Sabra Health Care REIT Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 6, 2025
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Operator

Good day, everyone. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the twenty twenty five SoBRA First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would now like to turn the call over to Lucas Hartwich, EVP Finance. Please go ahead, Mr. Hartwich.

Lukas Hartwich
Lukas Hartwich
Executive Vice President Finance at Sabra Health Care REIT

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 ks for the year ended 12/31/2024, as well as in our earnings press release included as Exhibit 99.1 to the Form eight ks 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.

Lukas Hartwich
Lukas Hartwich
Executive Vice President Finance at Sabra Health Care REIT

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 Investors section of our website at salbrahealth.com. Our Form 10 Q, earnings release and supplement can also be accessed in the Investors section of our website. And with that, let me turn the call over to Rick Matros, CEO, president, and chair of Sabra HealthCare REIT.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Thanks, Lucas, and thanks, everybody, for joining us today. Our skilled nursing and triple net senior housing EBITDARM rent coverage continued to set new highs at two point one nine and one point four one, respectively, with behavioral hitting its highest level since year end twenty twenty three at 3.77. On average, coverage for our top 10 relationships was up sequentially. And while not all of them were were up, there were none that we have concerns about. Specifically, as it relates to McGuire, about a year ago, they had a pretty large one time Medicaid pickup, due to some underpayments from the Michigan Medicaid system.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

In the absence of that, their, coverage would not have would not show a drop in the current period. Our contract labor continues to improve. While not quite down to pre pandemic levels, it is lower than it's been in four and a half years. Labor still is difficult, but certainly moderating at a much quicker pace than we would have anticipated. Our skilled occupancy is up 80 basis points sequentially with our skilled mix up 10 basis points.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Our triple net senior housing occupancy is up 50 basis points sequentially. Talia will discuss SHOP results in detail. Our deal pipeline continues to be busier than in a very long time, still primarily SHOP, but with enough opportunities that we're able to bid on newer vintage assets with attractive yields. We have a mix of deals with existing operators and are also entering into new relationships with proven operators we've been cultivating relationships with. While we don't usually comment on awarded deals, given our experience in closing awarded deals, we wanted to provide a sense of the volume we hope to close on this quarter by noting the more than 200,000,000, which have been awarded to us.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

That's more than we did in all of 2024 with more coming as we speak. There's nothing new to note as it pertains to Medicaid other than we're looking forward to this summer's Medicaid rate increases. And with that, I'll turn the call over to Talia.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Thank you, Rick. Sabra's managed senior housing portfolio held up well in the first quarter of twenty twenty five Despite an expectation that seasonality would be back and would drive a dip in operating results, revenue, cash NOI and margin were flat on a sequential basis for the total managed portfolio, including non stabilized communities and joint ventures at share. The senior housing industry continues to gain ground post pandemic with more units occupied than ever before according to Nick, having absorbed significant inventory that came online starting just before and continuing during the pandemic. With little new supply expected to be delivered in the next few years, we see continued opportunities for internal as well as external growth in senior housing. Sabra's same store managed senior housing portfolio, including joint ventures at share and excluding non stabilized assets continued its strong performance in the first quarter.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

The key numbers are revenue for the quarter grew 6.3% year over year. First quarter occupancy in our same store portfolio was 85.4% compared to 82.6% in the first quarter of twenty twenty four. Notably, our domestic portfolio occupancy was 83% gaining 340 basis points of occupancy during that period, while our Canadian portfolio occupancy was 90.9% adding 140 basis points of occupancy in the same period, having ramped up occupancy ahead of our US portfolio. RevPAR in the first quarter of twenty twenty five increased 2.8% year over year for the same period. In our Canadian portfolio where occupancy has been in the low 90% for a few quarters, RevPAR grew 4.9% this quarter on a year over year basis demonstrating the impact of scarcity value.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Importantly, as RevPOR and occupancy continue to rise, export declined 1.1% across the same store portfolio. Cash NOI for the quarter grew 16.9% year over year in the same store portfolio. In our US communities, cash NOI grew 14.4 on a year over year basis, while in our Canadian communities, cash NOI in the quarter increased 24.7% over the same period, demonstrating the power of operating leverage. The trends that we have been seeing for the past year continue. Senior housing operators are tactically deploying the levers of occupancy and rate to maximize revenue and expenses remain steady causing NOI to grow and export to decline.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Our net lease stabilized senior housing portfolio continues to do well with continued solid rent coverage reflecting the underlying operational recovery. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

