnings growth.

Speaker Change: <unk> for us at this point.

Speaker Change: And our organization stage of development.

Speaker Change: Basically short term money that Scott no growth to it.

Speaker Change: Really there's only downside there so.

Rick Matros: So should we expect going forward that you'll be willing to kind of give the outlook on an annual basis for the shop portfolio, given things have stabilized a bit? I mean, to the extent that portfolio is stabilized when we put out our next guidance, you know, for 2025 or anywhere beyond that, if the portfolio stabilized, it becomes a lot easier to predict that. And that would, if we could easily predict it or more easily predicted, you know, I think it's something we definitely consider.

Speaker Change: You're just not going to see us putting money to work in that fashion.

Speaker Change: Okay.

John Kilschowski: Got it. And then maybe jumping to GNA here. I think originally in 4Q, you gave a guide that cash GNA was going to be near $37 million for the year. Based on the stock base comp numbers you gave and what's happened so far in the first half of this year, I think it implies roughly a $40 million number for cash GNA. So I'm curious, what is causing the acceleration there? Yeah, so.

Speaker Change: Got it and then.

Speaker Change: Maybe jump into G&A here.

Speaker Change: I think originally in <unk> you gave a guide that cash G&A was going to be near $37 million for the year based off the stock based comp numbers you gave.

Speaker Change: What's happened so far in the first half of this year I think it implies roughly a 40 million number for cash G&A. So I'm curious what is causing the acceleration there.

Speaker Change: Yeah. So.

Rick Matros: I'm going to add one more thing to the response, and that is operating leverage in our senior housing management portfolio is particularly relevant, and that's why it's a little tough for us to give you a great, you know, a very detailed and specific and narrow answer, because we're at the cost of hitting operating leverage in many of the assets in the shop portfolio. In some of those, we've already passed it, which is I think why you're seeing the incredibly strong numbers in the Canadian portfolio that I outlined.

Michael Costa: This quarter, we had a true-up of performance-based compensation expense. And that ties in with the fact that we increased guidance, right? We expect the year to shape up better than we had originally estimated, and that resulted in an increase there. And so that increase, that's why I was focusing, if you notice, in my prepared remarks on the first half of the year. We trued up, you know, two quarters' worth, if you will, of that expense in the second quarter. But the first half of the year run rate is, you know, a good run rate to look at for the back end of the year.

Speaker Change: This quarter, we had a true up of performance based.

Speaker Change: Compensation expense.

Speaker Change: And that ties in with the fact that we increased guidance right. We expect the year to shape up better than we had originally estimated.

Speaker Change: And that resulted in an increase there and so that increase that's why I was focusing if you noticed in my prepared remarks on the first half of the year.

Speaker Change: We true it up.

Speaker Change: Two quarters worth if you will of that expense in the second quarter, but the first half of the year run rate is a good run rate to look out for the back end of the year.

Rick Matros: In the US, we're sort of on the cost of that as well, and that's going to be the driver of the significant significant EBITDAQ contributions from incremental occupancy growth. That's helpful, just last one, kind of along the similar lines for the operating leverage. These assets that you're seeing at 8% cap rates on the senior housing management side are those assets similarly where the in-place portfolio is from an occupancy and margin perspective, or do you see outsized opportunities just trying to understand where they are in the life cycle of the recovery to where you're stepping in?

Speaker Change: Got it thank you.

Speaker Change: Mhm.

Rich Anderson: Your next question comes from the line of Rich Anderson from Wedbush Securities. Your line is open. Hey, thanks.

Speaker Change: Your next question comes from the line of Rich Anderson from Wedbush Securities. Your line is open.

Rich Anderson: On the ATM, you have this forward component in the high 14s, and you mentioned the stocks trading well above that. I understand why you did it, just looking at your stock chart over the course of the quarter. But, you know, what's the strategy, and how fast do you have to settle these forward contracts and move on to, you know, a better stock price to raise equity?

Rich Anderson: Hey, thanks. Good morning out there.

Rich Anderson: Hey, Thanks, and good morning out there on the ATM.

Rich Anderson: You have this forward component and the high Fourteens and you mentioned you know the stock is trading well above that.

Speaker Change: I understand why you did it just looking at your stock chart over the course of the quarter, but whats.

Speaker Change: What's the strategy and how fast you have to settle.

Speaker Change: These forward contracts.

Speaker Change: And move on to a better stock price to raise equity.

Rick Matros: Thank you. They're in line. Some of them are doing somewhat better than others, but there is, as Rick mentioned before, a significant growth opportunity there as well over the next couple of years. So we're not underwriting to an 8% stable. I was underwriting to an 8% going in with OpsIDE. The other thing I point out is that the investment we announced post-corner, or with Leo Brown Group, is one of our strongest operators we've been doing business with them for years, both from a development and an operating perspective, and so to enter into these new investments with an operator that is so familiar to us and has had so much success. I think both are well for the growth going forward as well.

Speaker Change: So.

Michael Costa: So these contracts generally, and I don't think this is atypical, in fact, I think it's pretty standard, that you have a year to settle those contracts. I don't foresee us holding on to those proceeds or those potential proceeds for a year, just given the pipeline that we've been talking about, because again, it's not a huge amount of dollars we have that's unsettled. I think it's somewhere in the neighborhood of just under $30 million.

Rick Matros: Great. Thanks, everybody.

Speaker Change: These contracts are generally I don't think this is atypical.

Speaker Change: In fact, I think it's pretty standard that you have a year to settle those contracts, yes, I don't I don't foresee us holding on to those proceeds or those potential proceeds for a year just given the pipeline that we've been talking about.

