Sabra Health Care REIT - Earnings Call - Q2 2025

Executive Summary

• Sabra delivered a clean beat versus S&P Global consensus on both EPS and revenue, raised FY25 Net Income and FFO guidance, and reiterated a sizable acquisition pipeline focused on senior housing; same-store SHOP Cash NOI rose 17.1% YoY, leverage improved to 5.0x net debt/Adj. EBITDA, and liquidity reached ~$1.2B. Results: Diluted EPS $0.27; Normalized FFO/share $0.37; Normalized AFFO/share $0.38; total revenue $189.15M. Versus S&P consensus: Primary EPS est. $0.17 vs actual $0.25*; revenue est. $182.79M vs actual $189.98M*.
• FY25 guidance updated: Net Income to $0.77–$0.79 (from $0.67–$0.70), FFO to $1.52–$1.54 (from $1.42–$1.45); Normalized AFFO to $1.49–$1.51 (prior $1.48–$1.51), while AFFO narrowed to $1.47–$1.49 (prior $1.47–$1.50).
• Capital structure/interest expense tailwind: closed a $500M unsecured term loan due 2030 at an effective 4.64% (swapped) and used proceeds to redeem 2026 notes at 5.125%; declared a $0.30 dividend.
• Strategic mix shift progressing: ~($122.3M) YTD closed senior housing investments plus ~$220M awarded (high-7% initial yields) and the transition of 21 Holiday assets to Discovery, Inspirit, and Sunshine; management targets growing managed senior housing exposure from ~20% toward 30%. On the call, management reiterated an annual investment range of $400–$500M for 2025.

What Went Well and What Went Wrong

• What Went Well

  • Beat and guidance up: EPS and revenue exceeded S&P Global consensus, and FY25 Net Income and FFO ranges were raised; Normalized AFFO nudged higher; SHOP same-store Cash NOI +17.1% YoY. EPS est. $0.17 vs actual $0.25*; revenue est. $182.79M vs actual $189.98M*.
  • Balance sheet actions: New $500M term loan fixed at 4.64% over five years and redemption of 5.125% 2026 notes should modestly lower interest cost; leverage improved to 5.0x net debt/Adj. EBITDA and liquidity stood at ~$1.2B.
  • Strategic execution: 21 Holiday assets transitioned with “minimal” disruption; senior housing acquisitions closed ($53M in Q2) with additional $61.5M post-quarter and ~$220M awarded; CEO: “we are well on our way toward our initial goal of taking our managed senior housing exposure from 20% to 30%”.

• What Went Wrong

  • AFFO guide narrowed: AFFO range trimmed at the top end versus initial guide ($1.47–$1.49 now vs $1.47–$1.50 prior), suggesting some conservatism around timing/mix of deals and operating cadence.
  • Skilled nursing M&A remains selective: Management continues to see fewer high-quality SNF opportunities and is cautious given Medicaid uncertainties; they are not pursuing mezz/complex JV structures or building a loan book, which can limit certain deal avenues.
  • Transition “noise”: Management acknowledged the Holiday transition introduced some temporary noise in SHOP metrics, although 16 of 21 properties remained in same store; excluding them would have been more favorable, per call commentary.

Transcript

Speaker 5

Good day, everyone. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2025 Sabra second quarter earnings call. All lines have been placed on mute to prevent any background noise. After the 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. Once again, star one. If you'd like to withdraw your question, simply press star one again. I would now like to turn the call over to Lukas Hartwich, EVP Finance. Please go ahead, Mr. Hartwich.

Speaker 6

Thank you and good morning. Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning our expectations regarding our future financial position and results of operations, including our earnings guidance for 2025 and our expectations regarding our tenants and operators, 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 December 31, 2024, as well as in our earnings press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC yesterday.

