Q2 2025 Sabra Health Care REIT Inc Earnings Call
Now.
It's going to get over.
This town.
No.
I got.
Even know, my real name.
Everything's ready to roll.
Even during the daytime, I work at night.
I ain't got time for that now.
About.
You.
By the window.
Somebody.
Who was there?
I got some.
Day, but I ain't got no sleepers. Ain't got no headphones. Ain't got no records to play.
I know that. That ain't a lot.
we just, like,
How?
Change my hands up.
I don't know what I look like.
You make me sugar.
Don't take something.
I want to get you.
My number.
put on the
sound.
Good day, everyone. My name is Greg, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the 2025 Sabra second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. Once again, that's star 1.
And if you'd like to withdraw your question, simply press star 1 again.
I would now like to turn the call over to Lukas Hartwick, EVP Finance. Please go ahead, Mr. Hartwick.
Thank you, and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including our earnings guidance for 2025, and our expectations regarding our tenants and operators, as well as 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, 2024, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.
We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid.
In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results, included on the financials page of the investor section of our website at saberhealth.com.
Our Form 10-Q 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 Sabra Health Care REIT.
Thanks, Lukas, and thanks, everybody, for joining us today. We appreciate it. I'll start first with the holiday transition. As many of you know, our relationship with Holiday goes back to 2015. We had a number of really good years with Holiday, and then the pandemic hit. During the pandemic, they were acquired by Atria, and from our perspective, managed really effectively given how tough the circumstances were during the pandemic.
Since the pandemic ended. However, we just haven't seen the same kind of uplift that we've seen um, and the rest of our shop portfolio. So that was really why we decided to make the change. We had been looking for new opportunities to expand our relationship with Discovery and with in spirit. So this is perfect for that. And, um, and we have been developing a relationship with um, sun sun, sun Sunshine, so it all worked out really well for us. So we look forward over time to improve performance from, uh, the portfolio. And of course, breaking up, such a large portfolio, a large for us. Um and to smaller pieces is helpful as well.
In the water deals. So those are all either have been closed or in the process of closing. So that pipeline is, um, closing as expected. Um, just some of it didn't close by the time we had this call, I also talked about at NY that we were actively working on, um, another 300 million in Investments at that time. The total number that I've talked about that we talked about, in our earnings release of about 350 million in closed.
About to be closed or awarded deals includes a chunk of the deals from that $300 million that we decided to fully proceed on. In addition to that, um, we have really hundreds of millions of dollars’ worth of deals that we're looking at on a weekly basis. So, we feel really good about our target of $400 million in investments this year. Um, we feel particularly good about our goal of getting shot from 20% to 30% and expect that to be um, accomplished at least on the run rate basis, sometime in 2026. It requires $1 billion in investments. So, by the end of this year, we'll be somewhere around halfway there.
We are finally starting to see some skilled opportunities that we feel are worth the time for us to spend on. And, um, hopefully, we'll be transacting on some skilled opportunities over the remainder of this year as well. Moving on to operations, just another really strong quarter. Our triple net rent coverage was up significantly in all asset classes. Um, new highs in skilled and in senior housing. Triple net, our occupancy and skilled mix, um, and the skilled portfolio continues, uh, to increase our contract labor and our employment levels are now at pre-pandemic levels. So all in all, everything's really trending in the right direction. Um, remote the investment activity that we have and, um, look forward to finishing out the year, um, and going into 2026 on a good growth momentum.
And with that, I will turn it over to Talia.
Thank you, Rick.
Cyber's managed senior housing portfolio continues to grow and comprises nearly 21% of our total annualized cash NOI. It is a meaningful contributor to our earnings growth. As Rick stated, Cyber has closed on $122 million of senior housing investments so far this year and has been awarded about $220 million more in senior housing investments, most of which are expected to close by the end of the year. Deal flow remains very strong, and Cyber's cost of capital allows us to bid competitively for senior housing properties.
In the first quarter, we were pleased with the tailwinds that offset a typical seasonal cooling of demand. In the second quarter, we saw an uptick in positive momentum in key operating statistics such as Cash NOI and Cash NOI margin, which are up 5.3% and 70 basis points, respectively, on a sequential basis for the total managed portfolio, including non-stabilized communities and joint venture assets at Chair.