Thanks, Talia. For the first quarter of twenty twenty five, we recognized normalized FFO per share of $0.35 and normalized AFFO per share of $0.37 compared to $0.34 and $0.35 respectively for the first quarter of twenty twenty four. Normalized FFO and normalized AFFO totaled $85,200,000 and $88,200,000 this quarter respectively, which represents a year over year increase of 79% for normalized FFO and normalized AFFO respectively. I would like to highlight a few key components of this quarter's earnings. Cash rental income from our triple net portfolio totaled $90,000,000 for the quarter, up from $89,000,000 in the first quarter of twenty twenty four despite disposing of $115,000,000 of real estate from our triple net portfolio last year.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

Cash NOI from our managed senior housing portfolio totaled $24,100,000 for the quarter compared to $19,100,000 in the first quarter of twenty twenty four. This increase was driven primarily by strong occupancy, NOI and margin gains in our same store portfolio as well as the impact of our addition of eight properties to this portfolio in 2024 through acquisitions and transitions. Interest and other income was $10,100,000 for the quarter compared to $8,900,000 in the first quarter of twenty twenty four. Cash interest expense was $25,400,000 in line with the first quarter of twenty twenty four and our 2025 guidance run rate. Recurring cash G and A was $10,000,000 this quarter, which matches our 2025 guidance run rate.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

As noted in our earnings release, we have reaffirmed our previously issued 2025 earnings guidance and the results for this quarter are in line with our assumptions underlying that guidance. Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 5.19 times as of 03/31/2025, a decrease of 0.08 times from 12/31/2024 and a decrease of 0.36 times from 03/31/2024. This improvement in leverage is driven primarily by the continued NOI growth in our managed senior housing portfolio, accretive capital recycling, and prudent use of our ATM to fund growth. 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.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

During the quarter, we issued $84,300,000 on a forward basis at an average price of $17.32 per share after commissions. And in total, we currently have $110,500,000 outstanding under forward contracts at an average price of $17.32 per share after commissions. We expect to use the proceeds to close on the investments we have been awarded and to do so on a leverage neutral basis. As of 03/31/2025, we are in compliance with all of our debt covenants and have ample liquidity of over $1,000,000,000 consisting of unrestricted cash and cash equivalents of $22,700,000 available borrowings under our revolving credit facility of $917,300,000 and the $110,500,000 outstanding under our forward sales agreements under our ATM program. As of 03/31/2025, we also had 297,700,000 available under our ATM program.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

Finally, on 05/05/2025, Sabra's Board of Directors declared a quarterly dividend of $0.30 per share of common stock. The dividend will be paid on 05/30/2025 to common stockholders of record as of the close of business on 05/16/2025. The dividend is adequately covered and represents a payout of 81% of our first quarter normalized AFFO per share. And with that, we'll open up the lines for Q and A.

Operator

A. Your first question comes from the line of Nick Yulico with Scotiabank. Your line is open.

Elmer Chang
Equity Research Associate at Scotiabank

Hi. This is Elmer Chang on with Nick. Thanks for the questions and congrats Talia on the upcoming retirement. My first question is on how you're thinking about dispositions throughout the year. I think you expected a $50,000,000 skilled nursing facility sale in the near term from last quarter's call.

Elmer Chang
Equity Research Associate at Scotiabank

Is that still on the table? And if so, would you expect that to close? And maybe how has delayed timing put pressure on the pricing for that sale?