Speaker Change: Because again, it's not a huge amount of dollars. We have that's unsettled think it's somewhere in the neighborhood of just under $30 million, So I could see that being unwound.

Rich Anderson: So I could see that being unwound in relatively short order as we see deal flow come through. But in terms of strategy, I don't want to ever be, I don't think any of us ever want to be in a position where we find an investment that we really like, and our stock is trading at a place where it doesn't make sense. If we have the ability to lock in some of that cost of capital, obviously within reason, but if we have the ability to lock in that cost of capital at a price that makes sense today, then we'll look to do that and ultimately deploy that into something we really like. I just don't want to be in a position to find something and can't transact on it because we picked a bad day in the market.

Speaker Change: Yes.

Speaker Change: Somewhat relatively short order as we see deal flow come through.

Speaker Change: But in terms of strategy.

Speaker Change: I don't want to ever be I don't think any of us ever want to be in a position where we.

Speaker Change: We find an investment that we really like and our stock is trading at a place where it doesn't make sense. If I have the ability if we have the ability to lock in some of that cost of capital obviously within reason, but we have the ability to lock in that cost of capital at a price that makes sense. Today, then we will look to do that.

Juan Sanabria: And your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is open.

Speaker Change: And find ways to the.

Unknown Executive: This is Robin H and Linh sitting in Juan. I'm just curious what we're making more in clients to pursue portfolio acquisitions. At this point, we're just not seeing quality portfolios out there, and we're not willing to take on anything that's going to create a lot of work or a lot of noise. We've made a commitment to our shareholders that we are going to be predictable and disciplined and rigorous and everything that we do, and we're more than happy to do small, digestible deals and do as many of those as possible, than to take on a portfolio than at least place that we're seeing out there tends to require some work.

Speaker Change: Ultimately deploy that into something we really like I don't want to be in a position to find something in.

Speaker Change: Can't transact on it because we picked a bad day in the market.

Michael Costa: Okay. What about raising regular ATM equity and putting it into like an interest-bearing account? I mean, I imagine it would still be dilutive, but maybe that's a way to approach that strategy. So you lock in a better price for equity. It's still making a little bit of interest income while you're waiting to deploy it. Is that something you think about?

Speaker Change: Okay.

Speaker Change: What about raising regular way ATM equity and putting it into a like a interest bearing account I mean, I imagine it would be still dilutive, but but maybe that's a way to to approach that strategy. So you lock in better priced equity still making you a little bit of interest income while you wait.

Speaker Change: The deploy it is that something you think about.

Speaker Change: Yes, we have thought about it I just think the tradeoff.

Rich Anderson: Yeah, we have thought about it. I just think the trade-offs don't make sense for us. I know some of our peers have done that because they trade at, you know, 50 plus percent premiums to NAV and you know their dividend yields are like two, you know, if we're in that place, Yeah, maybe something we should consider. I just think given where our stock trades today, it probably isn't the best trade-off for us. But you know, I'd love to be in that position, Rich. Okay,

Speaker Change: It doesn't make sense for us I know some of our peers have done that.

Speaker Change: Because they trade at.

Unknown Executive: Okay. And on Medicaid, what's the expectation for increases next year and how would inflation come down significantly? I guess that's different. Is there any catch up left on inflation? Yeah, so I'd say. My guess is we may have hit a high point this year. I think next year we'll still be capturing inflation, so I think we'll still have outsized Medicaid rates next year, but certainly over the next few years, assuming inflation moderates, those rates will moderate as well, but I think we still have some outsized rates ahead of us.

Speaker Change: 50, plus percent premiums to NAV.

Speaker Change: Their dividend yields like too.

Speaker Change: If we're in that place yeah, maybe someone we consider I, just think given where our stock trades today.

Speaker Change: Probably isn't the best tradeoff for us, but I'd love to be in that position rich okay.

Michael Costa: Okay. Michael, you mentioned some non-recurring events in the second quarter, and I think you did a good job sort of getting us on a run rate for the rest of the year. But you also mentioned cash-based tenants paid you – you collected in the second quarter. So because it's cash-based, it hit the second quarter, not the first quarter. How should we be adjusting that line item specifically for that? How much of that really happened where you collected first quarter rents during the second quarter, and so it sort of skewed things?

Michael: Michael You mentioned.

Michael: Some non recurring events in the second quarter and you I think you did a good job sort of getting us on a run rate for the rest of the year, but.

Speaker Change: You also mentioned cash based tenants paid you collected in the second quarter.

Speaker Change: So because it's cash base.

Speaker Change: Second quarter, not the first quarter, how should we be adjusting that line item specifically for that how much of that really happened where that you collected first quarter rents during the second quarter and so it's sort of skew things.

Michael Costa: Just allow for on the pipeline, how should we think about funding investment growth, and what can we expect that from a debt to equity split? Yeah, so as I mentioned my prepared remarks given the strength we've been seeing and continue to see in our cost of equity capital, you know, that is an available and viable source of funding where we could go out, use the ATM, use our revolver. Match fund investments on a leverage neutral basis and still make very accretive investments to Sabra, no matter how you define accretion, whether it's from earnings, NAV, so on and so forth.

Rich Anderson: Yeah, I think the number I laid out was somewhere around 4.5 million, somewhere in that range of that, to account for that timing. Well, 4.5 was an increase in the cash triple net rent, and that was because of timing. I think the best way to think about it, Rich, is $90 million a quarter going forward is the run rate you should expect. And if you look at the first half of the year, it roughly blends out to that.