With the opportunity to develop new inventory, constrained by the high cost of capital, building materials, and labor, we do not see a near-term catalyst that will reverse the supply versus demand equation that exists. Right now, we believe that acquiring well-performing, newer senior housing communities geared to the taste of the Baby Boomer generation will be additive to Sabra's portfolio for years to come.
Now, let me turn to the same store portfolio numbers.
Sabra's same-store managed senior housing portfolio, including joint venture assets at share and excluding non-stabilized assets, continued its strong performance in the second quarter. The key numbers are as follows: revenue for the quarter grew 5.6% year-over-year.
Second quarter occupancy in our same-store portfolio was 86%, compared to 84.6% in the second quarter of 2024. Notably, our domestic portfolio occupancy was 83.5%, gaining 190 basis points of occupancy over the same period.
And occupancy increases.
Cash net operating income for the quarter grew 17.1% year-over-year in the same store portfolio in our U.S. communities. Cash NOI grew 17.6% on a year-over-year basis, while in our Canadian communities, cash NOI for the quarter increased 15.9% over the same period.
The trends that we've been seeing for the past year continued. Senior housing communities continue to fill up, and operators are balancing rate and occupancy to maximize revenue with cost structure. Stable revenue, increasing cash, and AI margins are growing.
Our net lease stabilized. The senior housing portfolio also continues to do well, with sequentially improving rent coverage, a reflection of continued strong operating results. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.
Thanks Thalia.
For the second quarter of 2025, we recognize normalized FFO per share of $0.37 and normalized AFFO per share of $0.38, compared to $0.35 and $0.37, respectively, for the first quarter.
The current quarter results represent a 6% improvement over the same period in 2024.
Normalized FFO totaled $89.2 million and $91.6 million this quarter, respectively, which reflects strong sequential growth from increased NOI in both our triple-net and managed senior housing portfolios.
Cash rental income from our triple net portfolio increased by $2.3 million from the first quarter. This was a result of a $1.4 million increase in percentage rents received, with the remainder being primarily driven by contractual annual rent increases.
These percentage rents will vary from quarter to quarter, and therefore, this increased level of percentage rent should not be assumed to be part of our earnings run rate.
During the quarter, we updated our SMS at collectibility for certain leases within our triple net lease portfolio and moved the leases for two tenants, Aamir and National, from cash basis back to accrual, resulting in a net increase in normalized, straight-line rental income of $454,000 for the quarter.
Cash and a wiper are managed senior housing portfolio. Total $25.3 million for the quarter compared to $24.1 million last quarter. This increase was driven by the strong sequential revenue and margin gains in our same-store portfolio.
Interest in other income was $10.3 million for the quarter, compared to $10.1 million last quarter.
Cash interest expense was $25.8 million compared to $25.4 million last quarter.
Recurring cash GNA was $9.4 million this quarter, compared to $9.5 million last quarter.
As noted in our earnings release, we have updated our 2025 earnings guidance on a diluted per share basis as follows: net income, $0.77 to $0.79.
SFO $152 to $154.
Normalize FFO at $1.45, so $1.47, FFO at $1.47 to $1.49, and normalize the FFO of $1.49 to $1.51.
This updated guidance increases our midpoint of normalized FFO and normalized AFFO to $146 million and $1.50, respectively.
This represents an increase in our normalized FFO, midpoint of 1.5 pennies, and an increase to our normalized AFFO midpoint of half a penny.
At this updated midpoint, we expect both normalized FFO per share and normalized AFFO per share to increase approximately 5% and 4%, respectively, over 2024.
It is important to note that our guidance only includes completed investment disposition and capital markets activity.
We are also reaffirming the following assumptions included in our previously issued guidance.
General and administrative expense of approximately $1 million, which includes $11 million of stock-based compensation expense.
Ignoring the impact of acquisitions and dispositions, cash NOI growth for our triple-net portfolio is expected to be low single digits in line with contractual escalators. Additionally, our guidance is that no additional tenants are placed on a cash basis or move to an accrual basis for revenue recognition.
Cash and a y growth for our same store managed. Senior housing portfolio, is expected to be in the low to mid teens.
Our updated guidance also assumes that cash interest expense is approximately $102 million and that the weighted average share count is approximately 2,241.5 million and 242.5 million for normalized FFO and normalized AFFO, respectively, which is in line with this quarter's weighted average share count after adjusting for the timing of ATM issuances during the quarter.
Now briefly turning to the balance sheet.
June 30, 2025, a decrease of 0.19 times from March 31, 2025, and a decrease of 0.45 times from June 30, 2024.