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We still expect that to close. It's just gonna state that there's a lot more regulatory groups to jump through, and there won't be any change on the proceeds that we're expecting. So it's gonna just be one of those. It'll happen when it happens, but it's on course to happen. Beyond that, it's just ordinary course of business stuff for us like it used to be, which could be sort of 50 to a hundred million a year, But we don't have much in the way that's targeted right now.

Elmer Chang
Equity Research Associate at Scotiabank

Okay. Thank you. And and then second question is on CHOP. I'm just wondering how you're thinking about the trajectory of RevPOR and expense growth throughout the year as the portfolio approaches that high 80% occupancy level given operators emphasized growing occupancy during the quarter. And and it sounded like, it it seems like The US business may have, you know, less pricing power.

Elmer Chang
Equity Research Associate at Scotiabank

So how how are you just thinking about, how those two levers are trending? What what what trend throughout the year?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

What we're seeing what we expect subject to whatever might happen in the political arena, right now, labor, which is the largest expense, is stable. And as an as a function of export, it's decreasing because occupancy is increasing. I actually think that as occupancy continues to rise, and I we expect it to rise throughout across all the the spectrum of senior housing both in The US and Canada, pricing is gonna be is going to also get increased just because that's the lever that's gonna be available too. Because the higher the occupancy, the higher the price you can actually start to demand once you cross a certain threshold. So I think there are significant tailwinds on both occupancy and RevPOR.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

And I think expenses right now, I'd say, hold hold as they are subject to unknowns.

Elmer Chang
Equity Research Associate at Scotiabank

Okay. Thanks so much.

Operator

Your next question comes from the line of Farrell Greneth with Bank of America. Your line is open.

Farrell Granath
Farrell Granath
Equity Research Associate at Bank of America Merrill Lynch

Thank you so much for taking my question. My first one is about your guidance, reiterating guidance. I know you made commentary about deal awarded. So I wanted to just touch on, is any of that being contemplated? And also on the shop guidance just given, the the execution this quarter, which is tend to be seasonally softer, keeping the low to mid teens, cash NOI growth for the year.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

Yeah. So in terms of the acquisitions that we announced that we're working on, those are not included in our guidance. We'll include those in our guidance once they've closed. So you could expect, you know, when we get into our second quarter call once those deals and potentially other ones have closed, you know, we'll incorporate that into our thoughts around guidance. So short answer is no.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

They're not incorporating to the guidance currently. On your second question, we reaffirm guidance and all the assumptions underneath it. So that same that same store growth that we the guidance that we gave of, you know, low to mid teens still stands.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Look.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We we wanna be we wanna be moderate here. So we just wanna give ourselves a little bit more time. If we have a reason to revisit from second quarter, we'll do that.

Farrell Granath
Farrell Granath
Equity Research Associate at Bank of America Merrill Lynch

Okay. Thank you. And also just generally in what you're seeing in the transaction market, especially with your ability to enter into a $200,000,000 portfolio deal, what are you seeing as in terms of deal flow? Are you seeing that increase, and also the sellers and buyers entering into this space?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Happy to take that. And by the way, the the $200,000,000 that we've been awarded are not a single portfolio, but there are multiple transactions in there. Okay.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Just to be just to be

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

just for clarity's sake.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

We're seeing a very robust pipeline of deals come to us. It's heavily biased to senior housing, which we're largely viewing at or entirely viewing at shop with rare exceptions. It the the assets we're seeing are primarily either single assets or a few assets that can be bought bundled or not. We have started to see some large portfolios.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

They're kind of outliers. Oftentimes, there are things we've seen there are portfolios we've seen before. They are of less interest to us at the moment, because we're seeing the best opportunities for us for multiple reasons, to be in these onesie, twosie situations. What's interesting about, what we're seeing is that the sellers are are frequently private equity firms that either provided development capital or bought assets or early stage, and and they're at fund life and and want to sell. The assets recovered enough from COVID that they can exit at at an okay multiple in term but they need to get capital back to their LPs so that they can launch their next fund.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

