Sabra Health Care REIT, Inc. Stock

Good day, everyone. My name is Percy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT Third Quarter 2026 Earnings Call. [Operator Instructions]

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

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 2026 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, 2025, 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 Investors section of our website at sabrahealth.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 Health Care REIT.

Thanks, Lucas, and thanks, everybody, for joining us this morning. Our same-store SHOP cash NOI margins were 34.9%, which is best-in-class. Our RevPOR growth was stellar again for the quarter, along with solid cash NOI growth and occupancy increasing. We've closed on $750 million in investments to date, all of which is SHOP except for $100 million, which was skilled nursing. We have $425 million awarded and expect more to come before year-end. All of that but $24 million is SHOP. Our skilled nursing and senior housing triple net rent coverage continues to get better. As we continue to move forward towards 40% SHOP exposure going to 50% by year-end 2027, our senior housing portfolio will outweigh our skilled portfolio for the first time as that exposure drifts closer to 40%. We see no barriers that would prevent this momentum from continuing. That said, we believe it's important to have that diversity in the portfolio. As we have demonstrated, our skilled portfolio offers more earnings growth than the 2.5% escalators that we have seen historically. Our focus on optimizing rents was evident in our July announcement, and we are currently assessing other opportunities.

Additionally, as you look to our lease expirations, we expect to see rent increases in those portfolios as rents get reset to fair market given how much higher than fair market rent coverages currently are. The strategic focus that we've had will result in 7% to 8% year-over-year earnings growth at the midpoint of guidance this year. Certainly a mark we feel good about and bodes well for that portfolio's contribution to future earnings.

With that, I'll turn it over to Darrin.

Thank you, Rick. Sabra's senior housing operating portfolio had another great quarter with continued growth. The total senior housing operating portfolio, including non-stabilized communities and joint venture assets that share had sequential revenue growth of 10.3% and NOI growth of 8.5%. These statistics demonstrate sequential improvement in operating results that reflect our SHOPs continued growth and strong performance.

During the third quarter, Sabra invested $222.8 million, adding 7 SHOP communities to Sabra's portfolio. Subsequent to quarter end, Sabra invested an additional $140.7 million, adding 4 SHOP communities, bringing total year-to-date investments to over $747 million with an estimated yield of 8%. Additionally, Sabra has another $425 million of additional awarded investments, nearly all SHOP which should close in the near future. In addition to the over $1.17 billion in closed and awarded investments, Sabra has an additional $260 million of SHOP investments that we are actively pursuing.

On a year-over-year basis, Sabra added 18 SHOP communities, an 18% increase by number of assets and over 60% increase in total SHOP NOI. Deal flow shows no signs of slowing and Sabra remains competitive on new investments.

Moving on to the same-store portfolio. Sabra's same-store SHOP portfolio, including joint venture assets at share, continued its strong performance in the third quarter. The key numbers are: Revenue for the quarter grew 9.3% year-over-year with our Canadian communities growing revenue by 7% in the same period. Third quarter occupancy in our same-store portfolio was up 160 basis points to 89.2% year-over-year. Notably, our domestic portfolio occupancy increased 211 basis points to 86.9% during that period, while our Canadian portfolio grew 77 basis points to 93.9% in the same period, marking the 10th consecutive quarter where occupancy was over 90%. RevPAR in the third quarter continued to rise with an increase of 7.3% year-over-year with our Canadian portfolio increasing 6.4% in the same period.

While RevPOR and occupancy continue to grow, ExPOR increased 4.7% for the same period, providing for cash NOI growth of 14.6% on a year-over-year basis. The increase in ExPOR was driven primarily by repairs and maintenance, sales and marketing and incentive management fees, while labor continues to grow less than 3%. With over $1.17 billion in closed and award investments to date, a very robust pipeline and industry tailwinds at our backs, we should continue to see solid growth in our portfolio.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darrin. For the third quarter of 2026, we recognized normalized FFO per share of $0.39 and normalized AFFO per share of $0.41 compared to $0.38 and $0.40, respectively, in the second quarter. Year-over-year, our third quarter normalized FFO per share and normalized AFFO per share each posted an increase of 8%. Cash rental income from our triple net portfolio increased $1.2 million on a normalized basis compared to the second quarter.

