Sabra Health Care REIT, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Several quarters of continuing improvement in primary asset classes post-pandemic, hitting highs in statistical categories.
• Occupancy and skill mix improvements in SNF, shop, and senior housing portfolios.
• EBITDA coverage levels for SNF and triple net senior housing portfolios at 1.94 and 1.37 respectively, higher than pre-pandemic levels.
• Leverage continued to decrease, increased guidance midpoint with over 6% year-over-year growth expected to carry over into 2025.
• Investments for the quarter totaled just under $100 million, focus on high-quality, newer vintage assets.
• Managed senior housing portfolio grew through addition of high-quality properties and operational improvements; same-store managed senior housing had excellent results with revenue growth and cash NOI growth.
• Normalized FFO per share and normalized AFFO per share guidance updated with increases at the midpoint.

Segment Performance:

• SNF Portfolio: Occupancy up 130 basis points sequentially, skill mix up 110 basis points, EBITDA coverage at 1.94.
• Same-Store Shop Portfolio: Occupancy up 90 basis points sequentially, margins strengthening.
• Triple Net Senior Housing: Occupancy hovering around 90% for four quarters, EBITDA coverage at 1.37.
• Behavioral and Other: Occupancy flat.
• Managed Senior Housing Portfolio: 140 basis point increase in occupancy and 60 basis point growth in cash NOI margin on a sequential quarter basis; same-store managed senior housing revenue grew 7.6% year-over-year, Canadian communities revenue up 10.8%, cash NOI grew 17.8% year-over-year.

Guidance:

• Updated full-year 2024 guidance on a diluted per share basis: net income $0.48 to $0.49; FFO $1.35 to $1.36; normalized FFO $1.39 to $1.40; AFFO $1.41 to $1.42; and normalized AFFO $1.43 to $1.44.
• Midpoint of normalized FFO per share and normalized AFFO per share guidance increased by two cents and one cent respectively.
• Fourth-quarter triple net cash NOI approximately $90 million, same as previous guidance, conservatively assuming no percentage rents collected.

Risks:

• Forward-looking statements subject to risks and uncertainties causing actual results to differ materially, as listed in Form 10-Ks and earnings press release.
• Regulatory risks including potential changes in staffing mandates and Medicaid/Medicare reimbursement.
• Competition in the acquisition market affecting ability to secure desirable deals.

Q: Over the last year, you have had a few quarters of accelerating year-over-year occupancy growth at the shop segment. And it seems like labor cost inflation continues to improve. Does that give you more confidence in providing additional segment guidance items for 2025 as you evaluate your expectations there?

A: Yeah. I think it is a little too early for us to talk about 2025 guidance. That is something that we will address when we release our fourth-quarter earnings and evaluate what is meaningful to provide with a high degree of confidence.

Q: Maybe if we could just start on the shop guide going back to that. You know, it looks like another good quarter, and at the beginning of the call, you mentioned RevPOR up 4.2% and ex-POR relatively flat. I guess, could you talk about what was underlying your expectations coming into the quarter? What did this performance look like? I know your guidance is a little bit vague. Maybe does this number land a little bit higher than lower than the midpoint of your expectation? And is there a little bit of conservatism in not updating your guidance here?

A: Yeah. I mean, so what we said last quarter when we put out our guidance on shop growth was mid to high teens growth, and I think this fell squarely within our expectations. And similarly, for the fourth quarter, you know, we are still saying mid to high teens growth. And if we have another quarter that is close to what we had this quarter, it would be in line with what we are expecting. We are hoping that it performs to the upside, but where we came in is very much in line with what we expected.

Q: Rick or Talya, appreciate the comments, first of all. I am kind of remaining disciplined. But last quarter, you had referenced kind of a pickup in opportunities, particularly skilled nursing, I think, was one. And to the point you just made, your cost of capital has only gotten better since then. I guess what has held you back from buying more since this past quarter? I am curious if you are losing out on deals or everything is just taking a little bit longer to materialize. I also do not believe you referenced behavioral this quarter as a target. What are the latest thoughts there? Thanks.

A: Yeah. I think behavioral is not a target for acquisition for us right now. As you recall, I have spoken in the past about it. It began as a vehicle for us to reuse existing assets that were no longer viable as other skilled nursing or senior housing. That is a fixed amount of assets, so we have depleted that, and we have converted those. So right now, we are sitting tight on that. The opportunities in that arena are rarely of institutional quality these days in terms of acquisitions. And the opportunity set is very much in senior housing and skilled nursing today. On the skilled nursing front, in terms of volume and what we are seeing and how come we have not executed billions of dollars versus what we have seen, it really goes to being selective, understanding the risk in some of the assets we have seen because they really tranche out into assets that are challenged, whether they are skilled or senior housing, reference that. Which is not those have not been risks we have been willing to undertake. Most of the higher quality assets we have been bidding on. Sometimes, we do not win the bid, but we are generally right there, and it has been our choice whether to pursue or not pursue.