Sabra Health Care REIT, Inc. Q1 FY2026 earnings call

1. Discussed shop investments with cap rate pressure, details on acquired facilities (IL, AL, memory care, average age 14 years), value-add opportunities. 2. Talked about shop assets transitioned last year, selling process, and no breakout of individual portfolio growth. 3. Provided update on Landmark, helped bring in buyer for assets, and talks on RCA loan continuing. 4. Expanded on AI initiatives at corporate level for back office workflows and at facility level for operations and resident care. 5. Spoke on opportunity set mix (95%+ shop), focus on secondary markets for shop, and trends in skilled nursing investments. 6. Addressed development opportunities for shop, with about 10% pencil, and locations in Indiana and Kentucky. 7. Reaffirmed guidance for shop same store NOI growth in low to mid-teen range. 8. Talked about Medicare and Medicaid rate trends, and AI initiatives impact on G&A and asset level decision making. 9. Spoke on value-based care in Medicare Advantage and senior living, with operators already pursuing it.

1. Reaffirmed initial guidance for shop same store NOI growth in low to mid-teen range. 2. Will reevaluate guidance in Q2 as they get better line of sight on shop growth and investment pipeline. 3. The 1.5 million income received from Landmark in Q1 was included in original guidance and will likely go away by end of second quarter or later but not expected for entire 12 months.

Q: Just hoping you could talk a little bit more about those shop assets that you transitioned last year that you're now looking to sell. If you can comment on the book value or the expected proceeds and And if you had not excluded those from the same store pool, do you know what shop same store NOI would have been for the quarter on a year-over-year basis?

A: We're just selling those right now. We don't know what the outcome is going to be. We're not disclosing any of that information at this point. A couple of quarters ago, when we talked about the transition of that portfolio, we did say that we'd be evaluating the viability of retaining all these assets going forward. So that's just kind of a normal process. But we're not breaking out all these different portfolios in terms of the individual growth of SHOP NOI in these portfolios.

Q: Just on the behavioral, could you just give an update on Landmark that was in the press and any updated thoughts on how we should be thinking about the RCA loan?

A: We always reserve the RCA question for you on just so you know it's special. But so on landmark we had worked. We've been working with them. They obviously in the court system for an exit with those facilities and we were able to. We actually helped bring somebody in to buy a bunch of the assets. The landmark team is buying some of the assets themselves, so we were able to get a price that was actually. Pretty attractive from our perspective. outside of that group of landmark assets, we've got three others that we are in the process of selling as well, so we'll have some more proceeds to add to the ones that you saw in the article. So, you know, as we've talked about, you know, that team did a really good job running that company for a while, and they had those unfortunate incidents with resident deaths in Indiana and got shut down by the regulator. So just a bad turn for them. And we hung in for a while. But at this point, we felt it was better just to get out from under. And on RCA, our talks are continuing to progress and We it's possible we'll be in a position to make an announcement on that before our second quarter call. And if that's the case, we will do so. But it's, as I mentioned on the last call, Deerfield, it's their biggest investment. They really believe in the portfolio and our talks are very constructive.

Q: You mentioned in the prepared remarks some AI initiatives. Could you just kind of expand on some of those and how you're using AI within the platform and maybe talk a little bit about what differentiates kind of the Sabra platform from like an AI perspective versus some of the peers that are also competing in the shop and skilled businesses?

A: Yeah, so I'll take that one, Seth. So, you know, at a corporate level, you know, As Darren mentioned, we've been leaning into automation and AI over the last several quarters, and primarily at the corporate level, it's been to speed up back office workflows and data processing, primarily in our shop portfolio. At the same time, we're also advancing some initiatives that are going to further reduce manual processes and accelerate analysis. It's not the sexiest thing in the world. I'll be very you know, I'm very cognizant of that, but it is very impactful, particularly as it improves how we interact with our operators, what kind of value we could give back to our operators in the form of data and insights, and it could have some really meaningful benefits, not only to us, but to our operators as well. And then, as Rick mentioned, you know, we have pilots going on at the facility level that, you know, in addition to several PropTech solutions that have already been deployed, There's a whole bunch of other solutions like medical records and fall detection that are leveraging AI that are going to make operations more efficient and, more importantly, improve resident care.