We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances, and you should not assume later in the quarter that the comments we make today are still valid. In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the explanation and reconciliation of these measures to the comparable GAAP results included on the financials page of the investor section of our website at 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 7

Thanks, Lukas, and thanks everybody for joining us today. We appreciate it. I'll start first with the Holiday transition. As many of you know, our relationship with Holiday goes back to 2015. We had a number of really good years with Holiday, then the pandemic hit, and during the pandemic, they were acquired by Atria. Still, from our perspective, managed really effectively given how tough the circumstances were during the pandemic. Since the pandemic ended, however, we just haven't seen the same kind of uplift that we've seen in the rest of our SHOP portfolio. That was really why we decided to make the change. We had been looking for new opportunities to expand our relationship with Discovery and with Inspirit Senior Living, and this was perfect for that. We had been developing a relationship with Sunshine. It all worked out really well for us.

We look forward over time to improved performance from the portfolio. Of course, breaking up such a large portfolio, large for us, into smaller pieces is helpful as well. Moving on to reimbursement, we now know what most of our Medicaid rate increases are going to be. On average, it'll be somewhere in the 3.5% range, but our top five skilled nursing tenants, which are about 50% of our skilled facilities, are averaging just above 5%. Another good year for us on Medicaid rate increases. The Medicare market basket, I think as everybody's seen, got finalized upward from 2.8% to 3.2%, which is pretty unusual, but we're happy, of course, that that's happened. In terms of investments, I just want to reconcile a couple of numbers going back to the last call and to the NAREIT conference. On the last quarterly call, we talked about $200 million in awarded deals.

Those are all either have been closed or in the process of closing. That pipeline is closing as expected. Just some of it didn't close by the time we had this call. I also talked about at NAREIT that we are actively working on another $300 million in investments at that time. The total number that I've talked about, that we talked about in our earnings release of about $350 million in closed, about to be closed, or awarded deals includes a chunk of the deals from that $300 million that we decided to fully proceed on. In addition to that, we have really hundreds of millions of dollars' worth of deals that we're looking at on a weekly basis. We feel really good about our target of $500 million in investments this year.

We feel particularly good about our goal of getting SHOP from 20% to 30% and expect that to be accomplished at least on a run-rate basis sometime in 2026. It requires $1 billion in investments. By the end of this year, we'll be somewhere around halfway there. We are finally starting to see some skilled opportunities that we feel are worth the time for us to spend on. Hopefully, we'll be transacting on some skilled opportunities over the remainder of this year as well. Moving on to operations, just another really strong quarter. Our triple-net rent coverage was up significantly in all asset classes. New highs in skilled and senior housing triple-net. Our occupancy and skilled mix in the skilled portfolio continues to increase. Our contract labor and our employment levels are now at pre-pandemic levels. All in all, everything's really trending in the right direction.

We love the investment activity that we have and look forward to finishing out the year and going into 2026 on a good growth momentum. With that, I will turn it over to Talya.

Speaker 0

Thank you, Rick. Sabra's managed senior housing portfolio continues to grow, and at nearly 21% of our total annualized cash NOI, it is a meaningful contributor to our earnings growth. As Rick stated, Sabra has closed on $122 million of senior housing investments so far this year and has been awarded about $220 million more in senior housing investments, most of which are expected to close by the end of the year. Deal flow remains very strong, and Sabra's cost of capital allows us to bid competitively for senior housing properties. In the first quarter, we were pleased with the tailwinds that offset a typical seasonal cooling of demand. In the second quarter, we saw an uptick in positive momentum.

Key operating statistics such as cash NOI and cash NOI margin are up 5.3% and 70 basis points, respectively, on a sequential basis for the total managed portfolio, including non-stabilized communities and joint venture assets at share. With the opportunity to develop new inventory constrained by the high cost of capital, building materials, and labor, we do not see a near-term catalyst that will reverse the supply versus demand equation that exists right now. Today, we believe that acquiring well-performing newer senior housing communities geared to the taste of the baby boomer generation will be additive to Sabra's portfolio for years to come. Now, let me turn to the same store portfolio numbers. Sabra's same store managed senior housing portfolio, including joint venture assets at share and excluding non-stabilized assets, continued a strong performance in the second quarter.

