Q2 2026 Sabra Health Care REIT Inc Earnings Call

August 4, 2026

Speaker #5: A clouded night when I want to. Out of school, yeah, yeah.

Speaker 3: I cry nights when I want to.

Speaker #4: County fair in the country sun, and everything is true. Oh yeah. First of the fall, and then she goes back. Bye, bye, bye, bye, then.

Speaker 6: Everything is cool. Ooh, yeah. Rock me, mama, in July. Rock me, mama, in July. Rock me, mama, in July. Rock me, mama, in July. First of the fall. She goes back. Bye, bye, bye day. Them summer days. Oh, summer days. What I want to do. Oh, do. County fair in the country sun. Everything is cool. Ooh, yeah. Rock me, mama, in July. Ooh, Lord. Rock me, mama, in July. Rock me, mama, in July. End of the spring. Here she comes back. Hi, hi, hi.

Speaker #4: Came summer day, oh, summer day.

Speaker #5: When I want to—out of school.

Speaker #4: County fair in the country sun, and everything is cool. Oh yeah, oh yeah. End of the spring and here she comes back—hi, hi, hi.

Speaker #1: Good day, everyone. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT second quarter 2026 earnings call.

Operator: Good day, everyone. My name is Regina. I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT Q2 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the call over to Lukas Hartwich, EVP, Finance. Please go ahead, Mr. Hartwich.

Speaker #1: All lines have been placed on mute to prevent any background noise. After the speaker's 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 one on your telephone keypad.

Speaker #1: If you'd like to withdraw your question, press star one again. I would now like to turn the call over to Lukas Hartwich, EVP, Finance.

Speaker #1: Please go ahead, Mr. Hartwich.

Speaker #2: 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.

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 2026 and our expectations regarding our tenants and operators and our expectations regarding our acquisition, disposition, and investment plans. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including the risks listed in our Form 10-K for the year ended 31 December 2025, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.

Speaker #2: Including our earnings guidance for 2026, and our expectations regarding our tenets 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.

Speaker #2: Including the risks listed in our Form 10-K for the year ended December 31, 2025, as well as in our earnings press release, included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.

Speaker #2: 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 Hartwich: We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the Financials page of the Investor section of our website at sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the Investor section of our website. With that, let me turn the call over to Rick Matros, CEO, President, and Chair of Sabra Health Care REIT.

Speaker #2: In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results, included on the financials page of the investor section of our website at sabrahealth.com.

Speaker #2: 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.

Speaker #3: Thanks, Lukas, and welcome, everybody, to our second quarter earnings call. First, on to investment activity. We've closed approximately $600 million in investments, including $100 million in skilled nursing, and we're closing on an additional $100 million in SHOP investments.

Rick Matros: Thanks, Lukas, welcome everybody to our Q2 earnings call. First onto investment activity. We've closed approximately $600 million in investments, including $100 million in skilled nursing, we're closing on an additional $100 million in SHOP investments. Our pipeline is as active as it's ever been. The deals that we've done have been closed at attractive yields, we've got an immense amount of deals that we're looking at, we're able to remain competitive within the range of deals that we currently announced. Going to operations. Our consolidated, unconsolidated, and same store SHOP cash NOI margins continue to grow. Our triple net skilled portfolio again shows increased rent coverage, as does our top 10 in total. Our triple net senior housing did show a drop in occupancy and coverage, that was specifically due to the transition of a high-performing asset from triple net to SHOP.

Speaker #3: Our pipeline is as active as it's ever been. The deals that we've done have been closed at attractive yields, and we've got an immense amount of deals that we're looking at. We were able to remain competitive within the range of yields that we currently announced.

Speaker #3: Going to operations, our consolidated, unconsolidated, and same-store SHOP cash NOI margins continue to grow. Our triple-net skilled portfolio again shows increased rent coverage, as does our top 10 in total.

Speaker #3: Our triple net senior housing did show a drop in occupancy and coverage, but that was specifically due to the transition of a high-performing asset from triple net to SHOP.

Speaker #3: Without that, the results would still be quite strong, but would essentially be flat. We expect Medicaid rates, taken together, to come in around 2% as rates continue to revert to pre-pandemic levels, as we have been articulating.

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

Speaker #3: Even at that level, rate growth continues to feed the momentum of improved performance. The final rule for the Medicare market basket came in at 2.4%, the same as the proposed rule, which met expectations.

Speaker #3: We don't see any regulatory changes that would create any new hurdles, and we're particularly pleased to see leverage dropped to 4.61. With that, I'll turn the call over to Darren.

Speaker #2: Thank you, Rick. Sabra’s managed senior housing portfolio had another great quarter with continued growth. The total managed senior housing portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 9.6%, cash NOI growth of 14.4%, with margin expansion of 130 basis points.

Darrin Smith: Thank you, Rick. Sabra's managed senior housing portfolio had another great quarter with continued growth. The total managed senior housing portfolio, including non-stabilized communities and joint venture assets at share, had sequential revenue growth of 9.6%, cash NOI growth of 14.4% with margin expansion of 130 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra's senior housing portfolio. During Q2, Sabra invested $274.1 million, adding four properties to Sabra's managed senior housing portfolio: three skilled nursing communities, the redevelopment of a senior housing community, and the acquisition of the operations of one senior housing property converting to managed senior housing. Subsequent to quarter-end, Sabra invested an additional $223 million, adding seven properties to Sabra's managed senior housing portfolio, bringing total year-to-date investments to roughly $599 million, with an estimated initial cash yield of 7.5%.

Speaker #2: These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra's senior housing portfolio. During the second quarter, Sabra invested $274.1 million, adding four properties to Sabra's managed senior housing portfolio, three skilled nursing communities, three developments of a senior housing community, and the acquisition of the operations of one senior housing property converting to managed senior housing.

Speaker #2: Subsequent to quarter end, Sabra invested an additional $223 million, adding seven properties to Sabra's managed senior housing portfolio, bringing total year-to-date investments to roughly $599 million, with an estimated initial cash yield of 7.5%.

Speaker #2: Additionally, Sabra has another $100 million of awarded managed senior housing and skilled nursing investments which should close prior to year-end. In addition to the $700 million in closed and awarded investments, Sabra has an additional $330 million of managed senior housing investments that we are actively pursuing.

Darrin Smith: Sabra has another $100 million of additional awarded managed senior housing and skilled nursing investments, which should close prior to year-end. In addition to the $700 million in closed and awarded investments, Sabra has an additional $330 million of managed senior housing investments that we are actively pursuing. On a year-over-year basis, Sabra added 21 assets to our managed senior housing portfolio, a nearly 24% increase by number of assets and nearly 76% increase in total managed senior housing NOI. Deal flow continues to be extraordinarily robust, Sabra remains competitive on new investments. Moving on to the same-store portfolio. Sabra's same-store managed senior housing portfolio, including joint venture assets that share, continued its strong performance in Q2. The key numbers are: revenue for the quarter grew 8.6% year-over-year, with our Canadian communities growing revenue by 7.8% in the same period.

Speaker #2: On a year-over-year basis, Sabra added 21 assets to our managed senior housing portfolio—a nearly 24% increase by number of assets, and nearly a 76% increase in total managed senior housing NOI.

Speaker #2: Deal flow continues to be extraordinarily robust, and Sabra remains competitive on new investments. Moving on to the same-store portfolio, Sabra's same-store managed senior housing portfolio, including joint venture assets at share, continued its strong performance in the second quarter.

Speaker #2: The key numbers are: revenue for the quarter grew 8.6% year over year, with our Canadian communities growing revenue by 7.8% in the same period.

Speaker #2: Second quarter occupancy in our same-store portfolio was up 170 basis points to 88.2% year over year. Notably, our domestic portfolio occupancy increased 170 basis points to 85.7% during that period, while our Canadian portfolio grew 160 basis points to 93.2% in the same period, marking the ninth consecutive quarter where occupancy was over 90%.