Q: Can you maybe comment on how the opportunity set of funding for development and redevelopment projects have trended? And do you expect this to be a bigger part of your investment activity going forward?

A: As far as the developments, we still see a fair amount of development opportunities that come in. I would say of those development opportunities that come in, maybe 10% pencil. You're still having, and basically when I say pencil, always looking for a stabilized return on costs on the development to be 200 to 250 basis points wider than the current market cap rate equivalent. Maybe only 10% of those. I do expect that it's going to pick up, but not meaningfully for some period of time. And can you comment, are these development opportunities also in the secondary market? Or I guess tertiary markets, secondary markets?

A: Yeah, so the one prep equity development that we announced is in, it's in Indiana. And then the other one is actually it's a redevelopment of a former SNF property that was shut down and we're redeveloping that into a senior housing property and that's in Kentucky.

Q: I guess I just want to go back to the question on the guide. just the cadence of SFO or ASFO, you just take your quarterly number and just multiply it by four, you're very easily in the range. So I'm just wondering, is there a one-time item? Is there maybe this loan that you've got baked in? Any other asset transition or sale? What should we infer as a pretty steady number? So if you can go back and give us any more color on what other puts and takes for the year that we should be modeling.

A: Yeah. So as you rightly pointed out, if you take our first quarter results and you annualize them, they're right at, or if you do it on actual dollars and run the math out, you're probably just slightly below where our midpoint is. So there's that data point. I think the other data point is we guided towards low to mid-teen, same store NOI growth in our shop portfolio, and we came at 14. So right in the middle of that range as well. And as we talked about many times before, the biggest driver of where we end up landing on an earnings perspective, especially relative to our guidance range, is going to be dictated by our shop and OI growth. So given that our current quarter earnings are right at the midpoint or even slightly below the midpoint, given that our shop growth is right where we guided for the full year, And we reaffirmed our guidance. Let's not lose sight of that. We reaffirmed the guidance that we put out. We still feel, as we sit here today, two months after we put out our initial guidance, that reaffirming where we stand or where we put out previously still makes sense. As Rick mentioned, we've historically taken the approach that in Q1, we're not going to generally revisit guidance unless there's some material change one way or another. There hasn't been. And we're going to reevaluate it in Q2 as we have a better line of sight into what the shop growth is going to look like for the year and as our investment pipeline takes greater form.

Q: Maybe following up on that question and just going back to the strong pricing on the Communicare sale, your comments on not being able to compete as well on the sniff transaction market i guess just what sort of yields or multiples are you seeing there on those marketed sniff deals and how different is that versus you know the typical call it nine to ten percent uh lease yields we see in sniffs A: there's not a lot of data out on that um it's a problem because they are all private they are all private deals and um so I don't really have a good answer for that. Darren, I don't know if you've seen anything. No. I mean, it's definitely a couple hundred basis points inside of what the standard skilled nursing transaction would typically run at.

Q: One of your peers had talked about labor being a challenge within that business. Are you experiencing a meaningfully tougher labor backdrop within behavioral health versus, call it other areas of the portfolio?

A: No, not at all. I'm a little bit surprised to hear that. We haven't seen that at all in our portfolio.

Q: Can you maybe comment on the Medicare rate proposal for 2027 of 2.4%? Maybe we can get your high-level outlook on Medicare and Medicaid and just the overall health of reimbursement.

A: Sure. So I'll give myself a little credit because I did predict that the Medicare market basket would have a two handle, and I predict that the Medicaid rate increases in the aggregate will have the three handle. So it really did meet our expectations. But the other thing that we've talked about is coming off of the pandemic and the really extraordinarily high inflation that we saw during the pandemic, everything's normalizing. And we should expect to see rates both on the Medicaid and the Medicare side revert back to the historical norm before the pandemic. So that's really what we're seeing. I think Medicare and Medicaid rates peaked in 2024. They were still really healthy last year, but we did see them come down quite a bit last year. So it's all formulaic, so it's pretty normal stuff. So while you can't predict the exact number, the trend is going to be pretty apparent.