Speaker Change: Yeah, I think the number I laid out was somewhere around four point.

Speaker Change: $4 5 million somewhere in that range.

Speaker Change: Uh huh.

Speaker Change: To account for that timing well four five was the increase in the cash or the cash.

Rich: Triple net rent and that was because of the timing I think the best way to think about it rich is.

Speaker Change: $90 million a quarter going forward is.

Speaker Change: Is the run rate you should expect and if you look at the first half of the year roughly blends out to that there's always noise. There because we had you know theres always going be some volatility in the cash basis tenants of course, but we also had sales choose that's going to mess with that number a little bit. So that's why I laid out the $90 million per quarter.

Michael Costa: So as long as we have that cost of equity capital and that attractive cost of equity capital, you should expect to see us use that with our revolver to fund these. You know, we had some dispositions we pointed out in our earnings release that close subsequent quarter end, which are very attractive sources of capital, you can make a lot of accretive investments of that. It's a limited source of capital, we acknowledge that, but yet it is a source of capital we could use to combine with those other two sources that I laid out, so as long as we have a cost of capital to be able to find investments that we like. You know, there really isn't a cap on it necessarily.

Rich Anderson: There's always noise there because we had, you know, there's always going to be some volatility in the cash basis tenants, of course. But we also had sales, too, so that's going to mess with that number a little bit. So that's why I laid out $90 million per quarter as our run rate for the back half of the year. Maybe, Rick, absent from every single conference call this quarter has been minimum staffing. I just want to get on the record here with the Chevron ruling. Is this essentially over with? Can we say that officially almost?

Unknown Executive: Thank you.

Rich: As our run rate for the back half of the year Okay.

Rick Matrice: Maybe Rick.

Speaker Change: Absent from every single conference call this quarter has been minimum staffing.

Speaker Change: Just wanted to get on record here with the Chevron ruling is this essentially over with can we say that officially almost.

Rick Matros: Well, you'll recall that I said that it was over with before the show.

Speaker Change: Well.

Speaker Change: Youll recall that I've said it was over with before with Chevron.

Rich Anderson: All right, so I guess that's the answer to that. And then finally, on investing in a shop, do you need more people? If you get, you know, meaningfully larger on the shop side, or do you have the scale to do a shop execution with a fair amount more, and you don't need to hire more people? And again, I'm thinking about the G&A line. Thanks. We're in pretty good shape from an infrastructure perspective.

Speaker Change: Alright, So I guess, that's the answer to that and then finally on.

Joshua Dennerlein: Your next question comes from the line of Joshua Dennerleen from Bank of America, your line is open. Yeah, hey guys, thanks for the time. Yeah, I wanted to go back. I think in the opening remarks, there was a common on the behavioral space, EBITDAR coverage or EBITDARM coverage. I think you said 1.79, but could you confirm what that is today, and then what was it prior quarter? I said 3.79. 3.79. Okay, all right, that makes more sense.

Speaker Change: On investing in shop do you need more people.

Speaker Change: You get meaningfully larger on the shop side or do you have the scale to do with sharp execution with fair amount more and you don't need to hire more people and get them thinking about the G&A line. Thanks.

Joshua Dennerlein: Thank you. Yeah, and that 3.69 actually, but if you look at the last five quarters, it does move around some, and as I stated, it's not as predictable of business because you have a much shorter length of stay with the residents needs facilities, then you do in senior housing or skill nursing. But you also have a great even point on occupancy at about 50 to 60%. So it's a much different economic model, and I understand that this is new to everybody.

Joshua Dennerlein: And so, and I think the comments and seven of the notes reflect that newness that folks aren't yet looking at it differently than senior housing and skill. But I'll take, we'll take any coverage that's hovering around 3.7, right? Okay, and that that's that that 3.79 that's stripping out, especially hospitals and other. No, it's included in there. It's what we just closed in our supplement, Josh. Oh, okay. Is there big variability between those kind of three categories?

Rick Matros: We're in pretty good shape from an infrastructure perspective, so we can scale up pretty nicely. And anything we would need to add going forward, because all the basic infrastructure in terms of people and systems is in place, would be pretty incremental at that point.

Speaker Change: We're in pretty good shape from an infrastructure perspective, so we can scale up pretty nicely.

Speaker Change: And anything we would need to add going forward because all the basic infrastructure in terms of people and systems are in place would be pretty incremental at that point.

Speaker Change: Okay. Thanks very much.

Speaker Change: Yeah.

Michael Stroyeck: Your next question comes from the line of Michael Stroyeck from Green Street Advisors, LLC. Your line is open.

Speaker Change: Your next question comes from the line of Michael <unk> from Green Street Advisors LLC. Your line is open.

Michael Stroyeck: Thanks, and good morning. I appreciate the comments surrounding behavioral health occupancy and coverage, but maybe one on NOI since I saw a sizable decline during the quarter, despite no real change in property or bed count, but forward NOI is essentially unchanged from last quarter. So I guess just what's driving the delta there? And just so we can better understand the cadence and volatility of NOI in that business.

Michael <unk>: Thanks, and good morning.

Michael <unk>: I appreciate the comments surrounding the behavioral health occupancy and coverage, but maybe one on NOI.

Speaker Change: That saw a sizable decline during the quarter, despite no real change in property or bed count.

Speaker Change: Forward NOI is essentially unchanged from last quarter. So I guess, just what's driving the delta there.

Speaker Change: Just so we can better understand the cadence and volatility of NOI in that business.