Darrin Smith: Q2 occupancy in our same-store portfolio was up 170 basis points to 88.2% year-over-year. Our domestic portfolio occupancy increased 170 basis points to 85.7% during that period, while our Canadian portfolio grew 160 basis points to 93.2% in the same period, marking the ninth consecutive quarter where occupancy was over 90%. RevPAR in Q2 continued to rise with an increase of 6.6% year-over-year, with our Canadian portfolio increasing 5.9% in the same period. While RevPAR and occupancy continue to grow, ExpPOR increased 4.1% for the same period, providing for cash NOI growth of 13.7% on a year-over-year basis. With $700 million in closed and awarded investments to date, a very robust pipeline, and industry tailwinds at our backs, we should continue to see solid growth in our portfolio.

Speaker #2: Rev4 in the second quarter continued to rise, with an increase of 6.6% year over year, and our Canadian portfolio increased 5.9% in the same period.

Speaker #2: While RevPAR and occupancy continued to grow, export increased 4.1% for the same period, providing for cash NOI growth of 13.7% on a year-over-year basis.

Speaker #2: With $700 million in closed and awarded investments to date, a very robust pipeline, and industry tailwinds at our backs, we should continue to see solid growth in our portfolio.

Speaker #2: And with that, I'll turn the call over to Michael Costa, Sabra's Chief Financial Officer. For the second quarter of 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.40.

Darrin Smith: With that, I'll turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Michael Costa: Thanks, Darrin. For Q2 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.40, compared to $0.38 and $0.39, respectively, in Q1. Year-over-year, our Q2 normalized FFO per share and normalized AFFO per share posted increases of 3% and 5%, respectively. For the quarter, total cash NOI was $144.3 million, compared to $138.7 million in Q1. This $5.6 million sequential improvement was the primary driver of our sequential normalized AFFO per share growth and reflects continued operational improvement in our managed senior housing portfolio and the benefits to our triple-net portfolio from diligent portfolio management. Cash NOI from our managed senior housing portfolio was $44.6 million this quarter, compared to $39 million last quarter.

Speaker #2: Compared to $0.38 and $0.39, respectively, in the first quarter. Year over year, our second quarter normalized FFO per share and normalized AFFO per share posted increases of 3% and 5%, respectively.

Speaker #2: For the quarter, total cash NOI was $144.3 million, compared to $138.7 million in the first quarter. This $5.6 million sequential improvement was the primary driver of our sequential normalized AFFO per share growth and reflects continued operational improvement in our managed senior housing portfolio, as well as the benefits to our triple net portfolio from diligent portfolio management.

Speaker #2: Cash NOI from our managed senior housing portfolio was $44.6 million this quarter, compared to $39 million last quarter. This increase reflects both the continued occupancy gains, rate growth, and margin expansion in the same-store managed senior housing portfolio.

Michael Costa: This increase reflects both the contribution from recent investment activity and continued occupancy gains, rate growth, and margin expansion in the same-store managed senior housing portfolio. Cash rental income from our triple-net portfolio was $94.1 million for the quarter, compared to $89.8 million in Q1. During the quarter, we exercised our option to reset the rent under our lease with Avamere to a fixed amount tied to the portfolio's historical performance. This increased the annualized fixed cash rent to $48 million and was retroactive to 1 February 2026, which compares to $41 million of cash rent paid in 2025. This added $3.2 million of rental revenue during the quarter, which includes $1.6 million of out-of-period revenues that we normalize in our quarterly results. We also recognize a $1.6 million increase in cash rental income from several smaller portfolio initiatives, including rent resets, lease amendments, and lease extensions.

Speaker #2: Cash rental income from our triple net portfolio was $94.1 million for the quarter, compared to $89.8 million in the first quarter. During the quarter, we exercised our option to reset the rent under our lease with Avamere to a fixed amount tied to the portfolio's historical performance.

Speaker #2: This increased the annualized fixed cash rent to $48 million and was retroactive to February 1, 2026, which compares to $41 million of cash rent paid in 2025.

Speaker #2: This added $3.2 million of rental revenue during the quarter, which includes $1.6 million of out-of-period revenues that we normalized in our quarterly results. We also recognized a $1.6 million increase in cash rental income from several smaller portfolio initiatives, including rent resets, lease amendments, and lease extensions.

Speaker #2: Our ongoing proactive portfolio management generally flies under the radar but provides meaningful benefits to our earnings profile and portfolio quality, and is a direct product of the incredible work that the Sabra team does day in and day out.

Michael Costa: Our ongoing proactive portfolio management generally flies under the radar but provides meaningful benefits to our earnings profile and portfolio quality and are a direct product of the incredible work that the Sabra team does day in and day out. In addition, recent triple-net acquisitions and investments added $823,000 of cash rental income sequentially. Offsetting these increases was a reduction of $1.3 million as a result of the Communicare sale announced last quarter, and a $226,000 reduction related to the transition of a triple-net senior housing facility to our managed senior housing portfolio. Interest and other income was $5.8 million for the quarter, compared to $10 million in Q1. The decrease was primarily due to reduced interest income from the discounted payoff of the RCA mortgage loan discussed in our 21 July business update.

Speaker #2: In addition, recent triple net acquisitions and investments added $823,000 of cash rental income sequentially. Offsetting these increases was a reduction of $1.3 million as a result of the CommuniCare sale announced last quarter, and a $226,000 reduction related to the transition of a triple net senior housing facility to our managed senior housing portfolio.

Speaker #2: Interest and other income was $5.8 million for the quarter, compared to $10 million in the first quarter. The decrease was primarily due to reduced interest income from the discounted payoff of the RCA mortgage loan discussed in our July 21st business update.

Speaker #2: Cash interest expense was $27.4 million for the quarter, compared to $26 million in the first quarter. The increase reflects higher borrowings under our credit facility to fund completed investment activity.

Michael Costa: Cash interest expense was $27.4 million for the quarter, compared to $26 million in Q1. The increase reflects higher borrowings under our credit facility to fund completed investment activity. Normalized cash G&A was $10.7 million for the quarter, compared to $11 million last quarter. This modest decrease is the result of incurred expenses in Q1 related to hosting our 2026 operator conference, partially offset by an increase in performance-based compensation expense this quarter. This quarter, we recorded a $102.4 million provision for loan losses in other reserves. This is primarily related to the discounted payoff of the RCA mortgage loan discussed in our 21 July business update, and this charge was excluded from our normalized quarterly results. During the quarter, we moved the leases with two tenants from cash basis accounting to accrual basis accounting.

Speaker #2: Normalized cash G&A was $10.7 million for the quarter, compared to $11 million last quarter. This modest decrease is the result of incurred expenses in the first quarter related to hosting our 2026 operator conference, partially offset by an increase in performance-based compensation expense this quarter.

Speaker #2: This quarter, we recorded a $102.4 million provision for loan losses and other reserves. This is primarily related to the discounted payoff of the RCA mortgage loan, discussed in our July 21st business update, and this charge was excluded from our normalized quarterly results.

Speaker #2: During the quarter, we moved the leases with two tenants from cash-based accounting to accrual-based accounting. Accordingly, we realized a $3.1 million recovery of straight-line rent receivable and lease intangibles, of which $3 million is normalized in our quarterly results.

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

Speaker #2: This will have a positive impact on FFO going forward and, more importantly, reflects the continued strengthening of these operators' underlying performance and payment history.

Speaker #2: We also wrote off $1.3 million of straight-line rent receivable from a triple net senior housing facility that was transitioned to our managed senior housing portfolio during the quarter. This amount was also normalized in our quarterly results.

Speaker #2: As noted in our July 21st business update, we increased our earnings guidance for 2026 and have reaffirmed that earnings guidance. At the midpoint, this represents approximately 7% year-over-year growth in normalized FFO per share and 8% year-over-year growth in normalized AFFO per share.

Speaker #2: Now, briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 4.61 times as of June 30, 2026, compared to 5.04 times at March 31, 2026.