The key numbers are revenue for the quarter grew 5.6% year over year. Second quarter occupancy in our same store portfolio was 86% compared to 84.6% in the second quarter of 2024. Notably, our domestic portfolio occupancy was 83.5%, gaining 190 basis points of occupancy over the same period. RevPOR in the second quarter of 2025 increased 3.9% year over year for the same period. RevPOR grew 6.8% this quarter on a year-over-year basis in our Canadian portfolio, where occupancy has been above 90% for over five quarters, demonstrating the pricing power that comes with elevated occupancy. Importantly, as RevPOR and occupancy continue to increase, expense declined 70 basis points across the same store portfolio, driven by controlled costs and occupancy increases. Cash net operating income for the quarter grew 17.1% year over year in the same store portfolio. In our U.S.

communities, cash NOI grew 17.6% on a year-over-year basis, while in our Canadian communities, cash NOI for the quarter increased 15.9% over the same period. The trends that we have been seeing for the past year continue. Senior housing communities continue to fill up, and operators are balancing rate and occupancy to maximize revenue. With cost structure stable and revenue increasing, cash NOI and margin are growing. Our net lease stabilized senior housing portfolio also continues to do well, with sequentially improving rent coverage, a reflection of continued strong operating results. With that, I will turn the call over to Michael Lourenco Costa, Sabra Health Care REIT's Chief Financial Officer.

Speaker 4

Thanks, Talya. For the second quarter of 2025, we recognize normalized FFO per share of $0.37 and normalized AFFO per share of $0.38 compared to $0.35 and $0.37, respectively, for the first quarter. The current quarter results represent a 6% improvement over the same period in 2024. The normalized FFO and normalized AFFO totaled $89.2 million and $91.6 million this quarter, respectively, which reflects strong sequential growth from increased NOI in both our triple-net and managed senior housing portfolios. Cash rental income from our triple-net portfolio increased $2.3 million from the first quarter. This was a result of a $1.4 million increase in percentage rents received, with the remainder being primarily driven by contractual annual rent increases. These percentage rents will vary from quarter to quarter, and therefore, this increased level of percentage rent should not be assumed to be part of our earnings run rate.

During the quarter, we updated our estimates of collectability for certain leases within our triple-net lease portfolio and moved the leases for two tenants, Avemere and National, from cash basis back to accrual, resulting in a net increase in normalized straight-line rental income of $454,000 for the quarter. Cash NOI for our managed senior housing portfolio totaled $25.3 million for the quarter, compared to $24.1 million last quarter. This increase was driven by the strong sequential revenue and margin gains in our same-store portfolio. Interest and other income was $10.3 million for the quarter, compared to $10.1 million last quarter. Cash interest expense was $25.8 million, compared to $25.4 million last quarter. Recurring cash G&A was $9.4 million this quarter, compared to $9.5 million last quarter.

As noted in our earnings release, we have updated our 2025 earnings guidance on a diluted per share basis as follows: Net income $0.77 to $0.79, FFO $1.52 to $1.54, normalized FFO $1.45 to $1.47, AFFO $1.47 to $1.49, and normalized AFFO $1.49 to $1.51. This updated guidance increases our midpoint of normalized FFO and normalized AFFO to $1.46 and $1.50, respectively. This represents an increase in our normalized FFO midpoint of one and a half pennies and an increase to our normalized AFFO midpoint of half a penny. At this updated midpoint, we expect both normalized FFO per share and normalized AFFO per share to increase approximately 5% and 4%, respectively, over 2024. It is important to note that our guidance only includes completed investment, disposition, and capital markets activity.

We are also reaffirming the following assumptions included in our previously issued guidance: general and administrative expense of approximately $50 million, which includes $11 million of stock-based compensation expense. Ignoring the impact of acquisitions and dispositions, cash NOI growth for our triple-net portfolio is expected to be low single digit, in line with contractual escalators. Additionally, our guidance assumes no additional tenants are placed on cash basis or moved to accrual basis for revenue recognition. Cash NOI growth for our same store managed senior housing portfolio is expected to be in the low to mid-teens.

Our updated guidance also assumes that cash interest expense is approximately $102 million and that the weighted average share count is approximately 241.5 million and 242.5 million for normalized FFO and normalized AFFO, respectively, which is in line with this quarter's weighted average share count after adjusting for the timing of ATM issuances during the quarter. Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was five times as of June 30, 2025, a decrease of 0.19 times from March 31, 2025, and a decrease of 0.45 times from June 30, 2024. As we have previously stated, the growth in our managed senior housing portfolio would provide us a pathway to get to our long-term average target leverage of five times without having to access the equity market to delever our balance sheet, and this is precisely what has happened.