Michael Costa: Yeah, I think, you know, if you look over the last couple quarters, even though the property count in that segment's been the same, they don't like jumps around, you know, quarter to quarter. So I don't think this quarter is necessarily an anomaly. You know, there are various reasons for that. There are percentage rents, there's lease up, there's all kinds of factors that go into it. So I would just say that the lumpiness you're seeing is not atypical for that segment.

Speaker Change: Yes, I think if you look over the last couple of quarters.

Speaker Change: Even though the property count in that segment has been the same NOI jumps around quarter to quarter. So I don't think this quarter is necessarily an anomaly.

Speaker Change: There is.

Speaker Change: Various reasons for that.

Speaker Change: Percentage rents there's lease up there there's all kinds of factors that go into it.

Speaker Change: So I would just say like the Lumpiness, you're seeing is not atypical for that segment.

Rick Matros: I think that we've gotten used to it because we've been doing it for quite some time, and for what it's worth, I was doing it in my life before this as an operator. The luffiness is something that we're just accustomed to. We do deep dives to make sure there aren't any trends that are concerning, and we're not seeing that. So the luffiness is something that's a lot more normal than it is in some of the other business funds.

Speaker Change: I think that we've got because we because.

Joshua Dennerlein: Yeah, so the host, especially hospitals have much higher coverage, but we underwrite the addiction treatment investments at two times or more. So we, we underwrite them at a much higher level that we do with either skill nursing or senior housing. So they are always going to be some nice breathing room there, particularly given with a break even gorgeous with occupancy. Why is the break even point so much lower that 50% level?

Speaker Change: Because we've been doing it for quite some time and for what it's worth I was doing it and by life before this is an operator.

Speaker Change: Lumpiness is something that we're just accustomed to.

Speaker Change: We do deepened up dives to make sure there aren't any trends that are concerning.

Speaker Change: And we're not seeing that so the lumpiness is something that's a lot more normal than it is in some of the other business lines.

Michael Stroyeck: And then maybe one on the senior housing managed business. What do you think is driving the slowdown of rent for growth we've seen in recent quarters for the sector just with market vacancy declining? You'd think street rents should be seeing greater traction all things equal, but that doesn't seem to be the case.

Speaker Change: Okay. That's good to know.

Speaker Change: Maybe one on the senior housing managed business. What do you think is driving the slowdown in Revpar growth. We've seen in recent quarters for the sector just with market vacancy declining you think street rents should be seeing greater traction all else equal, but that doesn't seem to be the case.

Joshua Dennerlein: Because the rates on in addiction treatment are far higher than than what you have, your class structure is then what, let me finish the sentence. The rates are far higher than you would have in senior housing or skilled nursing. It's like super, it's like a super high Medicare array for everybody, but you're turning people over average length of days, call it 20 days, 19 days. So that's one, you have less clinical staff, you have similar fixed costs, but you tend to have more beds without.

Talya Nevo: Customer willingness to pay 10% year over year increases. I think, I think senior housing operators are really trying to manage occupancy growth versus REVPOR growth. And at some point, you want to fill up your building and have it fuller, even if it means you're not taking really high increases. In the past couple of years, and that's probably too long a period that I'm using.

Speaker Change: Customer willingness to pay 10% year over year increases.

Speaker Change: I think I think senior housing operators are doing a.

Speaker Change: Really trying to manage.

Speaker Change: Occupancy growth versus Revpar growth and at some point Youre going to do you want to fill up your building and and Havent Fuller, even if it means you're you're not taking really high increases.

Joshua Dennerlein: You have greater scale over which to amortize those six costs. You don't have very much variable costs. And your biggest cost really is a centralized customer acquisition model, which is over the whole portfolio of any recovery company. So we underwrite a much higher so-called imputed management fee on our behavioral assets. Okay, interesting. Thank you. I'm happy to spend more time with you on offline if you'd like.

Speaker Change: In the past couple of years, that's probably too long a period that I'm using.

Talya Nevo: There was an underlying justification, particularly in assisted living and memory care, to ask for higher increases because labor was so much a part of the equation. And as rates have stabilized there, and labor has stabilized overall, and pricing in general throughout the economy, while it might still be going up to some extent, is not rising at the levels it was before. Frankly, it's much harder to justify the 10% plus increases year over year that were being demanded. I think a year ago, even, I was saying that our expectations were that we were going to be seeing 5 to 7% annual increases.

Speaker Change: There was an underlying justification, particularly and I sit in assisted living and memory care.

Speaker Change: To ask for a higher increases because labor with so much and and care labor was so much a part of the equation.

Speaker Change: As rates have stabilized there and labor has stabilized overall and pricing in general throughout the economy, while it might still be going up to some extent is not rising at the levels. It was before frankly, it's much harder to justify.

Speaker Change: The 10% plus increases year over year that were being demanded.

Michael Griffin: Thank you, and your next question comes from the line of Michael Griffin from city group. Your line is open. Great. Thanks. I want to go back kind of to the acquisition opportunity set. If you could give us a sense sort of of what the accretion spread is between your acquisition, then your weighted average cost capital. And then, Talia, I know you made some comments on debt capital markets are lenders open for lending again on both seniors and skilled nursing.

Speaker Change: I think a year ago, even I was saying that we our expectations are that we were going to be seeing 5% to 7% annual increases and that is what we're in fact seen for in place residents.

Talya Nevo: And that is what we're, in fact, seeing for in-place residents. The balancing point is getting people to come in and move in as residents and making, because you want to continue to grow occupancy. What operators are also trying to avoid is having a situation where they're losing residents because of financial reasons. Right now, more than 50% of residents who move out are moving out. That's a euphemism, I guess, because they either have passed or they're moving to higher acuity facilities, i.e., skilled nursing and such. That's what you want to maximize length of stay. And so that's the balancing act.

