Sabra Health Care REIT, Inc. Q2 FY2025 earnings call

• Holiday Transition: Ended relationship with Holiday, transitioning to new operators like Discovery and In Spirits, expecting improved portfolio performance.
• Reimbursement: Medicaid rate increases average ~3.5%, top 5 skilled nursing tenants avg. above 5%; Medicare market increased from 2.8% to 3.2%.
• Investments: $200 million in awarded deals closing as expected, $350 million in close/awarded deals, targeting $500 million in investments for the year, aiming to get SHOP from 20% to 30% by 2026.
• Operations: Strong quarter with triple net rent coverage at new highs, skilled and senior housing triple-net, occupancy and skill mix in skilled portfolio increasing, contract labor and employment at pre-pandemic levels.
• Senior Housing Portfolio: Managed senior housing portfolio at nearly 21% of total annualized cash NOI, closed $122 million of senior housing investments and awarded ~$220 million more, same-store portfolio revenue up 5.6% YOY, occupancy 86%, RevPOR up, cash NOI growth strong.

The managed senior housing portfolio is a meaningful contributor to earnings growth, with cash NOI from the managed senior housing portfolio totaling $25.3 million for Q2 2025 compared to $24.1 million last quarter. The triple-net portfolio saw cash rental income increase $2.3 million from the first quarter, driven by percentage rent increases and contractual annual rent increases. The senior housing portfolio's same-store performance included revenue growth of 5.6% year-over-year, occupancy in the same-store portfolio at 86% (83.5% domestic, 90%+ Canadian), RevPOR up 3.9% year-over-year, and cash NOI growth of 17.1% year-over-year in the same-store portfolio.

• Updated 2025 earnings guidance: net income $0.77 to $0.79, FFO $1.52 to $1.54, normalized FFO $1.45 to $1.47, AFFO $1.47 to $1.49, normalized AFFO $1.49 to $1.51. Midpoint of normalized FFO and AFFO increased. Assumes completed investment, disposition, and capital markets activity, general and administrative expense ~$50 million, cash NOI growth for triple-net portfolio low single digit, same-store managed senior housing portfolio cash NOI growth low to mid-teens, cash interest expense ~$102 million.
• Balance sheet: Net debt to adjusted EBITDA ratio 5x, issued $186.6 million on forward basis, settled $29.9 million of forward contracts, entered into new 5-year $500 million term loan to repay bonds, weighted average maturity and interest rate improved, ample liquidity of ~$1.2 billion.

• Forward-looking statements subject to risks and uncertainties listed in Form 10-K and earnings press release. Potential impact of economic factors, debt covenants, and operational challenges in specific markets affecting tenants like Community Care.

Q: John Kilichowski asked about the investment guide and confidence in reaching $500 million for the year.

A: Rick Matros said it will be in the $400 million to $500 million range, depending on timing, with majority likely still SHOP but focused on skilled.

Q: Farrell Granath inquired about same-store SHOP occupancy and skilled opportunities.

A: Talya Nevo-Hacohen said transitioning the Holiday portfolio in Q2 impacted occupancy, and skilled opportunities are seeing assets come to market with operational recovery driving pricing.

Q: Elmer Chang asked about SHOP component drivers and Holiday transition portfolio.

A: Talya said no new inventory, demand increasing, and Rick said transitioning to trusted operators and diversifying tenant base through bidding process.

Q: Austin Wurschmidt asked about evaluating transitioning Holiday assets.

A: Rick said post-pandemic results didn't meet expectations, started discussions last year, identified potential operators.

Q: Vikram Malhotra asked about pipeline acceleration and SHOP goal.

A: Richard K. Matros said pipeline is spread out, Talya said volume unabated with strong momentum.

Q: Alec Feygin asked about Holiday transition NOI upside and pipeline asset mix.

A: Rick said too specific to predict, Talya said pipeline assets are institutional quality, sold by institutional owners.

Q: Omotayo Okusanya asked about Community Care rent coverage.

A: Richard K. Matros said nothing concerning, they're divesting some facilities.

Q: Michael Stroyeck asked about labor wages.

A: Richard K. Matros said wage increases around 4%, steady since 2022.

Q: Seth Bergey asked about selection criteria for new operators and buyer pool.

A: Richard K. Matros said criteria include getting to know operators, their operations, outcomes; Talya said buyer pool primarily REITs and private capital with some private equity funds changing.