Now that we've achieved that, we will evaluate our long-term average leverage target as earnings continue to improve. We have been proactively using the forward feature under our ATM to raise equity when our share price presents an attractive opportunity to lock in an accretive cost of capital to fund the deal flow we see in our pipeline. During the quarter, we issued $186.6 million on a forward basis at an average price of $17.86 per share after commissions. In total, we currently have $266.5 million outstanding under forward contracts at an average price of $17.69 per share after commissions. During the quarter, we settled $29.9 million of outstanding forward contracts to help fund investment activity during and immediately after the quarter. We expect to use the proceeds from the outstanding forward contracts to close on the investments we have been awarded and do so on a leverage-neutral basis.

Subsequent to quarter end, we entered into a new five-year $500 million term loan and used those proceeds to repay $500 million 5.18% unsecured bonds that were set to mature in 2026. The interest rate on this term loan is floating at SOFR plus 120 basis points, and we concurrently entered into interest rate swaps that fix SOFR at 3.44%, effectively fixing the rate on this loan at 4.64% for the full term. The term loan also contains an accordion feature that can increase the total available borrowings to $1 billion, subject to terms and conditions. Pro forma for this financing, our weighted average maturity on our debt increases from four years to nearly five years, and our weighted average interest rate decreases 10 basis points from 4.14% to 4.04%.

The successful financing not only addresses an upcoming maturity at a lower rate, but the effective rate is meaningfully lower than we would have achieved had we used the unsecured bond market. As of June 30, 2025, we are in compliance with all of our debt covenants and have ample liquidity of approximately $1.2 billion, consisting of unrestricted cash and cash equivalents of $95.2 million, available borrowings under our revolving credit facility of $837 million, and the $266.5 million outstanding under forward sales agreements under our ATM program. As of June 30, we also had $109.3 million available under the ATM program. Finally, on August 4, 2025, Sabra's board of directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on August 29, 2025, to common stockholders of record as of the close of business on August 15, 2025.

The dividend is adequately covered and represents a payout of 79% of our second quarter normalized AFFO per share. With that, we'll open up the lines for Q&A.

Speaker 5

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Once again, star one. We'll pause just a moment to compile the Q&A roster. It looks like our first question comes from the line of William John Kilichowski with Wells Fargo Securities LLC. John, your line is open.

Thank you. Good afternoon. Maybe my first one, Rick, in the opening remarks, I thought your color was really helpful on the investment guide. At NAREIT, you spoke to the $200 million and the $300 million, and then now it's kind of we're backing into a $350 million number. It sounds like you're still confident that you can get to about $500 million for the year, which I think is even more positive than you were at NAREIT. Am I thinking about that correctly?

Speaker 7

It'll be somewhere in the $400 to $500 range. Some of it just depends on timing. My guess is there'll be some deals that may close like on January 1, maybe tax reasons or whatever else, but it'll be close.

Okay, that's helpful. Do you think that the rest of that number would be comprised of skilled nursing deals? What's kind of keeping those from entering the pipeline so far? How close are you on pricing?

Pricing isn't an issue at all. It's actually just finding deals that we think are good deals, you know, quality assets in the right markets. A lot of the stuff that we looked at just isn't good. I think that if you look at our triple-net portfolio, whether you look at the skilled portfolio or the senior housing portfolio, between the merger from a number of years ago and all the cleanup that we did as a function of that and the pandemic, both selling assets and transitioning assets, we've got a really great core of operators now, as evidenced by our coverage. Our coverage is stronger than most out there. We're really being particular about the quality of the assets that we're bringing into the portfolio.

I think it's fair to say that the majority of it will probably still be SHOP, but we are definitely focused on working on the skilled side and trying to get some deals done there. I still think it would be weighted a little bit more towards SHOP than skilled, but we certainly want to do more skilled.

Okay, very helpful. Maybe last question.