Cash rental income was $93.5 million for the quarter, excluding a $10.2 million payment of deferred rents received in the quarter. On a normalized basis, our second quarter cash rental income was $92.3 million after adjusting for $1.8 million of out-of-period revenues primarily related to the Avamere rent reset. SHOP cash NOI was $48.4 million this quarter compared to $44.6 million last quarter. This increase reflects both the contribution from recent investment activity, including 7 communities added during the quarter and continued same-store occupancy gains and rate growth.

Interest and other income was $3.2 million for the quarter compared to $5.8 million in the second quarter. The decrease was primarily due to repayments of loans in the second and third quarters. Cash interest expense was $26.8 million for the quarter compared to $27.4 million in the second quarter. The decrease reflects lower borrowings under our credit facility during the period. Normalized cash G&A was $10.6 million for the quarter compared to $10.7 million last quarter.

During the quarter, we wrote off $6.2 million of straight-line rent receivables and lease intangibles, primarily due to the transitioning of the former Avamere portfolio. This amount was normalized in our quarterly results. We have updated our 2026 earnings guidance and increased the midpoint of our per share normalized FFO and normalized AFFO by $0.05. At the midpoint, this represents year-over-year per share growth of 7% for normalized FFO and 8% for normalized AFFO.

Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 4.54x as of September 30, 2026, compared to 4.61x at June 30, 2026. As we have stated previously, our strategy is to naturally lower our leverage over time without sacrificing earnings growth. This quarter's results reflect that strategy in action, and it is a strategy we will continue to employ. As of September 30, 2026, we had approximately $1.2 billion of liquidity, and we're in compliance with all of our debt covenants.

In addition to $36.2 million of unrestricted cash and cash equivalents and $873.5 million of available borrowings under our revolving credit facility, we had $292.5 million related to shares outstanding under forward sales agreements under our ATM program, which consisted of 15 million shares at an initial weighted average price of $19.53 per share net of commissions. Additionally, we have $332.7 million of availability remaining under the ATM program.

During the quarter, we issued 6.5 million shares in settlement of certain outstanding forward sales agreements under our ATM program at a weighted average price of $17.89 per share, net of commissions, resulting in net proceeds of $116.2 million. These proceeds, together with cash on hand, were used to fund our investment activity during the quarter.

Finally, on November 2, 2026, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on November 30, 2026, to common stockholders of record as of the close of business on November 13, 2026. The dividend is well covered and represents a payout of 73% of our third quarter normalized AFFO per share.

And with that, we'll open up the lines for Q&A.

[Operator Instructions] Your first question comes from the line of Juan Sanabria with BMO Capital Markets.

Just curious if you could, Rick or Darrin elaborate on the, optimization in skilled nursing and maybe that includes the behavioral hospitals. Is that just rent increases upon expiration, which you touched on in the prepared remarks? Does that include further potential sales or monetizations of the assets to accelerate this transition towards SHOP NOI?

Juan, thanks. So it's just skilled nursing. And there are a couple that we're currently working on. One is another transition similar to the ones that we talked about in July. And the other is a lease that's coming up in the not-too-distant future and the operators involved are interested in negotiating an extension sooner or later, and that extension would carry with it an increase in rents simply given where rent coverage is for that portfolio today and what we would normally put a new lease at for a skilled nursing operator, somewhere around 1.5%. So that's really where the upside is. And if you look at our lease expiration schedule, we've got between 2027 and 2031, we have a big chunk of leases coming up. So you should expect us to take advantage of that in the same way that we've been taking advantage of to date and again, for the same reasons. So does that answer your question, Juan?

It does. And then just as a follow-up, if I may. Just curious if you can give a little bit more color on the fourth quarter-to-date transactions and the $400-plus million that's in process that has been agreed to in pricing and how that may have been -- how that may be changing kind of the initial and longer-term yield expectations on those acquisitions?

What was the first part of the question, Juan, say again?

The recent deals, what's closed fourth quarter to date and what's kind of pending to close and how cap rates have trended?