As we have previously stated, the growth in our managed senior housing portfolio will provide us a pathway to reach our long-term average target leverage of 5 times, without having to access the equity market to deliver our balance sheet. And this is precisely what has happened.
And now that we've achieved that, we will evaluate our long-term average leverage target as earnings continue to improve.
We have been proactively using the forward feature under our ATM to raise equity when our share price presents an attractive opportunity to lock in an accretive cost of capital to fund the deal flow we see in our pipeline.
During the quarter, we issued 186.6 million on a Ford basis at an average price of $17.86 per share after commissions. In total, we currently have 266.5 million outstanding under poor contracts at an average price of $17.69 per share after commissions.
During the quarter, we settled $29.9 million of outstanding foreign contracts to help fund investment activity. During and immediately after the quarter, we expect to use the proceeds from the outstanding forward contracts to close on the investments we have been awarded and do so on a leveraged neutral basis.
Subsequent to quarter-end, we entered into a new 5-year, million-dollar term loan and used those proceeds to repair million-dollar, 518% unsecured bonds that were set to mature in 2026.
The interest rate on this term loan is floating at SOFR plus 120 basis points, and we can currently enter into interest rate swaps that fix SOFR at 3.44%, effectively fixing the rate on this loan at 4.64% for the full term. The term loan also contains an accordion feature that can increase the total available borrowing to $1 billion, subject to terms and conditions.
For this, financing our weighted average maturity on our debt increases from 4 years to nearly 5 years, and our weighted average interest rate decreases by 10 basis points from 4.14% to 4.04%.
The successful financing not only addressed an upcoming maturity at a lower rate, but the effective rate is meaningfully lower than we would have achieved had we used the unsecured bond market.
As of June 30, 2025, we're in compliance with all of our debt covenants and have ample liquidity of approximately $1.2 billion, consisting of unrestricted cash and cash equivalents of $95.2 million available, borrowings under our revolving credit facility of $837 million, and the $266.5 million outstanding under Ford Sales Agreements under our ATM program.
As of June 30, we also had $109.3 million available under the ATM program.
Finally, on August 4th, 2025, 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 29th, 2025, to common stockholders of record as of the close of business on August 15th, 2025.
The dividend is adequately covered and represents a payout of 79% of our second quarter normalized AFOPER share.
And with that, we'll open up the lines for Q&A.
Thank you. At this time, I would like to remind everyone that in order to ask a question, press star, then the number 1 on your telephone keypad. Once again, star 1, and we will pause for a moment to compile the Q&A roster.
All right, looks like our first question comes from the line of John Kilichowski with Wells Fargo. John, your line is open.
Thank you, uh, good afternoon. Uh, maybe my first one, Rick, and the opening remarks. I thought your color was really helpful on the investment guide. You know, at any rate, you know,
I spoke to the $200 million and the $300 million. And then, you know, now it's kind of we're backing into a $350 million number. It sounds like you're still confident that you can get to about $500 million for the year, which I think is even more positive than you were at NARI. Am I thinking about that correctly?
It'll be somewhere in the 400 to 500 range. Some of it just depends on timing. My guess is there will be some deals that make clothes like, on January 1, maybe for tax reasons or whatever else, but it'll be close.
Okay, that's helpful. And then, do you think that the rest of that number would be comprised of skilled nursing deals? And what's kind of keeping those from entering the pipeline so far? Like, how close are you on pricing?
Of subsequent as a function of that and the pandemic, both selling assets and transitioning assets. We've got a really great core of operators. Now, as evidenced by our coverage, our coverage is.
stronger than most out there. And so, you know, we're really being particular about, you know, the quality of the assets that we're bringing into the portfolio. So I think it's fair to say that the majority of it will probably still be shot, but we are definitely focused on, um, working on the skill side and trying to get some deals done there. But I still think it would be weighted a little bit more towards, um, shop and skill. But um, we certainly want to do more skills.
okay, very helpful, then maybe last
Yeah, the other thing I should just note is we're still not interested in building a loan book, which is how we, you know, some of these deals are getting done and we're not interested in doing sort of complex, JV kind of structures or meds that or anything like that, we're just not interested in in doing that. Um, we just want to do some straightforward, kind of simple to understand, traditional traditional deals and just 1 of the comment. I want to make then I'll I know you had another piece. Is i i misstated in the opening remarks and he met the 5% on the Medicaid rate. Increase is for the top 5 states that were in not the top 5 operators.