And that's really the recycling of capital issue that's driving quite a bit of sales. There are occasionally situations where we're seeing some sellers who are unsuccessful come back to the market again. And it's right now, it's a timing. It's it's been a timing issue of getting good execution or decent execution. Sometimes it's just sufficient execution for these sellers.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

But assets now in the senior housing arena have recovered enough even though cap rates have risen for people to get out without, having to, oftentimes, put additional cash in to pay off debt.

Farrell Granath
Farrell Granath
Equity Research Associate at Bank of America Merrill Lynch

And has has that increased competition that you've seen as well?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

The private equity buyers are already out as buyers. There are a few that are they're tiptoeing around. We've seen one that's been more active. We are seeing the public REITs be active as as as you have seen that as well. Sometimes we actually overlap with groups that we haven't typically overlapped within the past.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

But pricing has remained pretty tight from our perspective on deals where we've bid.

Farrell Granath
Farrell Granath
Equity Research Associate at Bank of America Merrill Lynch

Great. I really appreciate it. Thanks.

Operator

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Your line is open.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Thanks and good morning everybody. On the $200,000,000 of senior housing acquisitions, are these all deals in The U. S? And can you just give us a sense of kind of the operating metrics where they sit today and what sort of, you know, that may imply for kind of the future growth profile?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Well, I'm gonna be cautious here, in terms of giving you hard numbers because these are deals that we've been awarded and we haven't closed on them quite yet. So first of all, they're all domestic. They're biased towards the Eastern Half of The United States if that gives you an addition and you like good color. They all have growth embedded in them because while they are decently occupied, there is still room for growth and there's still room for Respore increases.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

They're also a little they're more heavily weighted towards AL memory care than IL.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Got it. No. I'll k. Did

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

you wanna add something, Talia?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

No. I'm good.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Okay. And then just following up, Rick, you kinda referenced you haven't historically disclosed deals until they've closed. I guess what led you to break that practice with this 200,000,000, and should we expect you'll continue to announce deals that have been

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

awarded or or under LOI?

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We did it because, one, our track record when we get deals awarded is we is that we get them closed, and we felt like we've got so much great activity now that we didn't want another quarter to go by without making sure that you all were up to speed on what we expect to see happen. Because we had been saying even earlier in the year that we expect to do quite a bit more than we did last year, and that was certainly our target. So, it was really specifically, for that reason.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Thanks. That's all.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

And we may or may not do it we may or may not do it going forward because we'll have closed deals to announce at the rate things are going.

Austin Wurschmidt
Austin Wurschmidt
Senior Equity Research Analyst at KeyBanc Capital Markets

Understood. Helpful.

Operator

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Your line is open.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Hi. Good morning. Talia, congratulations. First question just no problem. First question is just on Genesis.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

I know you guys were super proactive trying to reduce exposure over the years. But if you could just remind us on how much the NOI you're getting from Genesis. I know it's out of your top 10 listing. It kind of the structure that's in place and the credit behind that lease and, obviously, if you been your paid rents to date through, I guess, May.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Yeah. So we, sold all but eight of the original 86 last year, because we wanted to have more security, going forward, we decided to sublease those eight assets to a trusted operator. Their their rent was slightly less than Genesis, but because of the Genesis guarantee, Genesis makes up the stub. It's not material. So, that's been going really well for us.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

No missed payments. They will be our operator going forward after the lease expires. The operations have improved materially, since they started. But with really that many facilities, it's it's pretty negligible impact on our NOI. But, yeah.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