Q: Just doing a little math, which can always be a little bit of a dangerous thing, but, you know, from your occupancy and unit numbers in the subunit, we estimate your non-same sort of shop occupancy is in the high 70s percent. So I was wondering if you could write a little bit of color into the types of shop assets you've been accumulating over the past year. It looks like these have been unstabilized with a little bit of occupancy upside. And, you know, if you could talk about what market the assets are in and the unit mix, that would be helpful.

A: Yeah, so the total just in the entire overall senior housing managed portfolio for the quarter ended, I think the occupancy for the entire portfolio is 85.6%. As far as the assets we've been acquiring, we've been acquiring assets in the upper mid, I'd say upper 80s to the low 90s percent occupancy. So I'm not sure. I'd like to see that 70% math. All right. Where are you getting that from, Michael? We ran some numbers based on what we saw in the sub, but we'll take another look at it or catch up offline.

Q: Maybe just to round it out, when do you expect some of these AI initiatives to translate to measurable financial outcomes like a lower G&A or higher margins or better asset level decision making?

A: Yeah, I mean, from a G&A perspective, I wouldn't expect there to be a ton of G&A savings. What is going to be more impactful from a G&A perspective, it'll slow down the ramp of G&A as we grow. I think that's the right way to look at it. And that's going to be incremental and ongoing and as we speak, right? Because we're in the middle of a lot of these initiatives. And as they continue to be implemented, we're going to see the real benefits to how we operate and how we scale as a company. Additionally, as we continue to roll out this information to our operators and give them better insights into their own businesses and help them operate their facilities better, there will be, we firmly believe there's going to be a tangible improvement in their performance. When that's going to be, how quickly that's going to be, it's hard to tell at this point. And it's also going to make it easier for us to absorb information the increased level of volume on investments that we're seeing. We do have some 90-day milestones in place, so we'll start to see some benefits in the near term with the initiatives that we have.

Q: I wanted to continue along the lines of the Medicare, Medicaid questions and get your thoughts around CMS's increased focus on these value-based care programs on the Medicare Advantage side. You know, what are you hearing from your operators about how it's impacting, like, the referral rates in hospitals or how you may potentially be kind of changing your business and how they're kind of responding to it?

A: Sure. Thanks, Kyle. So we're not seeing that much impact yet, but we are really bullish on value-based care. And we are working with our operators. Some of our operators are already pursuing it. They already have agreements in place. There's sort of different levels that you can do with the insurers. You can have arrangements with ACOs. There's a lot of different levels of arrangements that you can have with value-based care that have different levels of risk, starting with upside but no downside. And as they get better and better, they'll take on some downside risk, but they'll have more upside risk. So we think it's a really big deal. We think it's great for the space because we know our operators can take care of patients that are being cared for in much higher cost settings like LTACs or like rehab hospitals with really good outcomes. In fact, a few weeks ago, last month, we had our operators conference And value-based care was the central topic for the conference and just a lot of excitement from our operators on it. And there's also similar opportunities for senior living as well. It isn't just skilled. So there's maybe more there for skilled, but there's opportunities there with the insurers and with ACOs particularly on the senior housing side as well. So we were able to talk about initiatives and we had some great speakers coming in and gave great examples In fact, one of our board members, Lynn Katzman, who runs a senior living company called Juniper, is probably front and center, further ahead on those kind of initiatives with AL and memory care than anybody else in the space. So her expertise has been great as well.

Q: I just want to go back to something to make sure我理解一些指导的组成部分。第一季度从Landmark获得的150万美元收入是否包含在初始指导中？在未来几个季度重新评估指导时，这是否是一个上行因素？然后，考虑到你计划出售这些资产，将第一季度的数字年化是否合适？A: Uh, so to answer your first question, the 1.5 was included in our original guidance. Um, now in terms of annualizing that, yeah, I mean, that's something that's going to go away at some point this year. Um, you know, probably I would say probably end of the second quarter is probably when we would realistically think that would go away, but you know, it could slip as well. Um, But it isn't something we expect to have in there for the entire 12 months, if that's what you're asking. Yeah, no, that's helpful. Thank you.