Got it. Okay, very helpful. And then the, the last part for me, was just on the the same store shop, noi that number continues to run at the high end or even maybe slightly above that sort of low to mid teens number that you've given. I think you're at 17%, you know, 1 H to date. What's keeping you from, maybe taking that guide up, I know Michael spoke last quarter about comps or maybe slightly tougher in the, in the latter half of the year. I'm curious, if you're still seeing that quarter to date or maybe there's room for upside there,
We're hoping that there'll be upside. We just, um, we felt we could move guidance a little bit and still be, um, in a position where we hope we can beat it. Um, so we're just being sort of measured in our approach.
Got it. Thank you.
Yeah. All right. Thanks. Thank you, John. And our next question comes from the line of Feral Granite with Bank of America. Feral, your line is open.
Thank you. Good afternoon. My question is about uh, your same store, uh, shop occupancy. I was wondering if you could add a little bit more color, so sequentially. Um, there wasn't much movement if there was anything specific going on, um, just giving the 2q tends to be a little bit stronger and occupancy growth.
Yeah, I think. Um, hi, it's Talia. Uh,
I think you have to realize that despite transitioning, the holiday portfolio on April 1, so in the very beginning of Q2.
16 of the 21 holiday assets remained in the same-store sales. We decided to do that, um, had it had an impact. Um, as you can imagine, um, just because of the usual noise you have in transition. So, um,
If you had pulled that out, the number would have looked a lot more exciting to you.
Okay, thank you. And and then also on, on the comments of, uh, skilled opportunities starting to come up and looking to transact more, I was curious if you could add in a little bit more color. Um, what's driving that um, more, the opportunity opening up, was it the obv B, B, B, A and also are you hearing anything in terms of concern on health systems and is that driving any of the conversation?
I don't think that we're seeing a significant change in the volume of skilled nursing coming to Market. I think you've we have seen for a while now and over the last few years um of significant move um of transactions into the private Market um by owner operators um with with um
Capital backing them up outside of the reef space. So, um, we are seeing assets come to Market. Um, in the sniff space, we're not seeing a lot, but we are seeing some. I think the, the only thing that has Pro that has shaped the volume of deals. We've seen has been true, both on skilled, and senior housing over the last few years. Um, is the recovery in fundamental operations, um, just thinking about
Even if cap rates have moved up, somewhat from pre-pandemic, um, but the operational recovery has been very effective in uh, in in raising absolute prices.
Okay. And just to confirm, when you’re saying that, is the influence of the kind of moving path of the reconciliation bill has that lifted any potential weight or concern while you've been having your conversations, or was that not always even a part of the conversation?
No, that's that's a non-issue.
Okay.
Thank you.
Thanks Perl.
And our next question comes from the line of Nick Ulo with Scotia Bank. Nick, your line is open.
Hi, this is Elmer Chang on with Nick. Uh, first question is just on the shop portfolio again. How do you expect component drivers to trend in the back half of the year? Since, as mentioned, NOI growth guidance implies some slowdown, given just previous comments and your remarks about employment levels returning to pre-pandemic levels, and maybe some potential impact from the holiday transition assets.
All right, well, I, I hate to try to predict the future, um, but right now, it all looks very positive. There's, I mean, if you follow the next statistics, there's essentially no new inventory coming in the system, uh, and we're assuming very few development deals. Actually, for a while, we started seeing some we see none right now. Um, and we see virtually none, um, in the pipeline in the, um,
In the markets where we have been investing and where we have assets. So with that, is the fundamental context. Um,
The demand is increasing just because the number of people who are aging and ready to move in is rising. Um, our focus is on the care segment, um, with most of our assets, being assisted living, um, and Memory Care, um, with some ill. And, um, I think the fundamental demand, um, in the secondary markets in more, um, in the Middle Market. Uh, price point is uh, is very well positioned and therefore likely to increase.
Okay, thank you. And then uh second question. On a holiday transition portfolio.
Uh, you mentioned that, uh, you transition them to trusted operators, and you've been building a relationship with Sunshine for some time, but, uh, how are you getting comfortable with maybe diversifying the tenant base a little bit? And then could you provide additional color on what that, uh, bidding process entails for operators looking to take on, uh, transition assets?
Well, I'm not sure what you mean by the benefit of the transition and breaking it up. I think, um, having less, having less, um.