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

Speaker #2: This meaningful improvement reflects the payoff of the RCA mortgage loan and continued earnings growth within our portfolio, positioning us comfortably below our previous target leverage of five times.

Speaker #2: We had approximately $1.3 billion of liquidity at quarter end, consisting of $231.6 million of unrestricted cash and cash equivalents, $682.5 million of available borrowings under our credit facility, and $411.8 million related to shares outstanding under forward sale agreements under our ATM program.

Speaker #2: As of June 30, 2026, we were in compliance with all of our debt covenants. We continued to use the Ford feature under our ATM program to efficiently fund future investment activity and preserve balance sheet flexibility.

Speaker #2: During the quarter, we utilized the forward feature of our ATM program to allow for the sale of up to 921,000 shares at an initial weighted average price of $20.72 per share, net of commissions.

Michael Costa: During the quarter, we utilized the forward feature of our ATM program to allow for the sale of up to 921,000 shares at an initial weighted average price of $20.72 per share net of commissions. As of 30 June 2026, 21.4 million shares remain outstanding under forward sale agreements at an initial weighted average price of $19.24 per share net of commissions, and we have $334.1 million of availability remaining under the ATM program. Finally, on 3 August 2026, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on 31 August 2026 to common stockholders of record as of the close of business on 14 August 2026. The dividend is well covered and represents a payout of 75% of our Q2 normalized AFFO per share. With that, we'll open up the lines for Q&A.

Speaker #2: As of June 30, 2026, 21.4 million shares remain outstanding under forward sale agreements at an initial weighted average price of $19.24 per share, net of commissions.

Speaker #2: And we had $334.1 million of availability remaining under the ATM program. Finally, on August 3, 2026, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock.

Speaker #2: The dividend will be paid on August 31st, 2026 to common stockholders of record as of the date of as of the close of business on August 14th, 2026.

Speaker #2: The dividend is well covered and represents a payout of 75% of our second quarter normalized AFFO per share. And with that, we'll open up the lines for Q&A.

Speaker #1: We will now begin the question and answer session. To ask a question, simply press star followed by the number one on your telephone keypad.

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

Speaker #1: Our first question will come from the line of Farah Lagranath with Bank of America. Please go ahead.

Speaker #3: Hello, and thank you for taking my question. My first one is really just diving in a little bit deeper into your same-store shop guidance.

Farrell Granath: Hello, and thank you for taking my question. My first one is really just diving in a little bit deeper to your same-store SHOP guidance. I know maintaining that low to mid-teens with now the H1 of the year averaging about 14.1% same-store NOI growth. As we're heading now into peak leasing season, wanted to touch base on really how you're feeling about the current market conditions, especially when we've seen the stabilization in same-store SHOP NOI guidance kind of across the peer set.

Speaker #3: I know maintaining that low to mid-teens with now the first half of the year averaging about 14.1% same store NY growth. And as we're heading now into peak leasing season, I wanted to touch base on really how you're feeling about the current market conditions, especially when we've seen the stabilization in same store shop NY guidance kind of across the peer set.

Speaker #2: Yeah, sure, Farah. So, in terms of our SHOP guidance, we've reaffirmed that low to mid-teens growth rate that we put out earlier this year.

Michael Costa: Yeah, sure, Farrell. In terms of our SHOP guidance, we've reaffirmed that low to mid-teens growth rate that we put out earlier this year. As you noted, we've been right firmly within that range. We continue to see opportunities for upside in that portfolio, also at the same time, want to preserve that flexibility with how the rest of the year pans out. As we get further into the year and we have more visibility on what the H2 is going to hold for us, it's something that we'll revisit.

Speaker #2: As you noted, we've been, you know, firmly within that range. And, you know, we continue to see opportunities for upside in that portfolio.

Speaker #2: But also, at the same time, we want to preserve that flexibility with how the rest of the year pans out. As we get further into the year and have more visibility on what the second half is going to hold for us, it's something that we'll revisit.

Speaker #3: Okay, thank you. I also just wanted to touch on the press release—there was mention of additional or a few value-add opportunities, especially in the SHOP pipeline.

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

Speaker #3: And I was curious if you can just dive in a little bit deeper on how you're evaluating those, and kind of what the hurdles are that need to be reached for them to come under LOI or for you to move forward with a transaction of a value-add.

Speaker #2: Sure. We've discussed previously that we were interested in investing in opportunities where there's a bit of a turnaround opportunity, but, you know, nothing monumental.

Michael Costa: Sure. We've discussed previously that we are interested in investing in opportunities where there's a bit of a turnaround opportunity.

Darrin Smith: Sure. We've discussed previously that we are interested in investing in opportunities where there's a bit of a turnaround opportunity. Nothing monumental. These opportunities, the upside opportunities here encompass 6 properties and about 713 AL memory care units with an average age of 5 years. 5 of the properties are located in desirable Atlanta suburban markets, and the sixth is located in a solid Denver market. Occupancy is roughly 80%, and the expected year 1 yield is, say, roughly 6%. We see a clear path to stabilization in the next year or 2 with stabilized yields around 9% and teen IRRs. All of these are being purchased well below replacement cost, and both of these opportunities are with existing relationships and the incumbent operator.

Darrin Smith: Nothing monumental. These opportunities, the upside opportunities here encompass 6 properties and about 713 AL memory care units with an average age of 5 years. 5 of the properties are located in desirable Atlanta suburban markets, and the sixth is located in a solid Denver market. Occupancy is roughly 80%, and the expected year 1 yield is, say, roughly 6%. We see a clear path to stabilization in the next year or 2 with stabilized yields around 9% and teen IRRs. All of these are being purchased well below replacement cost, and both of these opportunities are with existing relationships and the incumbent operator.

Speaker #2: These upside opportunities here encompass six properties and about 713 assisted living and memory care units. With an average age of five years, five of the properties are located in desirable Atlanta suburban markets, and the sixth is located in a solid Denver market.

Speaker #2: Occupancy is roughly 80%, and the expected year one yield is, say, roughly 6%. We see a clear path to stabilization in the next year or two, with stabilized yields around 9% and IRRs in the teens.

Speaker #2: All of these are being purchased well below replacement cost, and both of these opportunities are with existing relationships and the incumbent operator.

Speaker #4: An additional data point I'll give you, Farah, is a lot of this stuff that we've been buying over the last couple of years has been in the high 80s or around 90% occupancy.

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

Speaker #4: So the value add for us is maybe closer to 80%. It's not 70% or 65%.

Speaker #2: Right.

Darrin Smith: Right.

Speaker #3: Okay. Thank you for that.

Operator: Okay. Thank you for that. Our next question will come from the line of Seth Bergey with Citi. Please go ahead.

Speaker #1: Our next question will come from the line of Seth Burgie with Citi. Please go ahead.

Speaker #5: Hey, thanks for taking my question. I just wanted to kind of talk about the pipeline of future opportunities that you're seeing. I think you mentioned kind of the $100 million of SHOP opportunities.

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

Speaker #5: And maybe $300 million of visibility after that. Just what's the mix between skilled and SHOP in that pipeline? And where are you seeing the most kind of opportunities today?

Speaker #4: So, the $100 million that we refer to—we're in the process of closing—will take our total for the year to $700 million.

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

Speaker #4: The other $300 million-plus we're working on is all SHOP. And most everything else we see in the pipeline that's under review, which exceeds $1 billion as we sit here today, is almost entirely SHOP.

Speaker #5: And then I guess just a quick follow-up on that. Within shop, like you know, should we expect to see additional kind of value add acquisitions or where are you seeing the most opportunity with shop today?

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

Speaker #4: Yeah, I would say the bulk of it will be stabilized, which is really what we've been articulating. But, given the volume of investments that we're doing, we will continue to look for value-add.

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

Speaker #4: As well, because as Darren noted, that takes us from sort of low double-digit IRRs—which is great—but it takes us to mid-teens.