Yeah, the other thing I should just note is we're still not interested in building a loan book, which is how some of these deals are getting done. We're not interested in doing sort of complex JV kind of structures or mezz debt or anything like that. We're just not interested in doing that. We just want to do straightforward, kind of simple to understand traditional deals. Just one other comment I want to make, and I know you had another piece, is I misstated in the opening remarks, the 5% on the Medicaid rate increase is for the top five states that we're in, not the top five operators.

Got it. Okay, very helpful. The last part for me was just on the same store SHOP NOI. That number continues to run at the high end or even maybe slightly above that sort of low to mid-teens number that you've given. I think you're at 17%, you know, 1H to date. What's keeping you from maybe taking that guide up? I know Michael spoke last quarter about comps were maybe slightly tougher in the latter half of the year. I'm curious if you're still seeing that quarter to date or if maybe there's room for upside there.

We're hoping that there'll be upside. We just felt we could move guidance a little bit and still be in a position where we hope we can beat it. We're just being sort of moderate in our approach.

Got it. Thank you.

Yeah.

All right, thanks. Thank you, John.

Speaker 5

Our next question comes from the line of Farrell Granath with BofA Securities. Farrell, your line is open.

Thank you. Good afternoon. My question is about your same store SHOP occupancy. I was wondering if you could add a little bit more color. I saw sequentially there wasn't much movement, if there was anything specific going on, just given the 2Q tends to be a little bit stronger in occupancy growth.

Speaker 0

Yeah, I think, hi, it's Talya. I think you have to realize that despite transitioning the Holiday portfolio on April 1, in the very beginning of Q2, 16 of the 21 Holiday assets remained in same store sales. We decided to do that. That had an impact, as you can imagine, just because of the usual noise you have in transition. If you pulled that out, the number would have looked more exciting to you.

Okay, thank you. Also, on the comments of skilled opportunities starting to come up and looking to transact more, I was curious if you could add in a little bit more color. What's driving that, more of the opportunity opening up? Was it the OBVBA? Are you hearing anything in terms of concern on health systems, and is that driving any of the conversation?

I don't think that we're seeing a significant change in the volume of skilled nursing coming to market. I think we have seen for a while now, the last few years, a significant move of transactions into the private market by owner-operators with capital backing them up outside of the REIT space. We are seeing assets come to market in the SNF space. We're not seeing a lot, but we are seeing some. I think the only thing that has shaped the volume of deals we've seen, which has been true both on skilled and senior housing over the last few years, is the recovery in fundamental operations.

Just thinking about owners, whether or not they had financing in place, the fact is operations have recovered significantly both in skilled and in senior housing, and that allows for much more robust pricing, even if cap rates have moved up somewhat from pre-pandemic. The operational recovery has been very effective in raising absolute prices.

Okay. Just to confirm, when you're saying that, is the influence of kind of moving past the reconciliation bill, has that up or lifted any potential weight or concern while you've been having your conversations, or was that not always even a part of the conversation?

Speaker 7

No, that's not an issue.

Okay, thank you.

Thanks, Farrell.

Speaker 5

Our next question comes from the line of Nick Uleko with Scotiabank. Nick, your line is open.

Speaker 1

Hi, this is Elmer Chang on with Nick. First question is just on the SHOP portfolio again. How do you expect component drivers to trend in the back half of the year since, as mentioned, NOI growth guidance implies some slowdown, given just previous comments in your remarks about employment levels returning to pre-pandemic levels and maybe some potential impact from the Holiday transition assets?

Speaker 0

Right now, it all looks very positive. If you follow the NIX statistics, there's essentially no new inventory coming in the system. We're seeing very few development deals. Actually, for a while, we started seeing some. We see none right now, and we see virtually none in the pipeline in the markets where we have been investing and where we have assets. With that as the fundamental context, the demand is increasing just because the number of people who are aging and ready to move in is rising. Our focus is on the care segment, with most of our assets being assisted living and memory care with some IL. I think the fundamental demand in the secondary markets and more in the middle market price point is very well positioned and therefore likely to increase.

Speaker 1

Okay. Thank you. Second question on the Holiday transition portfolio. You mentioned that you transitioned into trusted operators and you've been building a relationship with Sunshine for some time. How are you getting comfortable with maybe diversifying the tenant base a little bit? Could you provide additional color on what that bidding process entails for operators looking to take on transition assets?