Speaker Change: Doug.

Doug: Balancing point is getting people to come in to move in as residents and making sure because you want to continue to grow occupancy. What operators are also trying to avoid is having a situation where theyre, losing residents because of financial lease reasons right now more than 50% of residents who move up.

Michael Griffin: There are loans available. Certainly the agencies are somewhat open. If nothing else, they've been open to be simply good meet the criteria. But I it's still it's still a challenge to get for people to refinance existing debt. I mean, that's that's that's a single biggest challenge. Just because a debt service coverage loan to value cap rates moving up means that in in place values are today are not even the few building is stabilized is not what it was five years ago when cap rates were six.

Speaker Change: I'm moving out.

Speaker Change: Euphemism I guess.

Speaker Change: Because they either have passed or they are moving to higher acuity facilities ie skilled nursing and such.

Speaker Change: That's you want to maximize length of stay and so that's the balancing act.

Michael Stroyeck: Got it. Thanks for the time.

Speaker Change: Got it thanks for the time.

Speaker Change: Sure.

Alec Fagan: Your next question comes from the line of Alec Fagan from Baird Equity Research. Your line is open. Hi, thank you for taking my question.

Speaker Change: Your next question comes from the line of Alex Zukin from Baird Equity Research. Your line is open.

Alec Fagan: Hi, thank you for taking my question. The first one for me is how much does Sabra have left for disposition candidates where the property is not generating stabilized income?

Alex Zukin: Hi, Thank you for taking my question first one for me is how much does sabra has left for disposition candidates, where the property is not generating stabilized NOI.

Michael Griffin: So it's just you know. And no one's going to buy, no one's going to buy it a 6% cap rate when they're borrowing rates and it's going to be six and a half to seven and a half, right? There's not a lot of equity pickup, not a lot of positive leverage from the depth there. And in terms of accretion, your question on that, you know, based on the funding sources that we've sourced today, which we all disclose, we'll disclose in our filings with the ATM, which is we did that at a lower price than we're trading at today, the sales proceeds, so on and so forth.

Speaker Change: I don't know I mean.

Rick Matros: 50-ish million maybe, something like that? 50, 50 plus million, something like that.

Speaker Change: 50 ish million mailings, something like that at <unk>.

Speaker Change: <unk> million dollars.

Alec Fagan: of Asset Value. Right, of Asset Value.

Speaker Change: We are of asset value asset value.

Alec Fagan: Right, I've been asked to tell you, yeah.

Speaker Change: Okay.

Michael Costa: Got it. And number two, what drove the impairment and the behavioral health segment this quarter?

Speaker Change: Got it and number two is what drove the impairment.

Speaker Change: Haverhill Health segment this quarter.

Michael Costa: Yeah, so subsequent to quarter end, as we announced, we made some sales during the quarter, as well. There are a few properties where we were planning on converting those at some point to behavioral facilities, which are shuttered facilities. Our initial plans were to convert those properties and make them into behavioral Based on, you know, based on the market based on those locations, we decided it wasn't going to work out in that fashion.

Speaker Change: Yeah, so subsequent to quarter end.

Speaker Change: As we announced we made some sales made some sales during the quarter as well.

Michael Griffin: You know, these investments that we've announced are over 100 basis points accretive, right? So there's some spread there to be had. And I would expect that spread to be better as we, you know, are able to use ATM at more tractor prices. And as the businesses continue to improve post pandemic, right? Yeah, because that's a good point because the 100 basis points over 100 basis points that I quoted just on going in yields.

Speaker Change: There is a few properties.

Speaker Change: We were planning on converting those at some point to behavioral there were shuttered facilities.

Speaker Change: Our initial plans were too.

Speaker Change: Convert those properties and make them in behavioral.

Michael Costa: So we, you know, are selling those buildings. That's effectively what led to it. So it wasn't like it were open or operating facilities that were sold. These were shuttered buildings that we're looking to convert.

Speaker Change: Based on.

Speaker Change: Based on the market based on those locations we decided it.

Speaker Change: It wasn't going to work out in that fashion. So we are selling those buildings, that's exactly what led to it. So it wasn't like it was open are operating facilities that were that were sold these were shuttered buildings that we're looking to convert.

Rick Matros: That sounds good guys really appreciate the color there. And then I just be curious to get your thoughts on the skilled mix increasing. Is this a deliberate action taken by your operators or are there seasonality or other factors impacting this? And would you expect it to continue to increase in the future? Yeah, so we still haven't hit our high on skilled mix. So I would expect it to increase seasonality may affect a little bit.

Alec Fagan: Okay, that's helpful, Collared. Thirdly, is related to the Avomir portfolio and the options Sabra has on it. Is the company capturing any upside now or do they expect to over the next 12 months?

Speaker Change: Okay. That's helpful color.

Speaker Change: Thirdly is related to the as a mere portfolio and the options Albert Sabra has on it is the company capturing any upside now or expect to over the next 12 months.

Michael Costa: I think you're referring to our option to reset that lease. Is that what you're referring to? Yes.

Speaker Change: I think you're referring to our option to reset that lease is that what you're referring to.

Rick Matros: But basically, I think what's happening is as occupancy continues to improve operators are able to be more selective and who they admit. So turning it around the other way, when you've got really low occupancy, everybody wants to get their best field. And they may, you may see a bigger increase in Medicaid senses than you do in Medicare senses in those circumstances. But the operators that we have in our portfolio are all high acuity operators.

Speaker Change: Yes.