Speaker #4: On the IRR, we're going to continue to look for those opportunities.

Speaker #5: Great. Thank you.

Seth Bergey: Great. Thank you.

Speaker #1: Our next question will come from the line of Austin Worshmith with KeyBanc Capital Markets. Please go ahead.

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

Speaker #6: Thanks. Good morning out there. I'm Rick. I guess with the RCA loan now behind you, what are the latest thoughts on exiting the behavioral segment altogether?

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

Speaker #6: I know it's something you've talked a little about and kicked around. Just curious what the latest thoughts are there.

Speaker #4: Yeah, sure, Austin. So, the bulk of what we have left is Signature Behavioral, the psych hospitals. Everything else is kind of in the process of going away.

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

Speaker #4: And it's only a few things. So, as it pertains to Signature Behavioral, as I mentioned before, they are interested in taking us out. They've been a very reliable tenant for nine years now.

Speaker #4: It's a completely different situation than RCA, obviously. So, we'll see. We'd be open to it. Having them take us out is going to have to be something that's compelling to us.

Speaker #4: And assuming that happens, then we're pretty much out. I think our other category, which is mostly a couple of hospitals and a rehab hospital, and those coverages are off the charts.

Speaker #4: So they just kind of knock it out of the park. We'll be down to four or five percent, so we'll be 95% senior housing and skilled nursing.

Rick Matros: We'll be 95% senior housing and skilled nursing.

Speaker #6: That's helpful. I mean, any, you know, sense around what proceeds or pricing could look like on, you know, Signature, you know, taking you guys out, you know, or out of the bulk of that segment altogether?

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

Speaker #4: Not yet, but we do—we are confident that if there's a deal to be done, we'll have a really nice return on that investment.

Rick Matros: Not yet, we are confident that if there's a deal to be done, we'll have a really nice return on that investment.

Speaker #6: Thanks for that. And the last one is just on the billion-dollar kind of future pipeline you mentioned, you know, entirely within the managed senior housing.

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

Speaker #6: Is that mostly, you know, one-off type opportunities, or are there any portfolio transactions in there that you're evaluating? Just kind of what comprises that kind of longer-term pipeline?

Speaker #2: Yeah, there's a couple of smaller portfolios, you know, say three to five assets, tops. Most of it, though, is single asset opportunities.

Darrin Smith: Yeah, there's a couple smaller portfolios, say three to five assets tops. The most of it, though, is single asset opportunities.

Speaker #6: Thanks for the time.

Austin Wurschmidt: Thanks for the time.

Speaker #1: Our next question will come from the line of Juan Sanabria with BMO Capital Markets. Please go ahead.

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

Speaker #7: Hi, good morning. Just on the guidance that was reiterated from $721 million, could you just talk to what's included in terms of the acquisitions closed subsequent to quarter end?

Juan Sanabria: Hi, good morning. Just on the guidance that was reiterated from 21 July, could you just talk to what is included in terms of the acquisitions closed subsequent to quarter end? I think you said there were a six cap, and if they are not included, why?

Speaker #7: I think you said there were the six cap, and if they're not included, why?

Speaker #2: Yeah, so everything that was included in our guidance from two weeks ago—everything that was closed as of that date—was included in there.

Darrin Smith: Yeah. Everything that was included in our guidance from two weeks ago now, everything that was closed as of that date was included in there, and everything that is closed in the last two weeks is effectively included in that same guidance. If you think about where we were two weeks ago, we had a good line of sight into what the rest of the year was going to shape up as, what the Q2 was going to shape up as. That was all factored into that guidance. The investments that were made subsequent in that two-week intervening period

Michael Costa: Yeah. Everything that was included in our guidance from two weeks ago now, everything that was closed as of that date was included in there, and everything that is closed in the last two weeks is effectively included in that same guidance. If you think about where we were two weeks ago, we had a good line of sight into what the rest of the year was going to shape up as, what the Q2 was going to shape up as. That was all factored into that guidance. The investments that were made subsequent in that two-week intervening period. Would it move the needle for 2026? For 2027 beyond, yes. Given that it's only five months, it wasn't going to move the needle.

Speaker #2: And everything that's closed in the last two weeks is effectively included in that same guidance. You know, if you think about where we were two weeks ago, we had a good line of sight into what the rest of the year was going to shape up as, what the second quarter was going to shape up as.

Speaker #2: So that was all factored into that guidance. And, you know, the investments that were made subsequent to that two-week intervening period would have moved the needle for 2026.

Michael Costa: Would it move the needle for 2026? For 2027 beyond, yes. Given that it's only five months, it wasn't going to move the needle.

Speaker #2: For 2027 and beyond, yes, but given that it's only five months, it wasn't going to move the needle.

Speaker #7: And how much was closed subsequent to the $721 million, in those last two weeks? What's the dollar amount?

Rick Matros: How much was closed subsequent to the 21 July, those last two weeks? What's the dollar amount?

Juan Sanabria: How much was closed subsequent to the 21 July, those last two weeks? What's the dollar amount?

Speaker #2: I'd have to get that for you, Juan.

Michael Costa: I'd have to get that for you, Juan.

Speaker #4: We'll get it for you while we're on the call.

Rick Matros: We'll get it to you while we're on the call.

Speaker #2: Yeah.

Michael Costa: Yeah.

Speaker #7: Great, thanks. And then just as a follow-up, I'm just curious how we should think about Expor going forward and the operating leverage inherent in the portfolio?

Rick Matros: Great. Thanks. Just as a follow-up, just curious how we should think about ExpPOR going forward and sort of the operating leverage inherent in the portfolio.

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

Speaker #2: Yeah, I mean, in terms of Expor, you know, this quarter we saw a little bit of a spike in that. And, you know, it was a mix of things.

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

Speaker #2: You know, there's choppiness with things like repairs and maintenance, which is kind of a constant factor in this type of business. We saw some increases in things like incentive management fees, which is actually kind of a good outcome to see an increase there because it just shows that our operating partners are, you know, exceeding our expectations and their expectations for those portfolios.

Speaker #2: So I would say, you know, outside of lumpiness when you have things like repairs and maintenance, the EXPOR growth should return—our expectation is that it should return—to what we've been seeing in the last couple of quarters, you know, 2 percent, somewhere in that range.

Speaker #7: Thank you.

Rick Matros: Thank you.

Juan Sanabria: Thank you.

Speaker #1: Our next question will come from the line of Connor Mitchell with UBS. Please go ahead.

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

Speaker #8: Hey, thanks for taking my question. Key funding side of the transaction equation that plays into the targeted acquisitions—you know, the stock price reacted positively following the business update in July, but it's come back a little bit since.

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

Speaker #8: So, when you experience the improved cost of capital, does that change the type of assets that you would buy or add on to the pipeline?

Speaker #4: No, it doesn’t. We’ve been able to get things done at attractive yields, even given where our cost of capital was before the business update.

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

Speaker #4: And so, no, it doesn't change that at all. We're still in a better place than we were before the update. There's been a pullback sort of across the space.

Speaker #4: So hopefully that'll pass and, hopefully, having a solid quarter like we just announced will help as well. But no, it doesn't change that calculus.

Speaker #4: It just makes things a little bit more creative, a little bit sooner. That's all.

Connor Mitchell: Okay

Rick Matros: a little bit more accretive a little bit sooner. That's all.

Speaker #8: Yeah, of course. Appreciate that, caller. And then maybe just sticking on the funding side—you still have room to run with the forward ATM, the spot ATM, and now your leverage profile is lower.

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

Speaker #8: Focusing on the equity issuance from the forward ATM and the regular ATM, or do you kind of look at the debt as more of an opportunity to bring the leverage profile back up to that five-times target that you were mentioning?

Speaker #2: Yeah, in terms of the leverage, I mean, we're not looking to jack up our leverage back to 5x with the next deal we do, right?