So we're we're good there.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Great. Good to hear. And secondly, just on shop, could you just remind us kind of the the deferred or kind of revenue generating CapEx that we should be thinking about this year for the in place portfolio? And if we should be thinking about, incremental kind of CapEx spend on the pipeline over and above traditional maintenance CapEx.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Mike's pulling that up. I would say that because of the vintage of the assets that we that we acquired last year that we're currently in process of acquiring, they're really new they're new assets. They're less than ten years old. Most of them are, you know, five, six, seven years old. So they're the CapEx requirements for the stuff that we're buying, just isn't isn't material.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

And when we were asked earlier about competition, we've got so much in the pipeline that we're really we've really been able to be extremely selective about the assets, that we wanna buy. So that regardless what happens with competition in any of the geographic areas and the markets that we're buying in, we've got, really new good looking assets to compete with anybody.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

Yeah. And in terms of the dollars, Juan, so in terms of, like, regular maintenance CapEx, we've been spending know, on average somewhere between, call it, a million and a half to 2 million dollars a quarter on our consolidated portfolio. On larger projects, you know, it's gonna be very community specific. We spent a lot last year as we've talked about in the past. There's some deferred projects that got delayed because of the the pandemic.

Michael Costa
Executive VP, CFO & Secretary at Sabra Health Care REIT

That number was, you know, over $30,000,000 that we spent across our entire portfolio, but we expect that number to be, you know, quite a bit lower in 2025, because of the fact that we caught up last year as well as the, what Rick pointed out with the newer vintage assets that we've been adding to our portfolio just naturally require less CapEx.

Juan Sanabria
Juan Sanabria
Managing Director at BMO Capital Markets

Thank you.

Operator

Your next question comes from the line of Seth Berge with Citigroup. Please go ahead.

Seth Bergey
Seth Bergey
Senior Analyst at Citi

Hi. Thanks for taking my question. I guess just going back to the pipeline kind of, as you have been improving outlets for shops, it sounds like there may be a little bit more competition out there for deals. Has there been any change to your underwriting criteria in terms of type of assets you're looking at, geographies or kind of your return expectations?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

So I actually think that there the the competition has just shifted to being actually a smaller pool of buyers for the most part on the assets that that that we see in general. And then as Rick said, we're we're being very deliberate and picky about what we're pursuing for all the reasons that were outlined. In terms of underwriting, really nothing has changed. We're really focused on our cost of capital and looking at making sure that how we underwrite leads us to get a a deals that are accretive. The other element that is relevant to us when we're looking at transactions and believe we're looking at a lot.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

I I I probably clear 10 Confie agreements a week just to give you a sense of scale. So that's a lot of deals. When you look at situations where we have an opportunity to buy at maybe not the highest price because either we have a relationship and history with an operator who's involved in the deal and has an ability to to effect or impact how the sale happens. And we're also looking at working with operators that have a pipeline of assets that are expected to come to market in some fashion and potentially even development opportunities someday in the future when that might make sense. We're not counting on development today.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Trust me. But there's so it's the assets themselves matter, but there are strategic reasons also for these specific investments in terms of the relationships and the future of our organization and opportunity to buy and invest.

Seth Bergey
Seth Bergey
Senior Analyst at Citi

Great. That's helpful. And then I guess just for the second one, you know, your coverage levels continue to improve, but are there any changes to your watch list with respect to operators?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

No. None.

Seth Bergey
Seth Bergey
Senior Analyst at Citi

Okay, great. Thank you.

Operator

Your next question comes from the line of Georgi Dinkov with Mizuho Securities. Your line is open.