Speaker 7

I'm not sure what you mean by the benefit of the transition and breaking it up. I think having less concentration in one operator is always helpful, and to be able to do that when you've already got a pre-existing relationship, in this case, with two of the three operators and the bulk of the facilities. I'm not really, I think I'm not understanding your question. In terms of the bidding process, whenever we look to transition, we usually identify those operators that we think would be the right fit. We ask them to submit, we give them the information they need. They submit proposals, just like with any other process, and you go from there.

Speaker 1

Okay, yeah. Thanks for that.

Speaker 5

All right. Thanks, Elmer. Our next question comes from the line of Seth Eugene Bergey with Citigroup Inc. Seth, please go ahead. Seth, are you there? You might be muted. Going once, going twice. All right. We will move on. Our next question comes from the line of Austin Todd Wurschmidt with KeyBanc Capital Markets Inc. Austin, your line is open.

Speaker 2

Great. Thank you. Rick, appreciate the details on the transitions. I'm just curious how long you've been evaluating transitioning these assets and when you made that final decision to move forward because it does sound like there was a little bit of a process in selecting operators for these buildings.

Speaker 7

You might recall that there was a change in leadership at Holiday, and we thought that we should give the new team time. They may be doing a great job with other things, so I don't want to sort of be negative about anyone. Post the transition, despite all the, we call it, positive interactions with the new team, we just weren't getting the results that we expected to get and that we were seeing in the rest of our SHOP portfolio. It was really as simple as that. Last year, we started having serious discussions about moving the portfolio. By the end of the year, we had pretty much identified a list of potential operators that could take over different pieces of that portfolio and put the process in place and then targeted the transition date. That was all before the end of last year.

Speaker 2

That's helpful. For the five assets that you excluded from the same store pool, how impactful has the transition been? Were these already the most underperforming assets? Are you planning on investing any additional capital into those specific assets?

Some of those assets that are excluded weren't in our same store pool leading up to the transition. Not a major change there. It shows, given how little the overall pool changed sequentially. We have been putting capital into those assets, that entire portfolio, quite frankly, over the last couple of years. I'd have to look to see if those five assets specifically were part of that program. I'd have to imagine they were, given we need to see that performance turn around.

Got it. With the Holiday assets transition in April, can you share kind of how the occupancy trended through the quarter and maybe what the momentum looks like into July, just to help us understand the fact that NOI is tracking ahead, but there is this implied deceleration with presumably occupancy being a big piece of that. Just give us a sense of what that momentum looks like headed into the back half of the year.

Speaker 0

Sure. I'll kind of give you the directions we're seeing over the course of the second quarter, just to give you a sense. These are just the Holiday transition assets. We saw tours, as you can imagine, decline initially, but they have definitely picked up since after June. Move-ins actually picked up starting in May. I don't have a measurement for before April, but they basically have picked up. Move-outs are declining sequential multiple months now. The momentum is the right momentum. Tours up, move-ins up, move-outs down. That kind of puts that together, and you get higher occupancy. We're anticipating that the noise of the transition is basically in the rearview mirror, and we should be seeing improvement in occupancy and how that flows through the rest of the P&L.

Great. Thanks for the time.

Speaker 5

Thank you, Austin. Our next question comes from the line of Vikram L. Malhotra with Mizuho Securities USA LLC. Vikram, please go ahead.

Hi, Austin. Thanks for the question. I guess just going back to the external growth of the pipeline, kind of what you laid out, I guess, Rick, implies a pretty big acceleration in the back half. I'm wondering, you know, kind of how, you know, timing-wise, is it more back-end weighted? How sustainable is this pace into 2026, given your, you know, your goal of kind of hitting 30% of SHOP tanks?

Speaker 7

I don't think the momentum is overly weighted towards the latter half because we have about $350 million right now of that $4 to $5 billion that we're either closed or closing or awarded. I think it's pretty spread out pretty nicely over these next couple of quarters. Talya, do you want to talk about going into next year?