Concentration in in 1, operator is always helpful. So, and to be able to do that when you've already got a pre-existing relationship, in this case, with 2 of the 3 operators and the bulk of the facilities. So I'm not really I think I'm not understanding your question. Um, and in terms of the, in terms of the bidding process, whenever we look to transition, we, um, usually identify those operators that we think would be the right fit and, um, we asked them to submit, we give them the information, they need, they submit proposals just like with any other process and you go from there.
Okay, yeah, thanks for that.
all right, thanks Elmer
And our next question comes from the line of Seth Bergie with City. Seth, please go ahead.
Seth, are you there? You might be muted.
Going once, going twice.
All right, we will move on, and our next question comes from the line of Austin Wmid with KeyBanc Capital Markets. Excuse me, Austin, your line is open.
Great, thank you. Um, Rick appreciate the details on the transitions. I, I guess I'm just curious kind of how long you've been evaluating transitioning, these assets and, and when kind of you made that final decision to to move forward, because it does sound like there was a little bit of a, a process in, you know, selecting operators. Um, you know, for for, uh, for these buildings
At holiday, we thought that we should give the new team time.
And um, and and look.
They may do be doing a great job with other things, so I don't want to, I don't want to sort of be negative about about anyone but um, post the transition. Um, despite all the we we throw a positive interactions with the new team. We just want to get the results that we expected to get. And that we were seeing in the rest of our shop portfolio. So, it was really, as simple as that. And so, um, you know, last year, we started having serious discussions about, um, moving the portfolio. And by the end of the year, um, we had pretty much identified, a list of potential operators that could take over different pieces of that portfolio and um, but and targeted, put the process in place and um and then targeted, uh, the transition date. So that was all before the end of last year.
That's helpful. And then for the 5th that you excluded from the same store pool, I mean how how impactful has the transition been were these already the most underperforming assets and and are you planning on investing? You know, any additional Capital into those specific assets?
Yeah. Some of those assets that are excluded more in our same-store pool leading up to, you know, the transition. So, not a major change there, and it shows given, you know, how little the overall pool changed sequentially. We have been putting capital into those assets in that entire portfolio, quite frankly, over the last couple of years. I'd have to look to see if those five assessments were part of that program. I'd have to imagine they were, given, you know, we need to see that performance turn around.
Yeah, and then um, with the holiday assets transition, in April, I guess, can can you share kind of how I mean the the occupancy trended through the quarter and and maybe what the momentum looks like into July just to help us understand the fact that, you know, noi is tracking ahead but there is this implied deceleration, with presumably, you know, occupancy being a big piece of that. So just give us a sense of what that momentum looks like, uh, headed into the back after the year
Sure. I'll I'll kind of give you the directions, we're seeing um, over the course of the second quarter just to to to give you a sense and these are just the holiday transition assets. So we saw um,
Tours. As you can imagine decline initially, but they have definitely picked up, um, since um, uh, after after June, um, move in is actually picked up, um, starting in May so they, um, well, I don't have a measurement for before before April, but they basically picked up um, and move outs are declining, sequent, multiple months now. So the momentum is the right momentum. Tours up moving up, move outs down, um, and that's that kind of put that together and you get higher occas occupancy. So we're anticipating that the noise of the transition is basically, in the rear view mirror and we should be seeing Improvement in occupancy. Um and and how that flows through the the rest of the p&l
Great, thanks for the time.
Thank you, Austin.
And our next question comes from the line of Vicram Malhotra with Buho Securities. Vicram, please go ahead.
Uh, afternoon. Uh, thanks for seeing the questions. I guess just going back to the external growth of the pipeline, uh, kind of what you laid out, I guess Rick implies a pretty big acceleration in the back half. I'm wondering, you know, kind of how, um,
Uh, you know, timing-wise, it is more back-end weighted. And how sustainable is this space into 2026? Given your, you know, your goal of kind of hitting 30% of shop. Uh, thanks.
Well, I don't think that we need.
I think some momentum is overly weighted towards the latter half because we have about 350 million right now of that 4 to 5 that were either closed or closing or rewarded. So um I think it's pretty spread its spread out pretty nicely over the next over these next couple of quarters
And, um, Todd, if you want to talk about going into next year and...
The volume that we're seeing is unabated. Um, and we.
Are finding ourselves.