Georgi Dinkov
Senior Equity Research Associate at Mizuho Securities

Hey, this is Georgi on for Vikram. Just in the press release, you mentioned that you're not seeing many attractive SNF opportunities. Can you just provide more color on what makes the SNF acquisition unattractive? Like, is it a location, operator, anything else that you can share? Thank you.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Losing a lot of money is a good starting point, and we see a fair amount of those. Because oftentimes, what we're seeing is a nonprofit that's divesting because they're bleeding cash on the asset. So that's that's tough because it's really tough to structure a lease around an asset that doesn't have the ability to pay rent because it's going to take time even if you get the most fantastic operator in there and the assets and the asset is fundamentally well situated. And all that it's gonna be a while before they're able to turn the facility around so that they can pay rent. So that's that's the that's the challenge of the math around lease.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

And we're not doing, managed assets in the sniff space.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We're really not seeing anybody else get much done too. Hopefully, look. There's a there's a a Medicaid overhang, obviously, on this space. So I think, we're hopeful that as there's clarity on Medicaid that more assets will come into the market. It's I mean, people can go ahead and do deals and assume nothing's gonna happen, but, you know, we we prefer to be a little bit cautious about how we underwrote a sniff a sniff deal, not knowing what's gonna happen with their Medicaid revenue stream.

Georgi Dinkov
Senior Equity Research Associate at Mizuho Securities

That's helpful. Thank you. And just a second question on the SHOP portfolio. Can you just provide more color on, what do you expect in terms of occupancy cadence throughout the year? And what are the trends that are you seeing so far in the second quarter?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Oh, we're we're a month into the second quarter, so I'd I'd hesitate to extrapolate too much. I I think the first quarter was flat sequentially, as I said, which is kind of the the new seasonality, at least for this year. I expect things will pick up. If you think about where assets are located, let's just say let's talk about our Canadian assets. It's unlike people are less likely to move in during January, February, and March when, there are snowstorms and it's negative 20 degrees outside.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Right? So I think having we were at Vancouver last week. It the skies were sunny and bright, nicer than Southern California. Toronto is getting better as well. I think the mood increases and move ins will increase just even just in our Canadian portfolio for those reasons.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

And, of course, any of our assets that are that are in the Northern part of The US have the same issue with winter. It's just hard to be in Minnesota and think you're gonna move move in January and February and March.

Georgi Dinkov
Senior Equity Research Associate at Mizuho Securities

Great. Thank you for taking my questions.

Operator

Your next question comes from the line of Richard Anderson with Wedbush. Your line is open.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Thanks, and congrats, Talia.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

Thank you.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Guess we'll see you around for a few more quarters though. So on the topic of not interested in any large portfolios, Rick, is that because of the portfolios or is that because of your sort of commitment to all of us to sort of keep it simple and not not, you know, get into a fire hose drinking situation again? I'm I'm just curious what's motivating the lack of interest in large portfolios as you see it today.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Yeah. It's really it's really that commitment as as you know very well because you've covered us for so long. We we did a lot of things that we felt we had to do at the time that created a lot of noise, but it effectively repositioned us to be strong going forward. Nevertheless, it takes some time to get past that in people's minds and and and be an organization that people that is dependable and people can sort of predict more where things are gonna be going. And so, you know, we articulated that in '23 coming out of the out of the pandemic, and and we stuck to it.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

So, you know, there's so many there's so much activity out there for us to take advantage of. We don't need to we don't need we don't need any big swings. When we re when we reposition the company, with the merger and and and really exiting Genesis, we didn't need to do it again, and we still don't need to do it. We've got a really strong portfolio. We had less SNF operator issues than, I think, pretty much everybody during the pandemic.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

And and so we just wanna be predictable and and and keep it simple. And we can do hundreds of millions of dollars of deals and do them with with deals that are under a hundred million dollars. So, and and none of the deals in this sort of basket of 200 plus, are are close to a hundred million. So, that's that's our commitment to you all and a commitment to ourselves. We're gonna be, very laser focused on it.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

You know? Will we be willing to do something larger next year or whatever? Yeah, of course, we might be willing to do that. But we're right now, we're able to have a better balance in our portfolio between senior housing and skilled than we've ever had. It drives our growth better.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We still wanna do skilled deals. We love the space, and, obviously, it'll it'll increase our average weighted yield. But we wanna have that balance in the portfolio. We wanna have a component of our asset base that, is a strong driver of earnings stronger driver of earnings than the 2.25 to two and a half percent, you know, bumps you get on a triple net. So, not so.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

I'm belaboring it probably a little bit, Rich, but, yeah.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

I enjoyed the good good stuff. And so and next question is, we're hearing some of your peers are doing some shop conversions. Is that is that a part of your strategy at all within the portfolio, or is it gonna be mostly, you know, looking for stuff externally?