Speaker 0

The volume that we're seeing is unabated. We continue to bid based on what we believe is fair, is appropriate pricing for Sabra, given cost of capital. We are finding ourselves in the second round and touring on every asset that we're interested in, frankly. You've heard us talk about the profile of those assets, all of which are newer builds, senior housing, strong markets, and opportunity for growth. Not bond-type return for the most part. So far, it looks good. I can tell you that the team's out on two tours, touring two different properties this week. The momentum continues. I mean, you can do the timing. I think what we've talked about is being awarded is well in process in terms of documentation and in a process to close. It's not as back-ended as it sounds.

Okay. I just wanted to clarify two quick things. For one, I think you mentioned the transition asset in the pool. I think you had mentioned if we stripped them out, there would have been different occupancy or different NOI growth. Do you mind just clarifying if you didn't have the transition asset, what the growth would be? The other clarification essentially was that on the overall acquisitions, you talked about the pipeline. I'm just wondering, does some of that sit in Canada as well?

I'll take the second part of that. In Canada, we continue to look. Frankly, I'd love to do some more deals in Canada, but the challenge is that debt rates are about 200 basis points lower than they are here, which means the cap rates are also 150 to 200 basis points lower. You've seen from some of our peers, they're doing deals that call it a 6% going-in yield or a 5.5% going-in yield in Canada. That pricing is just too rich for us, no matter how much we might like to buy the asset.

Yeah. On your first question, look, we didn't disclose that. I guess one thing I would say is that if we didn't have those transition assets in our same store numbers, the numbers would be better.

That's along the lines of what I said before about occupancy as well.

Right. Thank you.

Speaker 5

All right. Thank you, Vikram. Our next question comes from the line of Alec Gregory Feygin with Robert W. Baird & Co. Incorporated. Alec, your line is open.

Hey, and thank you for taking my question. I guess, you know, just to circle back on the Holiday transition, can you articulate maybe some of the NOI upside that you've already captured and will continue to capture throughout this year and next?

Speaker 7

Look, I think we're not going to get specific about that because it really requires a crystal ball. I think listening to one of our peers' call, they're seeing nice improvement in the transition they went through a year later. We fully expect it to improve, but to specify how much it's going to improve and what that timeframe is, there's no way we can be right about that answer. It's too much specificity you're looking for with a crystal ball.

Okay, fair. No crystal ball. That's totally fair. Second for me.

Appreciate that.

On the actual pipeline, maybe just speak on the mix of assets, whether they're IL, AL, campus, and is it new operators or existing operators. Just maybe some more details there.

Speaker 0

Are you talking about deals that we're seeing in the market or that we're evaluating or ones that are?

In the pipeline, that $220 million.

Those, some of them are deal transactions with groups we know and have and are trusted operators. Some are groups with whom we have been working to establish a relationship. It's an opportunity for us to do something. Most of this, they are all institutional quality assets being sold typically for vintage issues by institutional owners.

All right. Thank you.

Speaker 5

All right. Thank you, Alec. Our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, your line is open.

Speaker 7

Yes. Good afternoon, everyone. Just a couple of really quick ones. Community Care, the rent coverage there kind of declined slightly. Just kind of curious if you could give us an update on how they're doing and if there's anything we should be paying attention to there. Yeah. Nothing that we're really concerned about. They've had some challenges in one of their states as a lot of operators are. They are focused on divesting a few facilities. That's basically all there is to it. They'll be fine when that occurs.

Speaker 0

1.77 times coverage is not something we're complaining about either.

Speaker 7

Right, right. In terms of, and fair enough, right. They've been working on these facilities, and it's just not happening the way they would like it to. We've been in that market with others besides them, and it's a tough market that these particular facilities are in. We have no, you know, they're a good-sized company. They're very strong. They're a good operator. We love working with them. We're very confident that once they divest a few of these things, they'll be good. As Talya said, even with the reduction, there's no concerns.

Are these your assets that they're going to be divesting?

Yes.

Okay. That's helpful. Second of all, just with all the questions around debt ceiling and, you know, fiscal deficits and stuff like that, do you see any risk where we might kind of end up in a sequestration situation a year or two from now, and what impact could that have on Medicare?