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

Speaker #2: So the beauty of having our leverage where it's at right now is that it gives us plenty of cushion as deals come up and as we finance additional opportunities that if the equity markets aren't cooperating, we could still you know execute on those transactions without you know being concerned about where our leverage level is at.

Speaker #2: So, it just gives us a lot of breathing room in that regard. With regards to the forward equity issuances we have already made, and that are currently outstanding,

Speaker #2: You know, when we look at executing on the forward, it's an internal conversation that we have with regards to what our line of sight is and our visibility into investment opportunities.

Speaker #2: And if the stock price and the cost of equity at that point in time make sense and allow us to transact on these opportunities accretively, that's when we look to lock in that cost of capital.

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

Speaker #2: So said differently, what we've already, you know, locked in in terms of forward ATM proceeds would allow us to close on all the things that, you know, Darren was talking about earlier, at an accretive price.

Speaker #2: And that's just going to be our philosophy going forward. If we see the stock market and our equity price cooperating with us vis-à-vis our investment opportunities, we'll continue to proactively take advantage of that.

Speaker #4: And going back to Wad's question, we closed on $223 million in the last two weeks.

Rick Matros: Going back to Wad's question, we closed on $223 million in the last 2 weeks.

Speaker #1: Our next question will come from the line of Vikram Malhotra with Mizuho. Please go ahead.

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

Speaker #6: Good afternoon. Thanks for taking the questions. I guess just my first one going back to the value-add assets that you've bought. I know you flagged this maybe a quarter or two ago of shifting away, but I'm just I guess stepping back and wondering like what's compelling you to go down kind of more a bit more risk on into this value-add you know kind of segment where there's a lot of competition, cap rates are compressing, you've already sort of grown your correct me if I'm wrong, I think your shop revenue is now 30 plus percent.

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

Speaker #6: So it seems like you're in a good spot. So, I'm almost wondering, does it make sense to actually pause and, you know, just now see the benefits of the hard work you've done over the last, call it, two years?

Speaker #4: Well, a couple of things, Vikram. I appreciate the question. So, one, we're not doing very much of it. Two, there's not really risk attached to it, because the value-add that we're doing is already at 80% occupancy.

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

Speaker #4: So you're already at your leverage inflection point, in terms of the revenue pull-through that you get as you get additional residents into the facilities.

Speaker #4: And we're only doing these with operators that we currently have relationships with, and who have already proven to us what they can do with other assets that were in the exact same place.

Speaker #4: So there's a clear path to going from 80 to 90 percent, say, on these assets. So if we were doing stuff that was at 65 percent, then I would really take your point and say, okay, we're not going to do that.

Speaker #4: And we're not going to do that. So again, it's a small number relative to the amount of volume that we're doing, and it's relatively stabilized with a clear path to even improved stability.

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

Speaker #4: Does that answer your question?

Speaker #6: Yeah, no, that's helpful. I mean, I guess I was just saying you kind of, a year and a half ago, stated you'd like to be close to 35–40 percent SHOP.

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

Speaker #6: I think you're there now, so I'm sort of wondering—you have a lot of embedded growth over the next two years through the SHOP pool.

Speaker #6: So, is it actually almost more accretive to just pause here and see the benefit of the organic growth that everyone is going to see in the next two years?

Speaker #6: That's kind of my—that's kind of the point I was trying to get at.

Speaker #4: Well, no, yeah, I get it. And again, if we were doing, I guess, true value-add with much lower occupancy, I would agree with you.

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

Speaker #4: But we're not doing that. And then, the other point I would make is we said that we wanted to be at a 40% shop NOI run rate by the end of this year, but that's not where we want to end.

Speaker #4: We want to continue to grow that share of exposure, so we're not content to be where we are now—even though the 450-basis-point improvement in SHOP NOI exposure from last quarter was significant.

Speaker #4: So again, we're not taking real risk here. And again, we're doing this with operators that we're currently partnered with, who have taken assets that are very much like these and taken them to the next level.

Speaker #6: That's fair. Just maybe one more, I guess, maybe you know Michael, I guess on the this year, I mean, in terms of the benefits that flow through, obviously next year you'd have the bumps, you'd have, I guess, half an year, correct me if I'm wrong, of the annualized the step-up from the transition assets and then all the acquisitions you do and the benefit of the organic growth there.

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

Speaker #6: So I'm just wondering, are there any big pieces we're missing? The Street's kind of at 6% growth from what I can see on Bloomberg for next year, given all the acquisitions.

Speaker #6: Like is there something we're all missing? Is there you don't have a lot of debt coming due? It doesn't seem to be like any other you've got a lot of sources for funding.

Speaker #6: So I'm just wondering, as we look at any big-picture building blocks, given all the acquisitions you've done, how should we think about next year?

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

Speaker #2: Yeah, I think you've named off all the major building blocks. Look, we have a shop portfolio that's increasing in size with every quarter that passes, right?

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

Speaker #2: That's going to continue, in our expectation—and I think the market's expectation as well—to drive outsized earnings growth compared to triple net. We have an extremely healthy triple net portfolio that's going to increase by their contractual rates.

Speaker #2: We've been making these acquisitions that have, you know, solid embedded growth in them. And I think all those building blocks set us up to be able to deliver not just for 2027, but into 2028 and beyond with, you know, solid earnings growth on a year-over-year basis.

Speaker #2: And that's our overall objective.

Speaker #6: Yeah, I guess maybe just to clarify, so like your peers who've also been kind of maybe I don't want to say taking on risk, but like trying to you know accelerate the growth through other strategies have all sort of saying we're trying to create a growth profile which used to be 4 percent on AFFO to more like 6 plus.

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

Speaker #6: And it seems like you're getting there. I'm just trying to figure out how sustainable this 5% to 6% growth is as we look forward into next year and beyond.

Speaker #4: So I think it's quite sustainable. And we're actually at 7% and 8% on our upgraded guidance at the midpoint. Because in 2027, we're really going to start to see much more of the benefit of the acquisitions that we've been doing.

Rick Matros: I think it's quite sustainable, and we're actually at 7% and 8% on our upgraded guidance at the midpoint. In 2027, we're really going to start to see much more of the benefit of the acquisitions that we've been doing, and that'll flow into 2028 as well.

Speaker #4: And that will flow into 2028 as well.

Speaker #6: Thank you.

Vikram Malhotra: Thank you.

Speaker #1: Our next question will come from the line of Rich Anderson with Cantor Fitzgerald. Please go ahead.

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

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

Speaker #6: Thanks. Good morning. So on the RCA payoff, you know the 100 million dollars of you know I guess call it discount that you offered, the 200 million dollar you know is essentially a capital raise at over 11 percent cap rate.

Speaker #6: And if you apply that to a 7 and a half percent return on redeployment, then that's about 5 cents of annualized dilution. First of all, do I have that right?

Speaker #6: And second of all, is that baked into this new guidance? Would your guidance have been two and a half cents greater had it not been for that transaction?

Speaker #2: Yeah, I mean, look, if we had—well, let me answer your second question first. Yes, it is factored into our guidance. And you know those proceeds, because we don't assume any investments over and above what's been completed, in our guidance.

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

Speaker #2: Effectively, we're assuming we're just paying down debt with those proceeds. You know there's better use of our capital in the form of investments that that capital is going to be used for.

Speaker #2: But that's what's assumed in our guidance. So I think it is reasonable to assume that our guidance would have been higher absent that, right?

Speaker #6: Yeah, understood. I just—you know, I hate seeing $100 million go poof like that. I understand why you do it, but it comes through in the numbers one way or another.

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

Speaker #6: So I just wanted to sort of get the numbers right on my model. Second, you know, more SNF transactions are popping up into the system.

Speaker #6: I understand a lot of your future is SHOP, but you did say $100 million in SNF transactions. What do you think is causing that, Rick?

Speaker #6: I mean, you know, what's changing in the environment that has caused more in the way of sniff opportunities hitting, you know, passing the smell test for you guys?

Speaker #4: So I don't think anything's changed. Those opportunities were off-market, brought to us by existing operators, and I think that's where it's going to come from going forward.