Alec Fagan: Yeah, so that option kicks in, I think, beginning early next year. And there's like a three-year window, I want to say, to do that reset. That portfolio has been performing really well. We have recognized percentage rents on there, as we had anticipated when we restructured that lease a couple years ago. So when we get into next year and in that three-year window, we're going to evaluate where the earnings stream is looking like for that portfolio and see where it makes sense to reset that rent. But to answer your question, we have been receiving percentage rents to help, you know, recoup some of the rent cuts that we gave them several years ago. I got it.

Speaker Change: Yeah, so that option kicks in I think beginning early next year and there was like a three year window I want to say to do that reset that portfolio has been performing really well.

Speaker Change: We have recognized percentage rents on there as we had anticipated when we restructure that lease a couple years ago.

Speaker Change: So when we get into next year and in that three year window, we're going to evaluate where the earning stream is looking like for that portfolio and see where it makes sense to reset that rent but to answer your question we have been receiving.

Rick Matros: Some obviously more than others, but they all focus on the high acuity model, which is really with positions and really well for the future particularly when you think about value based, value based reimbursement. And so they just are becoming more able to be more selective in their admissions because occupancies continue to recover. Yeah, the other thing I'll add to that too is that skilled mix stat that we put out is based on revenue and this quarter, you have six months worth of the Medicare increase that went affect last October. So that's, that's benefiting it as well. And it just all the points that regulate out. Right.

Speaker Change: Percentage rents to help recoup some of the rent cut that we gave them a several years back.

Alec Fagan: Got it. Thank you for that. And that's it for me. Thank you.

Speaker Change: Got it thank you for that that's it for me.

Speaker Change: Thank you.

Operator: Once again, if you do have a question at this time, you can press star one on your telephone keypad. Again, if you do have a question, please press star one. Thank you. There are no further questions at this time. I'll turn the call back over to Rick Matros.

Speaker Change: Once again, if you do have a question at this time you can press star one on your telephone keypad again, if you do have a question. Please press star one.

Rick mantras: Thank you there are no further questions at this time I will turn the call back over to Rick mantras.

Rick Matros: Thank you all for your time today. We appreciate the support. And, as always, we're available to all of you for offline conversations. Have a great day. Thank you. This does conclude today's conference call. You may now disconnect.

Rick mantras: Thank you all for your time today and we appreciate the support and as always we're available to all of you for offline conversation.

Rick mantras: Conversations and have a great day. Thanks.

Rick Matros: That's it for me. Thanks for the time.

Unknown Executive: Thank you.

Speaker Change: Thank you. This does conclude today's conference call. You may now disconnect have a great day.

Michael Griffin: Your next question comes from the line of the chrome Maholtera from the zoohoes securities. Your line is open. Often thanks for being the question. I just wanted to maybe get some certifications on the 100 basis points spread you mentioned would imply we cost the capital is a 7%. I'm just wondering just do you take a inverse away as a four or do you use some other methodology to calculate cost the capital and can give us some context how that 100 bits compares to what you received historically on on deal.

Operator: Thanks for watching!

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Tom.

Speaker Change: So.

Unknown Speaker: There's a calm before the storm, I know; it's been coming for some time, and when it's over, it slowly fades. It'll rain a sunny day, I know, shining down.

Tom: Sales of <unk>.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: I mean it.

Michael Griffin: So in terms of how we come up with that over a hundred basis point number that I quoted, you know, it's a combination of looking at what's the AFFO expectation in bacon consensus, bacon our guidance and a couple of different estimates there, it factors in the dispositions that we announce as well, and the cost, if you will, relates to those. And then the cost of our credit facility. And you know, when we do that, again, we're doing on a leverage neutral basis, and you know, we're looking at it vis-a-vis the market expectation for our earnings and what those investments incrementally, or I guess on a standalone basis produce on a per share basis, and it's very accretive on that, on that measure.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Yes.

Michael Griffin: And then just so I just how that hundred bips compares to what you may have achieved historically just so we can model out the ramp into 25 and 26. I think the best way to think about it, Vikram is whenever we've been in a position where our cost of equity capital was trading at, you know, a premium tour NAV in the past. And we were able to execute on transactions, you know, at a similar point in time, you know, I would expect that the, the accretion is probably somewhere in that same neighborhood.

Rick Matros: Got it. And then just maybe a higher level question for you or for Rick, I guess now that, you know, we're clearly past COVID and you're starting to grow again. And tenant health is no longer as much of an issue. I'm just one. There's three or five years, how the FFO growth trajectory may differ from history, and I know in the past, we've talked loosely about a 5% of the FFO growth trajectory over a multi-year period.

Rick Matros: I'm just wondering is there anything that would change that higher or lower going forward? You know, I think once our managed portfolio, you know, fully stabilizes and it becomes more predictable in terms of its growth prospects. You know, that FFO per share growth in absent any additional investments, of course, that will contribute to it. You know, absent any additional investments. I think that, you know, 5% is probably not an unreasonable expectation for a steady state portfolio.

Rick Matros: But keep in mind, none of us need to stop our peers or steady state portfolios. We're constantly in the business of looking for additional opportunities to increase that. So we can't stay here and say it's going to be 5% because things are going to change that. But I think that's an okay assumption on a steady state portfolio. The other point that I'd make is, remember, we're at a very different inflection point with these asset classes.

Rick Matros: There's no new supply, occupancy is going to exceed pre-pandemic levels. Margin should exceed pre-pandemic levels. We've already seen that on the skilled nursing side. So, and we're going to, in addition to doing skilled nursing investments and some behavioral investments, we're going to continue to do shop investments. And so that particular component of our portfolio is going to continue to have a disproportionate impact on our earnings growth. So, um...