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We we've already we did a bunch of that and and some of it during the, during the pandemic. There's not much left for us to do there. I mean, coverage is great. We've got some legacy assets in there that are doing really well, and the operators are happy. So there might be a little bit here or there, but it's not gonna be anything significant.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We got, I think we reduced our triple net senior housing portfolio over the last several years by a third or something like that. So, there's there's not much left there. And, obviously, as we continue to grow shop, you'll see the triple net senior housing portfolio drop as a percentage of our exposure, and then be and behavioral, obviously, will drop as well because we're gonna be allocating our capital to the two spaces that have the tailwinds, senior housing and skilled nursing.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Okay. And last for me, you know, the Medicare, the CMS suggestion or whatever, 2.8% for fiscal year twenty six is fine, I guess. You know, it's obviously down from last year, obviously, not to be unexpected given inflation subsiding. And then you have Medicaid questions that you can't answer yet. No one can.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

And you layer that on top of what you've witnessed is, you know, improving coverage. I mean, the day are we past sort of is the full gone, I guess, on on coverage? And we start to get sort of more of a sideways movement because the reimbursement, sources are likely to slow down now on a year over year basis? And so coverage has had a nice run, but maybe it's kind of in the rearview mirror now. What do you think of that?

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

So I yeah. No. It's a good question. I don't think we're gonna be sideways for a while for a couple reasons. One, and we've talked about this in the past.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

This was the year we expected to see Medicare rate and Medicaid rate increases come down. Just formulaically, they're they're encompassing periods of time where inflation started coming down. So and the 2.8 is still about a full point or so higher than it was historically what we saw historically every year. And while we expect Medicaid certainly not to be at the seven plus percent we saw last year, we still think it's gonna be outsized. So I think given given occupancy continuing to grow, giving given that the moderation in labor and given another set of outsized based on historical outsized Medicaid rate increases this summer, about 70% of our buildings get their Medicaid rate increases in July and August.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

We still should see improved coverage for a while. Now something should happen with provider taxes, that could mitigate that somewhat. So that remains to be seen. But I think, you know, it'll it'll have a relatively negligible impact for us because there's gonna be a cost offset as well if the if the ceiling comes down. And then you'll see it start picking up again once Medicaid rate increases get baked in.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

So, I I think we still have some room to grow there, over the course of this year, Rich.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Okay. Sounds good. Thanks very much.

Operator

Your next question comes from the line of Alex Fagan with Baird Equity Research. Your line is open.

Alec Feygin
Equity Research Analyst at Baird

Hi. Thank you for taking my question. So kind of speaking for the $200,000,000 set of deals, And, Tal, you kind of talked about maybe the strategic relationship angle, but maybe any more details with are these operators that you'd like to grow? Are they new operators into the portfolio? And, you know, kind of what do you expect that, you know, shadow pipeline to to kind of be, after these deals close?

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

So the answer to to question number one is yes. Yes. Yes. Yes. All of the above.

Talya Nevo-Hacohen
Talya Nevo-Hacohen
Executive VP, Chief Investment Officer & Treasurer at Sabra Health Care REIT

The answer to number two is tougher to to assess, and I think we we'd rather close the deals and then be able to report further detail on the additional opportunities that we're looking at.

Alec Feygin
Equity Research Analyst at Baird

Alright. Fair enough. And then secondly, can you provide some details in the maybe kind of steady decline in occupancy in the behavioral health and specialty hospitals and other segment? And of what are the prospects for releasing those spaces if they do go dark and at what rents?