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

Speaker #4: We're just not seeing the kind of SNF volume that we saw pre-pandemic, where guys that didn't have to sell wanted to monetize and would sell.

Speaker #4: I think that operators got beaten up pretty badly during the pandemic, and they've been recouping their losses. Now they're doing well, and they're just not willing to put their assets on the market unless they have to for some other reason.

Speaker #4: And so there’s such a small amount—and I’m talking about sort of the straight down the fairway, you know, triple-net skilled nursing, not loan investments and things like that.

Rich Anderson: Yeah.

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

Speaker #4: There just isn't enough available for it to go around for all of us. And so, the private guys that are buying opcos and propcos can always outbid us because we're just bidding on the real estate.

Speaker #4: So I think going forward, at least in the immediate and in the foreseeable future, it’ll be more off-market opportunities that will come our way, hopefully.

Speaker #4: Maybe in 2027, we'll see behaviors that revert back to the norm—the pre-pandemic norm—where folks finally were doing well enough for a long enough period of time that it's time for them to start monetizing their assets and moving on.

Speaker #6: Okay. And last question from me—SHOP and specifically Canadian opportunities. There's a little bit more of a ceiling in terms of your ability to grow rents in Canada, whether it's, you know, real regulatory stuff or social issues around rent growth for seniors.

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

Speaker #6: Does that make it a little bit more difficult to be active in that market, or can you still find, you know, the requisite return even going forward, relative to your U.S. pipeline?

Speaker #6: Thanks.

Speaker #4: Sure.

Darrin Smith: Sure. The Canadian market certainly still continues to be very active, and we're still bullish on the Canadian market. I think the biggest issue with investing in the Canadian market, at least for us, is that cap rates still are 100, 150 basis points or so inside of what they are in the US. We see better opportunity in investing in US senior housing today.

Speaker #2: Sure. So, the Canadian market certainly still continues to be very active, and what's still remarkable, at least for us, is that cap rates still are 100 to 150 basis points or so.

Speaker #2: inside of what they are in the U.S. So, we see better opportunity in investing in U.S. senior housing today.

Speaker #6: But do you agree with that, about, you know, just sort of whether it's real regulatory issues in Quebec or something, or social issues elsewhere?

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

Speaker #6: Am I maybe misstating that observation?

Speaker #2: Well, we're still seeing very positive RevPort growth on a year-over-year basis despite the fact that our Canadian same-store portfolio is what been over 90 percent occupants you know 90 percent occupied for the ninth quarter, I think, in a row.

Darrin Smith: Well, we're still seeing very positive RevPAR growth on a year-over-year basis, despite the fact that our Canadian same-store portfolio is what, been over 90% occupied for the ninth quarter, I think, in a row. There's definitely some more regulations in Canada, certainly, than there are in the US, but I don't think it's had a significant impact on rate growth to date.

Speaker #2: There are definitely some more regulations in Canada, certainly, than there are in the US. But I don't think it's had a significant impact on rate growth to date.

Speaker #2: To say it won't in the future is, you know, a guess.

Rich Anderson: Okay. Fair enough.

Darrin Smith: To say it won't in the future is a guess.

Speaker #6: Fair enough. I appreciate that. Thanks very much, guys.

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

Speaker #1: Our next question will come from the line of Rich Hightower with Barclays. Please go ahead.

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

Speaker #5: Hey, good morning out there, guys. So, a couple from me. One on Avamere and the transition there. Can you give us a sense of any sort of risk factor embedded in, I guess, '26 guidance and even beyond, as we think about timing for all the approvals required—if there's any potential delay?

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

Speaker #5: Transition expenses—anything related to that that we should be aware of?

Speaker #4: No, we don't see anything going forward that's going to impact guidance or performance. There's a big difference when you do a transition that isn't friendly, which was the case with the Holiday transition.

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

Speaker #4: And the transition like this, which has been sort of planned for quite a long time, is completely cooperative between the two parties. And also in this case, with Cascadia, they have already acquired other Avamere properties, non-stop properties, and turned them around.

Speaker #4: And those other properties had the same exact characteristics from an upside perspective that these have, so it's really a great transition. We really don't have any concerns.

Speaker #5: Okay, that’s great. And then, I guess maybe more broadly, just on, you know, private market competition for SHOP assets specifically. What’s your sense of what—whether it’s private or public, or anybody else—you’re sort of competing against?

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

Speaker #5: You know what are other buyers underwriting in your sense of things in terms of you know going in yields, unlevered IRRs, you know cash flow growth in the interim?

Speaker #5: Just give us a sense of kind of how you know what does it take to sort of win a deal that you know might be a market a deal rather than something that comes off market.

Speaker #2: Yeah, sure. I think it's really deal specific. Oftentimes, I think if you know if you have a strong relationship with the you know the owner and/or the operator, even if it's a marketed deal, that provides a little bit of an edge in some insight.

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

Speaker #2: It's hard to say what others are doing. We've certainly, you know, lost deals to competitors in the past where we've been scratching our heads after you'd hear the announcement on what that yield was.

Speaker #2: It didn't make sense to us as far as how they were getting there. We've also, you know, elected not to bid on transactions that some of our competitors have purchased as well at, you know, high 6%, low 7% cap rates.

Speaker #2: And where we just saw too much too much risk for the you know the risk-adjusted return associated with that. But it's really hard to guess at what's what our competitors are assuming as far as a stable occupancy or rate growth.

Speaker #2: I think it's really transaction-specific.

Darrin Smith: I think it's really transaction specific.

Speaker #4: Yeah, the other thing I would say is kind of like this: when it comes to our peer REITs, we all pretty much value assets similarly.

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

Speaker #4: So, there isn't a huge discrepancy there. The private guys are a little bit different, obviously.

Speaker #5: Okay. Thank you.

Rich Hightower: Okay. Thank you.

Speaker #1: Our next question will come from the line of Alex Fagan with Baird. Please go ahead.

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

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

Speaker #5: Hey, thanks for taking my question. I heard the first one on the G&A front. Which functions is Sabra hiring for today?

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

Speaker #2: I mean, we're looking across the organization. Obviously, our investments team has been extremely busy for the last several quarters, and we continue to add resources there.

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

Speaker #2: When necessary, you know, we're looking across the company too—things like asset management, accounting, finance, and other areas where we're experiencing growth, particularly areas that are more impacted by our growth on the shop side.

Speaker #2: On the other side of that—and we talked about it a little bit on the last call—there are several initiatives we're undertaking as we speak, and have been for the last several quarters.

Speaker #2: On the technology and AI side, that are going to help us be more efficient and be able to perform those same duties at a larger scale, without what would have previously been the requisite number of additional heads.

Speaker #4: Yeah. Another way maybe to think about it is we're not looking at reductions, but particularly with the AI initiatives, we're going to be a lot more scalable.

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

Speaker #4: So, we won't need to add as many positions as we might otherwise need to add in the absence of those initiatives.

Speaker #5: Oh, got it. That makes sense. And then, switching gears a bit, I think Michael Yu said that you moved two tenants from cash basis to accrual accounting.

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

Speaker #5: Can you tell us what percentage of ABR is now on a cash basis?

Speaker #2: I mean, it's going to be the vast majority of our tenant base. I don't have the number in front of me, but I can get that to you after the call.

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

Speaker #2: But we have a very small number of tenants that are on a cash basis. And ever since this concept of cash basis accounting came into play—I don’t know when it was, 2018, 2019—

Speaker #2: One thing I always make a point to clarify is that there are tenants who are on a cash basis because of the accounting rules, but they're paying their rent.

Speaker #2: They're paying their full rent, and you know there's not any variability in the revenues that we're recognizing, period to period. But there were some that were paying, you know, varied amounts, and that created some level of variability.

Speaker #2: The tenants we put on accrual basis, you know, have been paying their contractual rent for quite some time. So they weren't in the latter category, right?