In the second round and touring uh on any every asset that we're interested in frankly. Um and you've heard us talk about the profile of those assets. All of which um are which are, you know, newer, builds, senior housing, um uh, strong markets and um, opportunity for growth. Um, so so not not Bond. Uh, type return for the most part. Uh, so so far looks good. I can tell you that teams out on 2, the momentum continues. So, I mean, you can do the timing I think,
The what we've talked about is being awarded as well, under well in process um in terms of documentation and and and a process to close, so it's not as back-ended as you as it sounds.
Okay. Um, and then I just want to clarify 2 quick things. So 1, I think you mentioned the transition Assets in the pool. Like, I think you had mentioned. If if we strip them out, it would have been different occupancy or different. Noi growth. Do you mind just clarifying? Like, if you, if you didn't have the transition assets, uh, what the growth would be. And then just, uh, the, the other clarification essentially, was that on the, um, uh, uh, you know, just the the, the overall, the overall, uh, Acquisitions. You talked about the pipeline. I'm just wondering, does is some of that sitting in Canada as well.
Um, I'll take the second part of that. In Canada, we continue to look. Frankly, I'd love to do some more deals in Canada, but the challenge is that rates are about 200 basis points lower than they are here, which means the cap rates are also 150 basis points lower.
To 200 basis points lower. So, um, you've seen from some of our peers, they're doing deals that they call it a 6% going in yield, or a 5 and a half going in yield in Canada. And that's, um, that pricing is just too rich for us. Um, no matter how much we might like to buy the asset,
Yeah, and then on your first question, like, we didn't disclose that. Um, I guess one thing I would say is that if we didn't have those transition assets in our, you know, same-store numbers, the numbers would be better.
That's a lot.
Thank you. All right. Thank you, Victor.
And our next question comes from the line of Alec Fagan with Beard. Alec, your line is open.
Hey, and thank you for taking my question. Just to circle back on the holiday transition, could you articulate some of the NOI upside that you've already captured and will continue to capture throughout this year and next?
Look, I think we're not going to get specific about that because it really requires a crystal ball. I think listening to one of our peers' calls.
Like they're seeing nice improvement in the transition. They went through a year later, so we fully expected to improve. But to specify how much it's going to improve and what that time frame is—there's no way we can be right about that answer. It's just too much specificity you're looking for with a crystal ball.
Okay, sir. No, no crystal balls. So that's totally fair. Uh, second for me, I appreciate that. You know, on the actual pipeline, maybe just speak on the mix of assets, whether they're ILAs, compass, and if these are new operators or existing operators. Just maybe some more details there.
Are you talking about deals that we're seeing in the market, or that we're evaluating, or ones that are...?
That were in the pipeline that $220 million.
Okay. Um,
so, those
Um, some of them are deal transactions with groups, we know and have and our trusted, um, operators. Um some are groups with whom. We are have been working to establish a relationship and so it's an opportunity for us to do something. Um, and most of the they are all institutional quality assets. Um, being uh, sold typically for vintage issues, um, by institutional owners.
All right. Well, thank you.
all right, thank you, Alec
Sona with Deutsche Bank. Okay, your line is open.
Uh yes. Good afternoon everyone. Uh, just a couple of really quick, just a couple of really quick words, communicate care. Uh the rent coverage, their kind of declined slightly just kind of curious. She was an update on on how they're doing and if there was anything we should be paying attention to their
Yeah. Um, nothing that we're really concerned about they've, they've um, had some challenges in 1 of their states is a lot of operators are and so they're focused on domestic a few facilities and uh, and that that that's basically all there is to it. So, um, they'll be fine when that occurs 1.77 times, coverage is not something we're complaining about either. Right. Right, right. But in terms of, right? But but they but they, you know, they've been working on these these facilities and um, it's just not happening the way, they would like it to. And we, we we've been in that market with others be besides them. And it's a, it's a tough Market that, that, that these particular facilities are in. So we have no, you know, they're a good size company. They're very strong. They're a good operator. We love working with them. And so, we're very confident that once they divest a few of these things. Um, they'll be good. But again, it's Talia said even with the reduction, there's no concerns.
Are these your assets that they're going to be divesting?
Yes.
Okay. Gotcha, that's helpful. And then second of all um again just with all the questions around debt ceiling and and uh, you know, fiscal deficits and stuff like that, is that, I mean, do you see any risk where we might kind of start ending up in a sequestration situation a year or 2, from now on. What, what impact did I have on Medicare?
uh,
I don't, I don't think so, but.