I don't think so, but you know, that stuff's really, really hard to tell. I think that we've done, our lobbying groups have done a really fantastic job for us. With all these Medicaid cuts in the bill, we were carved out. We understand it may put pressure on state governments, but we were carved out. The upward revision in the Medicare market basket was a good sign. There's no kinds of dialogue with CMS that is causing us any concerns as we look out over the next year plus. I think we're in a really good place. The other thing, Tayo, I think to remember is the whole space is in a different place now relative to the continued decline in supply and the continued increase in occupancy. The space also can afford, there's a lot more cushion there. You look at our rent coverage, right?

There's so much more cushion that this space has that it hasn't had before. As occupancy continues to increase, we've already passed that inflection point with the operating leverage. That pull-through for every additional patient just gets stronger and stronger. It feels really, really good right now, even when we look out to the next couple of years, because I would anticipate as inflation's come down, just like we saw this year's Medicaid rate increases lower than last year's Medicaid rate increases, those will moderate more over the next couple of years. The market basket for Medicare will moderate as well. That moderation comes at a time when the industry is finally very, very healthy again.

Gotcha. Thank you.

Speaker 5

Thank you, Tayo. Just a reminder, again, one final reminder, if you'd like to ask a question, it is star one on your telephone keypad. Once again, star one. All right. Our next question comes from the line of Michael Stroyeck with Green Street. Michael, your line is open.

Thanks, and good morning. Maybe on the labor side, what sort of wage increases are you seeing your operators pass along to employees today? Is there any difference in wage growth between your SNF and senior housing portfolios?

Speaker 7

No, it's all somewhere, give or take, 4%-ish. Pretty sure. It's been that way now for, we're probably going into year three with that, with those kind of wage increases. Just to refresh it for everybody, it was really, it was 2022 where there were huge, huge adjustments in the wage basis for employees across the board in both spaces. In 2023, it really moderated down to sort of mid-single digit, which demonstrated that what our operators did in 2022 was effective, and it's held steady since then. The fact that we've been able to get to pre-pandemic employment levels and temporary agency levels at that level of wage increases, you know, I think kind of proves a point that it's all worked.

Yeah, that makes sense. I guess, are there any states or markets where you are seeing a particularly tight labor market, either on the skilled nursing or senior housing side?

Can't pinpoint one really off the top of my head. I mean, everything's better. There are different degrees as to how much better, but we're not, we're not, this is sort of not undue suffering going on in any particular market.

Got it. Thanks for the time.

Yep, thank you.

Thanks, Michael.

Speaker 5

It looks like our final question today comes from the line of Seth Eugene Bergey at Citigroup Inc. Seth, your line is open.

Hi, thanks for taking my question. In talking about, you know, kind of the opportunities that you've been awarded, some of them are with new operators, some of them are with existing. Can you talk a little bit about, you know, your selection criteria for new operators?

Speaker 7

We spend a lot of time with them prior to even looking at a deal with them. We get to know them, we get to understand how they operate, the kind of markets they pick, and most importantly, what do their outcomes look like from a quality perspective. It's really all those things. It's pretty traditional stuff, really. The other characteristic I would say is we have a lot of really good operators that aren't interested in growing that much. They're happy with their portfolios. Part of what we've been looking for with new operators are operators that want to actively grow so that we have a higher number of operators within our existing portfolio that we can depend on to grow with and not just always look for new operators.

Great. I think on the last call, you mentioned kind of as the outlook for SHOP has improved, that there's actually been a smaller pool of buyers. I'm just kind of curious, as you look out there for investment opportunities, how the buyer pool has changed, if at all.

Speaker 0

The buyer pool has changed very little over the last, call it, year, certainly six months. You have primarily the REITs, and you have private capital in the market as well. The private equity funds, there are plenty that have stepped away from the sector, and there are some that are coming in, but I'd say they're coming in in a small way and not trying to do something big right away. There are some that, like Harrison Street, that's been consistently in the space, and they remain consistently in the space.

Great. Thank you.

Speaker 5

All right. Thank you so much, Seth. That does conclude our Q&A session today. I will now turn the call back over to Rick Matros. Rick.

Speaker 7

Thank you, and thank you all for joining us today. As always, we're available for more dialogue, and we'll look forward to talking with you. Enjoy the rest of the summer. Take care.

Speaker 5

Thanks, Rick. This concludes today's conference call. You may now disconnect.