Michael Costa: They weren't in the latter category, right? That's really the big area we focus on. The people that weren't paying us their full rent, where's our real risk there? What can we do about those? That number is such a small amount today, even more so after some of the initiatives I referenced in my prepared remarks of transitioning tenants, resetting rents, or amending leases. That's even further reduced because of those actions. It's a very small amount, which is obviously a good place to be.

Speaker #2: And that's really the area we focus on: the people that weren't paying us their full rent. Where's our real risk there, and what can we do about those?

Speaker #2: And that number is such a small amount today, even more so after some of the initiatives I referenced in my prepared remarks of transitioning tenants, resetting rents, or amending leases.

Speaker #2: That's even further reduced because of those actions. So it's a very small amount, which is obviously a good place to be.

Speaker #4: I mean, we're in the high 90s, so on accrual.

Rick Matros: We're in the high 90s on accrual.

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

Speaker #5: you.

Speaker #1: Our next question will come from the line of Michael Stroyek with Green Street. Please go ahead.

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

Speaker #5: Good morning. Thanks for the time. Can you maybe provide a bit of color on what drove the acceleration in Rev4 growth during the quarter?

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

Speaker #5: Is that, you know, greater than 6% growth rate sustainable in the near term? And has there been any broad-based change in pricing strategy among your operators, given sequential RevPAR growth was also quite a bit stronger versus historical seasonal levels?

Speaker #2: No, I think it's it's it's it's nothing new. I think we should continue to see as far as Rev4 is concerned you know mid mid upper mid digit increases.

Darrin Smith: No, I think it's nothing new. I think we should continue to see as far as RevPOR is concerned, mid upper mid digit increases.

Speaker #4: It's just the natural growth of occupancy and efficiency and a little bit of pricing power. So there's nothing strategically different that's happened.

Rick Matros: It's just the natural growth of occupancy and efficiency and a little bit of pricing power. There's nothing strategically different that's happened.

Speaker #5: Understood.

Michael Stroyeck: Understood.

Speaker #4: Which is good news.

Rick Matros: Which is good news.

Speaker #5: Yeah. Makes sense. Then maybe one on the transaction market. Can you just talk about you know replacement costs? Where are you where are you acquiring at and how does that compare to call it you know 6 to 12 months ago or so?

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

Speaker #2: Sure. So, we're acquiring at—it depends. It depends where the asset is, it depends on a lot of factors, but I think I'd say we're acquiring at somewhere between, you know, the mid $200,000s per unit up to $500,000 per unit.

Darrin Smith: Sure. We're acquiring at, it depends. It depends where the asset is. It depends on a lot of factors, but I think I'd say we're acquiring at somewhere between the mid-200s per unit up to 500 per unit, and I think from a replacement cost perspective, that would compare to, say, 400 to 600+. It's really dependent upon where in the country those assets are.

Speaker #2: And I think, from a replacement cost perspective, that would compare to, say, $400,000 to $600,000 plus. It really depends upon where in the country those assets are.

Speaker #5: Understood. Thanks for the time.

Michael Stroyeck: Understood. Thanks for the time.

Speaker #4: And the and the aggregate it's and the aggregate it's probably somewhere around 300 plus a unit.

Rick Matros: In the aggregate, it's probably somewhere around 300 plus a unit.

Speaker #2: Yeah.

Darrin Smith: Yeah.

Speaker #5: Okay. Thanks for the time.

Michael Costa: Thanks for the time.

Michael Stroyeck: Thanks for the time.

Speaker #1: Our next question will come from the line of Dave Rogers with Raymond James. Please go ahead.

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

Speaker #5: Yeah, hi. Rick wanted to talk about the transitions. Obviously, a very successful quarter between Avamere and the other transitions that you were able to announce.

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

Speaker #5: Can you maybe talk about that other $9 million? I think you've discussed Avamere quite a bit, but that other $9 million of annualized NOI that you pick up, how much of that is recurring in nature?

Speaker #5: How much of that can you do going forward? How many opportunities do you have? It all hit this quarter, because it was a good time, you know, to offset RCA.

Speaker #5: Like I guess how did you think about kind of delivering so much in one quarter? And what are the opportunities going forward to kind of do even more of that?

Speaker #4: Yeah, so the whole thing's been a little strange. In terms of how quickly it's happened, there are a couple of other opportunities that we are pursuing.

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

Speaker #4: And my guess is that there will be similar transitions there. It's really a group of individuals—I don't know that it's a trend or anything, but the pandemic really burned out a lot of people.

Speaker #4: Like we had operators during the pandemic that said, "Take us out. We're done. We want to retire. We've been doing this for decades." Now that things have been going well for a number of years, on the skills front, that same thing has happened.

Speaker #4: And every single case that we're looking at, it's basically a CEO founder and perhaps other executive members that are ready to retire. And so that's why these things also go so smoothly—it's all very productive.

Speaker #4: They want to get taken out. They want it to work for them. They want it to work for us. They want it to be somebody that can take over and have a smooth transition.

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

Speaker #4: And there aren't any sort of cultural ruptures or things like that, so it's just—but it's interesting that the pandemic just took a lot out of, particularly, operators that have been around for, you know, 30, 40 years.

Speaker #2: Yeah. And Dave, the other thing I'll highlight too—you know, we announced it this quarter with our business update. We called it out in our prepared remarks.

Michael Costa: Yeah. Dave, the other thing I'll highlight, too. We announced it this quarter with our business update. We called it out in our prepared remarks. This all didn't come together in Q2. Some of it did, no doubt. Some of it came in Q1. They're all so individually small, we wouldn't have spent any time talking about it in Q1. Stuff happened prior quarters before that, right? It's just these are the things we're doing day in and day out that don't grab headlines. When we're putting together that business update, we're putting the pieces together and like, there's a big piece missing from it. What is it? Well, it's this stuff that we've never really talked about publicly, but it is extremely beneficial and extremely meaningful.

Speaker #2: This all didn't come together in the second quarter. Some of it did, no doubt. Some of it came in the first quarter. But they're all so individually small.

Speaker #2: We wouldn't have spent any time talking about it in the first quarter. And stuff happened in prior quarters before that, right? It's just, these are the kinds of things we're doing day in and day out that don't grab headlines.

Speaker #2: But when we're putting together that business update, we're putting the pieces together, and there's a big piece missing from it. What is it?

Speaker #2: Well, it's this stuff that we've never really talked about publicly, but it is extremely beneficial and extremely meaningful. So, to Rick's point, there's going to be some of this stuff on a go-forward basis.

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

Speaker #2: And, you know, we are just going to do the right thing in terms of improving our earnings profile and our portfolio. And, you know, we'll all be benefiting from that.

Speaker #5: Maybe just to follow up on both of those, Rick, your comment in particular that there's people that want to get out. I mean, from a sizing perspective, are we thinking more like, you know, a couple of transitions that add up to the $9 million, or are there a couple of Avamere-size transitions out there that you could envision, whether they happen or not?

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

Speaker #4: These are these these are these smaller transitions. And that and it's a it's a couple that that we're currently having conversations with. But there'll be there'll be much smaller than that.

Rick Matros: These will be smaller transitions than that, and it's a couple that we're currently having conversations with, but they'll be much smaller than that. There'll be some incremental benefit to us in all likelihood, but it won't be material.

Speaker #4: There'll be some incremental benefit to us, in all likelihood, but it won't be—it won't be material.

Speaker #5: That's helpful. I appreciate the added color there. I wanted to follow up on the G&A increase. Obviously, this year it's a little larger than the past couple of years.

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

Speaker #5: It sounds like a lot of that's related to shop. I I guess as we think about going forward without talking about you know 27, 28 kind of guidance, but the the increase we see this year, is that something we would expect to see continue as you if if you were to buy 7, 800 million dollars of shop a year?

Speaker #5: Or are there some of these one-time tech or AI investments? Is it shop management fees that kind of bleed through? Maybe just a little more color on what that run rate looks like, given what we've seen this year versus what we've seen in years past.