Rick Matros: So we're, you know, we're pretty optimistic about it without putting sort of a fine point, what exactly the number may be.

Unknown Executive: Okay, thank you.

John Killoschowski: And your next question comes from the line of John Killoschowski from Wells Fargo. Your line is open. Alright, thank you.

Rick Matros: Maybe could you give us the cap rate on the purchase option for the loan you made this quarter and then of this 750 million you mentioned under review. What percentage of those are under the loan to unstructured? I know recently that hasn't been much of a strategy, but curious if those deals are starting to get more attractive here. The only, along with the purchase option we currently have is the one that we just closed that was that you mentioned that we're not in the business of making those that was an off market situation.

Rick Matros: That is with an operator that we, we've had a great deal of success who came and wanted to operate these they make sense from a strategic perspective from us as an investment both from the location from the state of the situate from that situation is what any operator themselves. Cap rate is hard to say because we it'll it'll be upwards of 9%. I expect based on the least structure that we anticipate having.

Rick Matros: And the other point I make just to reiterate our position is one we totally get why some of our peers are putting so much capital to work on loans, but unless it's a strategic value to us. We're just in a different place. That's all and and all of our investments are going to be focused on contributing to earnings growth the loans for us at this point in our organizations stage of development. It's basically short term money that's got no growth to it and really there's only downside there. So you're not you just not going to see us putting money to work in that fashion.

Michael Costa: Got it and then maybe jump into GNA here. I think originally for Q you gave a guy that cast GNA was going to be near 37 million for the year and based off the stock base, base cop numbers you gave. And what's happened so far in the first half of this year I think it implies a roughly a 40 million number for cash GNA some curious what is causing the acceleration there.

Michael Costa: Yeah, so this quarter we had a true up of performance based conversation expense and that ties in with the fact that we increase guidance right we expect the year to shape up better than we had originally estimated. And that resulted in an increase there and so that increase that's why I was focusing if you notice in my prepared remarks on the first half of the year we we treat up you know two quarters worth if you will of that expense in the second quarter. But the first half of the year run rate is you know a good run rate to look at for the back end of the year. Got it. Thank you.

Rich Anderson: Here next question comes from line of rich Anderson from what bush securities your line is up. Hey, thanks. Good morning out there. On the ATM, you have this forward component in the high 14s and you mentioned, you know, the stock is trading well above that. I understand why you did it, just looking at your stock chart over the course of the quarter. But, you know, what's the strategy and how fast you have to settle these forward contracts and move on to, you know, a better stock price to raise equity.

Rich Anderson: So, these contracts generally, and I don't think this is a typical, in fact, I think it's pretty standard that you have a year to settle those contracts. Yeah, I don't, I don't foresee us holding on to those proceeds or those potential proceeds for a year, just given, you know, the pipeline that we've been talking about, because again, it's not a huge amount of dollars we have that's unsettled. I think it's somewhere in the neighborhood of just under 30 million dollars.

Rich Anderson: So, I could see that being unwound, you know, in somewhat relatively short order as we see deal flow come through, but in terms of strategy, you know, I don't want to ever be, I don't think any of us ever want to be in a position where we find an investment that we really like and our stock is trading at a place where it doesn't make sense. If I have the ability, if we have the ability to lock in some of that cost of capital, obviously within reason, but if we have the ability to lock in that cost of capital at a price that makes sense today, then we'll look to do that and find ways to the, you know, ultimately deploy that into something we really like.

Rich Anderson: I just want to be in a position to find something and, you know, can't transact on it because we picked a bad day in the market. What about raising regular way ATM equity and putting it into like an interest bearing account? I imagine it would be still dilutive, but maybe that's a way to approach that strategy so you'll lock in better priced equity. It's still making you a little bit of interest income while you're waiting to deploy it.

Rich Anderson: Is that something you think about? Yeah, we have thought about it. I just think the trade off doesn't make sense for us. I know some of our peers have done that because they trade at, you know, 50 plus percent premiums to NAV and they're dividend yields like two.

Michael Costa: If we're in that place, maybe someone we consider, I just think given where our stock trades today, it probably isn't the best trade off for us, but I'd love to be in that position, Rich. Okay. Michael, you mentioned some non-recurring events in the second quarter. I think you did a good job sort of getting us, you know, on a run rate for the rest of the year, but you also mentioned cash-based tenants paid you collected in the second quarter.

Michael Costa: So because it's cash-based, I hit second quarter and not the first quarter. How should we be adjusting that line item specifically for that? How much of that really happened where that you collected first quarter rents during the second quarter? And so it's sort of skewed things. Yeah, I think the number I laid out was somewhere around 4.5 million, somewhere in that range of that, to counter that timing. Well, 4.5 was the increase in the cash-triple net rents and that was because of the timing.

Michael Costa: I think the best way to think about it, Rich, is, you know, $90 million a quarter going forward is the run rate you should expect. And if you look at the first half of the year, it roughly blends out to that. There's always noise there because we had, you know, there's always going to be some volatility in the cash basis tenants, of course. Who else at sales, too? That's going to mess with that number a little bit. So that's why I laid out the $90 million per quarter as our run rate for the back half of the year.

Rick Matros: Okay, maybe Rick, absent from every single conference call this quarter has been minimum staffing. I just want to get on record here with the Chevron ruling. Is this essentially over with? Can we say that officially? Well, you recall that I said it was over with the Ford, the Chevrolet, right? So I guess that's the answer to that. And then finally, on investing in shop, do you need more people? If you get, you know, meaningfully larger on the shop side, or do you have the scale to do a shop execution with fair amount more and you don't need to hire more people and get them thinking about the GNA line.