You know that stuff's really, really hard to tell. But, um, you know, I think that.
We've done our.
Our lobbying groups have done a really fantastic job for us, and, um, with all these Medicaid cuts in the bill, you know, we were carved out. We understand it may put pressure on state governments, but we were carved out. Um, the upward revision in the Medicare market basket was a good sign. There's no kinds of dialogue with CMS that is causing us any concerns as we look out over the next year plus. So, um, you know, I think we're in a really good place. And the other thing, Ty, I think to remember is the whole space is in a different place now, relative to the continued decline in supply and the continued increase in occupancy. So the space also.
Can afford is there's a lot more cushion. That you look at our rent coverage, right? There's so much more cushion at this space has that it hasn't had before and as occupancy continues to increase, we've already passed that inflection point with the operating leverage so that pull through for every additional patient just gets stronger and stronger. So, um, um,
You know.
It's it feels really, really good right now, even when we look out to the next couple years because I would anticipate as inflation's come down just like we saw this year's Medicaid rate increases lower than last year's. Medicaid rate increases, those will moderate more over the next couple of years and the Market Basket, the Medicare will moderate as well. Um, but that moderation comes at a time when the industry is finally, very, very healthy again.
Gotcha, thank you.
Thank you, Tio. And just a reminder—again, a final reminder: if you'd like to ask a question, it is *1 on your telephone keypad. Once again, *1.
All right, our next question comes from the line of Michael Stroh with Green Street. Michael, your line is open.
Thanks, and good morning. Um, maybe on the labor side, what sort of wage increases are you seeing your operators pass along to employees today? And is there any difference in wage growth between your SNF and senior housing portfolios?
No, it's all somewhere, give or take 4 percent.
Pretty sure, and it's been that way. Now, we're probably going into year 3.
Rated down to sort of mid single digits, which demonstrated that what our operators did in 2022 is effective and has held steady since then. The fact that we've been able to get to pre-pandemic employment levels and temporary agency levels is noteworthy.
At that level of wage increases, you know, I think it kind of proves the point that it's all worked.
Yeah, that makes sense. I guess, are there any states or markets where you are seeing a particularly tight labor market, either on the skilled nursing or senior housing side?
Pinpoint 1 really off the top of my head. I mean, everything's better. There are difference in degrees as to how much better but we're not we don't, we're not this sort of not undue suffering going on in any particular Market.
Got it. Thanks for the time.
Yep, thank you.
Thanks Michael.
And it looks like our final question today comes from the line of Seth Bergie at City. Seth, your line is open.
Hi. Thanks for taking my question. I think in talking about, you know, kind of the...
Opportunities that you've been awarded, some of them are with new operators. Some of them are with existing operators. Can you talk a little bit about, you know, your selection criteria for new operators?
Well, the 1 we spend a lot of time with them prior to even looking at a deal with them. So we get to know them, we get to understand how they operate. Um the kind of markets they picked and most importantly, with to their um, outcomes look like from a quality perspective. So um, it's really all those things. It's pretty traditional stuff, really. Um, but the other characteristic I would say is we have a lot of really good. We have a lot of really good operators that don't um aren't interested in growing that much, you know, they're happy with their portfolios. So part of part of what we've been looking for with new operators that operate our operators that want to actively grow. So that we have a higher number of operators within our existing portfolio that we can depend on, um, to grow with. And not just always look for new operators.
Great. And then just, you know, I think on the last call you mentioned that as the outlook for SHOP has improved, there's actually been a smaller pool of buyers. I'm just kind of curious, you know, as you look out there for investment opportunities, kind of how the buyer pool.
Change. If, if, if at all.
um,
Um, you have primarily the REITs, and you have private capital in the market as well.
The.
Private Equity Funds that there are plenty of the stepped away from the sector and that are there are some that are coming in but I'd say they're coming in in a small way and not trying to do um not not trying to do something big right away. Um and there are some that like Harrison Street that's been consistently in the space and they remain consistently in the space.
Thank you.
All right. Thank you so much, Seth.
And that does conclude our Q&A session today. I will now turn the call back over to Rick Mros. Rick.
Thank you, and thank you all for joining us today. As always, we're available for more dialogue, and we look forward to talking with you. Enjoy the rest of the summer. Take care.
Thanks, Rick. This concludes today's conference call. You may now disconnect.