Speaker #2: So I mean the one of the biggest drivers in the G&A increase, both you know primarily in our in our full year guidance numbers, is performance-based compensation.

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

Speaker #2: And, you know, our board sets our performance targets at the beginning of the year. As the year progresses, we evaluate whether or not we think we're going to meet or exceed those targets.

Speaker #2: And as you know, we put out guidance that was higher this quarter, which implies that we expect performance to come in higher than what we initially estimated at the beginning of the year, which drove that increase.

Speaker #2: In terms of a run rate, you know what we gave in terms of G&A at the beginning of the year for our guidance—that's effectively assuming no performance-based compensation, or basically at our target performance-based compensation expense.

Speaker #2: So when we go into 2027 and future years, we sit down and we make an estimate. We sit down with our board, and we come up with a performance target.

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

Speaker #2: And where we land relative to that will determine whether we have an increase over that number. So I think probably the run rate we gave for our initial guidance is probably a decent starting point, adjusted upwards a little bit for inflation and the like.

Speaker #2: Now, to your point on additional AI initiatives and things like that, that is going to add some G&A cost to us, especially upfront.

Speaker #2: What that is, you know, is to be determined. It's been very incremental to this point, but that'll add a little bit to it. We expect to be saving on the efficiency gains at the same time.

Speaker #4: Yeah. The only other point I'd make, Dave, is even in the absence of AI initiatives, which will make us more scalable, any ads with the growth of SHOP would be incremental because we built our platform over 10 years ago.

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

Speaker #4: So everything that we've done over the last 10 years to add to that platform, both on the human resource side and on the system side, has been incremental.

Speaker #4: So, the AI piece of it will just make that a little bit better.

Speaker #5: All right. Yeah. Thank you both.

David Rodgers: All right. Yeah. Thank you both.

Speaker #1: Again, for questions, press star one on your telephone keypad. Our next question will come from the line of John Kilikowski with Wells Fargo.

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

Speaker #1: Please go ahead.

Speaker #6: Hi, good afternoon. Thanks for taking my question. Rick, back on some of your comments on the value-add stuff. You talked about the 80% occupied versus maybe something in the 70–65% range.

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

Speaker #6: And noted that it's far less risky; however, there still is some risk. It's not tracking with the rest of the SHOP universe, which is kind of mid to high 80s at this point.

Speaker #6: So I guess, what explains that occupancy delta? Is it just in that part of its lease-up process, and you're seeing occupancy momentum gains being made year over year?

Speaker #6: Or are these assets stuck at 80%, and there's something operationally that you and your operators can do that the previous owner, you know, isn't capable of?

Speaker #4: It could be a number of factors. It could be a relatively new facility that's still in lease-up, and everything's been going fine; they're just not all the way there yet.

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

Speaker #4: It could be a facility that has an operator that just wasn't very good, and so we're bringing in an operating partner that has a track record with us.

Speaker #4: And understands that market, which is an important consideration. So it's usually one of those two factors.

Speaker #2: Yeah. The only thing I'd add to that is sometimes you'll see ownership who's hired an operator, but the ownership wants to meddle in operations.

Darrin Smith: Yeah, the only thing I'd add to that is, sometimes you'll see ownership who's hired an operator, but the ownership wants to meddle in operations, where they should be kind of staying a little bit more hands-off. Oftentimes they'll be limiting marketing funds, other different things, instead of just letting the operator do their thing and focus on leasing up and getting it stabilized.

Speaker #2: Where they should be kind of staying a little bit more hands-off. Oftentimes, they'll be limiting, you know, marketing funds and other different things instead of just letting the operator do their thing.

Speaker #2: And focus on leasing up and getting it stabilized.

Speaker #6: Okay, thank you. And then my second one—Mike, you gave some helpful color in the opening remarks, but there are plenty of moving parts in the quarter between the Avamere and Cascadia step-ups that are to come.

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

Speaker #6: You've got the REIT entities. We also have some straight-line adjustments. Could you walk through and and and the the transition assets? Could you just walk through what's a fair run rate number for your revenue items and your straight-line number given what's happened in the quarter versus what's due to happen post-quarter end?

Speaker #2: Are you referring specifically to Avamere?

Michael Costa: You're referring specifically to Avamere?

Speaker #6: Yeah, all of the above, if you could touch on. What's included in the quarter number as far as Avamir is concerned? But already included, I think most of it's after.

John Kilichowski: Yeah. All the above. If you could touch on what's included in the quarter number as far as Avamere's concerned, also if any of that $9 million was already included. I think most of it's after. Also at the same time, the earnings impact from the transition. Is there anything due to come after or is that all captured within Q2? The accrual numbers as well, the cash basis, the tenants flipping to accrual.

Speaker #6: And then also, at the same time, the earnings impact from the transition— is there anything due to come after, or is that all captured within Q2?

Speaker #6: And the accrual numbers as well. The cash basis attendance flipping to accrual.

Speaker #2: Yeah. So I could give you a couple of those items and have to get back to you on probably the straight-line number.

Michael Costa: Yeah. I could give you a couple of those items and have to get back to you on probably the straight line number. In terms of the $9 million, about $1.6 million we saw hit in Q2. That's due to a variety of things, namely timing of some of these things being completed. Some of that $9 million got effectuated post quarter end. That's probably the best way to think about it. I would say going into 2027, you should assume that full $9 million, right? Like I said, about $1.6 was recognized in this quarter. For Avamere, I think the best way to think about it, think about it like a two-step reset, right? We triggered the rent reset, effective 1 February, or retroactive to 1 February. That took the rent from $41 million to $48 million.

Speaker #2: But in terms of the $9 million, about $1.6 million we saw hit in the second quarter. And that's due to a variety of things.

Speaker #2: You know, namely timing of some of these things being completed. Some of that $9 million effect, you know, got effectuated post-quarter end. So that's probably the best way to think about it.

Speaker #2: I would say, you know, going into 2027, you should assume that full $9 million, right? And like I said, about $1.6 million was recognized in this quarter.

Speaker #2: For Avamir, I think the best way to think about it is like a two-step reset, right? So we triggered the rent reset.

Speaker #2: Effective February 1st, or retroactive to February 1st, that took the rent from $41 million to $48 million. And then we expect the transition to close sometime later on this year, at which point that $48 million goes to $53 million.

Michael Costa: We expect the transition to close sometime later on this year, at which point that 48 goes to 53, right? You can make your own assumptions on the timing of that, whether it's sometime late Q3, early Q4, what have you. Going into 2027, however, that number would be $53 million.

Speaker #2: Right? And you can make your own assumptions on the timing of that, you know, whether it's sometime late third quarter, early fourth quarter, what have you.

Speaker #2: Going into 2027, however, that number would be $53 million.

Speaker #6: Okay, and is the $1.6 a quarterly number or an annualized number?

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

Speaker #2: That's a quarterly number. We recognized an additional $1.6 million in this quarter related to those initiatives.

Michael Costa: That's a quarterly number. We recognize an additional $1.6 million in this quarter related to those initiatives.

Speaker #6: Okay. Thank you.

John Kilichowski: Okay. Thank you.

Speaker #2: Yeah.

Michael Costa: Yep.

Speaker #1: And this concludes the question-and-answer session. I'll hand the call back over to Nick Matros for closing comments.

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

Speaker #4: Thanks, everybody, for joining us. We look forward to following up with you and hope the remainder of your summer is great. And I know we’ll see a bunch of you at the Mammal Conference in September.

Rick Matros: Thanks everybody for joining us. We'll look forward to follow up with you and hope the remainder of your summer is great, and I know we'll see a bunch of you at the ALM conference in September. Thanks again.

Speaker #4: Thanks again.

Speaker #1: This concludes today's call. Thank you all for joining. You may now disconnect.

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

David Rodgers: End of the spring and here she comes back.

Q2 2026 Sabra Health Care REIT Inc Earnings Call

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