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

You know, it's it's, it's a very different business than senior housing and skilled nursing, obviously. The, breakeven point is is at a pretty low level of occupancy, like, 60%. The coverage went up pretty nicely, actually, because revenue revenue per patient day went up. And, so but it's a very, very dynamic business. You in skilled and senior housing, your occupancy is pretty predictable for the most part.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

It doesn't change dramatically. That's not the same with with the behavioral space. So you've got very short lengths of stay. It's a very dynamic business. The holidays and shortly right after the holidays, you always see pretty significant drops because no one's coming in for rehab typically, during the holidays.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

That carries a little bit over into the early part of the year. So there may be some recovery on that. So it's just something the the coverage is so strong. It's just a 3.77. It's just not something that we're concerned about.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

It's just a different kind of business. And so we're for us, we're used to kinda seeing these ups and downs.

Alec Feygin
Equity Research Analyst at Baird

Alright. Thank you for that.

Operator

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank. Your line is open.

Analyst

Yeah. Hey, guys. This is Sam on for Tayo. I was just wondering if you guys could give some updated thoughts on how, Medicare reimbursement for skilled nursing could impact the could be impacted by the current attempts by the US government to establish a new federal budget.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Well, what we're hearing on the hill is that they're not gonna touch Medicare. And the president has said the same thing about Medicaid, but as we've talked about, I think, the last couple of quarters, we think there is some exposure on provider taxes. But we're not seeing or hearing anything in any of the discussions that our lobbyists are having on the hill relative to to Medicare. And I'm not sure that the proposed rule would have come out the way it did if that was an issue. So, the the the comment period once the proposed rule came out, everything's happening like it normally happens there.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

So, and we're not hearing anything from inside CMS along those lines either. So, look, you know, we're in an environment where things change every hour, apparently. So, but that said, so I'm not making light of anything, because we have our antenna up on the Medicaid stuff, but we feel pretty comfortable with Medicare.

Analyst

Got it. That's, very helpful, and that's all I have on my end. Thanks, guys, for the time.

Operator

There are no further questions at this time. I turn the call back over to Rick Mattress.

Rick Matros
Rick Matros
Director, President, Chairman & CEO at Sabra Health Care REIT

Thanks everybody for joining us. We're available as always if you want to reach out and have additional discussions. And otherwise, we'll see a bunch of you folks at NAREIT. We look forward to it. Thanks everyone.

Operator

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

Executives
    • Lukas Hartwich
      Lukas Hartwich
      Executive Vice President Finance
    • Rick Matros
      Rick Matros
      Director, President, Chairman & CEO
    • Talya Nevo-Hacohen
      Talya Nevo-Hacohen
      Executive VP, Chief Investment Officer & Treasurer
Analysts
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Key Takeaways

  • Sabra’s rent coverage reached record highs in Q1, with skilled nursing at 2.19x, triple-net senior housing at 1.41x and behavioral health at 3.77x, while contract labor expenses improved to their lowest level in over four years.
  • The same-store managed senior housing portfolio delivered a 6.3% year-over-year revenue increase, occupancy rose to 85.4% (+280 bps YoY) and cash NOI grew 16.9%, driven by strong U.S. and Canadian performance.
  • Normalized FFO per share was $0.35 and AFFO per share $0.37, up 79% from Q1 2024, as cash rental income, managed portfolio NOI and other income all increased, leading Sabra to reaffirm its 2025 earnings guidance.
  • Leverage improved with net debt to adjusted EBITDA at 5.19x, down 36 bps YoY, and liquidity exceeded $1 billion, supported by an active ATM program that has raised $84.3 million this quarter.
  • Sabra has been awarded over $200 million of senior housing deals in Q2, focusing on small-lot, newer-vintage SHOP assets with embedded growth opportunities, although these acquisitions are not yet included in full-year guidance.
AI Generated. May Contain Errors.
Earnings Conference Call
Sabra Health Care REIT Q1 2025
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