Rick Matros: Thanks. We're in pretty good shape from an infrastructure perspective so we can scale up pretty nicely. And anything we would need to add going forward because all the basic infrastructure in terms of people and systems are in place would be pretty incremental at that point. Okay. Thanks very much. Yeah.

Michael Stroyeck: Your next question comes from the line of Michael Stroyeck from Green Street Advisors LLC. Your line is open. Thanks. And good morning. I appreciate the comments surrounding the behavioral health occupancy and coverage, but maybe one on NOI since that's a sizable decline during the quarter despite no real change in property or bed count. But Ford NOI is essentially unchanged from last quarter. So I guess just what what's driving the Delta there and just so we can better understand the cadence and volatility of NOI in that business.

Michael Stroyeck: Yeah, I think, you know, if you look over the last couple quarters, the, even though the property count in that segment's been the same, they know I jumped around the quarter to quarter. So I don't think this quarter is necessarily an anomaly. You know, there's various reasons for that. There's, you know, percentage rents. There's lease up. There's all kinds of factors that go into it. So I would just say like the lumpiness you're seeing is not atypical for that segment.

Michael Stroyeck: Yeah, I think that we've gotten because we've been doing it quite some time and but what it's worth. I was doing it in my life before this is an operator. The lumpiness is something that we're just accustomed to. We do deep enough dive to make sure there aren't any trends that are concerning and we're not seeing that. So the lumpiness is something that's a lot more normal than it is in some of the other business funds.

Michael Stroyeck: Okay, that's good to know.

Rick Matros: And then maybe one on the senior housing managed business. What do you think's driving the slowdown of rent for growth we've seen in recent quarters for the sector, just with market vacancy declining. You'd think street rents should be seen greater traction, all is equal, but that doesn't seem to be the case. Customer willingness to pay 10% year of year increases. I think I think senior housing operators are doing a really trying to manage occupancy growth versus rev poor growth.

Rick Matros: And at some point it's you're going to you want to fill up your building and have it fuller even if it means you're you're not taking really high increases. In the past couple of years, and that's probably too long a period that I'm using, there was an underlying justification particularly in assisted living and memory care to ask for a higher increases because labor was so much and care labor was so much a part of the equation.

Rick Matros: As rates have stabilized there and labor has stabilized overall and pricing in general throughout the economy while it might still be going up to some extent is not rising at the levels it was before. Frankly, it's much harder to justify the 10% plus increases year of year that we're being demanded. I think a year ago even I was saying that we are expectations are or that we were going to be seeing 5% to 7% annual increases and that is what we're in fact seeing for in place residents.

Rick Matros: The the the balancing point is getting people to come in to move in as residents and making because you want to continue to grow occupancy. What operas are also trying to avoid is having a situation where they're losing residents because of financial reasons. Right now more than 50% of residents who move out are moving out that the euphemism I guess because they either have passed or they're moving to higher acute facilities I skilled nursing and sought. That's what you want to maximize length of stay. And so that's the balancing act. Got it. Thanks for the time. Sure.

Alex Fagan: Your next question comes from the line of Alex Fagan from Baird Equity Research. Your line is open. Hi, thank you for taking my question.

Unknown Executive: First one for me is how much does Sabra have left for disposition candidates where the property is not generating stabilized and why? I don't know. I mean, 50ish million, maybe something like that, 50 plus million something worth. A massive value. Right, a massive value. Yeah. Got it.

Michael Costa: And number two is what drove the impairment and the behavioral health system at this quarter? Yeah. So subsequent to quarter end. As we announced, we made some sales, made some sales. During the quarter as well. There was a few properties where we were planning on converting those at some point to behavioral. There were shuttered facilities. Our initial plans were to convert those properties and make them in behavioral based on, you know, based on the market, based on those locations.

Michael Costa: We decided, you know, it wasn't going to work out in that fashion. So we, you know, are selling those buildings. That's exactly what led to it. So it wasn't like it was open or operating facilities that were that were sold. These were shuttered buildings that we're looking to convert. Okay, that's helpful.

Michael Costa: Colored thirdly is related to the Avenue report folio and the option. Sabra has on it is the company, company capturing any upside. Now or expect to over the next 12 months. I think you're referring to our option to reset that lease. Is that what you're referring to? Yes. Yeah, so that option kicks in, I think beginning early next year. And there's like a three year window. I want to say to do that reset that portfolio has been performing really well.

Michael Costa: We have recognized percentage rents on there as we had anticipated when we restructured that lease a couple years ago. So when we get into next year and in that three year window, we're going to evaluate where the earning stream is looking like for that portfolio and see where it makes sense to reset that rent. But to answer your question, we have been receiving percentage rents to help, you know, recoup some of the rent cut that we gave him a several days back. Got it. Thank you for that.

Unknown Executive: That's it for me. Thank you.

Unknown Executive: Once again, if you do have a question at this time, you can press star one on your telephone keypad. Again, if you do have a question, please press star one. Thank you.

Rick Matros: There are no further questions at this time. I'll turn the call back over to Rick Matros. Thank you all for your time today. We appreciate the support and as always were available to all of you for offline conversations and have a great day.

Unknown Executive: Thank you, this does conclude today's conference call. You may now disconnect. Have a great day.

Unknown Executive: It's been coming for some time. When it's over so late. It'll rain for the day. I know.

Unknown Executive: Shining down out of water.