Sure. So this is Darrin. Economics in the current pipeline for $425 million are similar to those completed in 2026. It's a mix of stable assets and some modest value-add or upside opportunities. Unlevered IRRs continue to range in the low double digits to mid-teens. I would say that the previously closed assets had more SNF and pref equity, some higher-yielding investments. That being said, there's definitely been cap rate pressure on the senior housing side that we've seen in the industry throughout the year. However, with the rising interest rates, that pressure appears to have moderated for now.

Your next question comes from the line of Jamie Feldman with Wells Fargo.

I guess along the same lines, how have you changed your underwriting assumptions with higher rates and then just with operating conditions in the business in terms of your willingness to underwrite better NOI growth or maybe weaker NOI growth and then exit cap rates as you're thinking about your own IRR outlooks?

Sure. So each -- the underwriting of each investment opportunity is very asset market specific, number one. Occupancy, we're still keeping occupancy or stabilized occupancy probably up to the 92%, maybe 93.5% range, once again, depending upon the local market. As far as rate growth is concerned, you do end up with a little bit more visibility into near-term rate growth that typically takes place January 1 as these plans are kind of implemented here later in the year. So those tend to be -- at least they have tended to be kind of in the mid-single digits for now. But as far as exit cap rates, we are basically using what we see as a cap rate -- market cap rate today. So there's no sort of cap rate compression or inflation.

Yes. And we'll also -- and as we had mentioned earlier or last call or whatever, we are looking at doing more value add, and we did do a sizable value add. And when we say value add, we're not talking about operations that are destabilized. We're looking at 80% occupancy in the case of the deal that we did. That obviously brings down the overall yield, but it provides a lot more upside for us going forward. So given the volume of deal flow that we have and that we anticipate having next year, we can do those kinds of things here and there and still make it work for us with our cost of capital.

Okay. And then turning to Avamere. Can you just remind us how much rent remains to commence and the incremental '27 contribution that's not yet reflected in the current or current run rate?

Sure. So when we did that transition effective October 1, that took the annualized rent from $48 million to $53 million. So we're only seeing the impact of that on 2026 numbers just for 3 months. That full impact is going to be seen in 2027, obviously. And actually, the increase year-over-year will be slightly higher than that because, as you recall, we did the rent reset earlier in the year. So you should expect to see year-over-year the NOI generated from that lease to be, call it, $5 million or a little bit higher than $5 million on a year-over-year basis.

Okay. But it sounds like it's in the full 4Q run rate?

It is in the full 4Q run rate. Yes, it's in our guidance.

Your next question comes from the line of Farrell Granath with Bank of America.

This is Andrew Reale on with Farrell. I guess, first, just with respect to the SHOP same-store NOI guide, what sort of improved in the fourth quarter outlook to support moving the guide up to the mid-teens? Is that mainly stronger occupancy and rate trends? Or are you expecting some expense growth to moderate as well?

So, it's just overall strength in the performance of the SHOP portfolio.

Yes. And I think more visibility, right, because we're talking about 2 months of forecasting here versus 9 months earlier in the year.

Okay. Maybe one on the supplement. It looks like it now shows an estimated yield figure instead of initial cash yield in the investments. Also looks like 1Q SHOP deals moved from 7.9% yield to about 9.2%. Just curious what's behind the change and what is the new yield measuring?

I mean in terms of what the new yield is measuring, I think the simplest way to put it is it's a year 1 yield other than the situations -- the limited situations like Rick articulated, where we're doing some value-add opportunities, in which case we're using a stabilized yield on that. And when we say stabilized, we're talking about, call it, year 2 once the operator is able to go in and put their strategy in place. So it's, by and large, a year 1 yield except for those select opportunities. The one thing I would say is when you kind of take a step back and you look at our total closed and awarded pipeline, the going-in yield, the year 1 yield that we're expecting is in the low 7. So even with those value-add opportunities, the going-in yield that we're expecting in year 1 is still competitive with our cost of capital.

And was that the other?

Yes. And your second part of the question, can you repeat that?

No, I think you answered it. Just wondering what's behind the change, what is the measure, but I think you answered the question.

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

Great. Just going back to the earlier question about the optimization of skilled nursing. You highlighted those 2 opportunities. Can you give us a sense of just to quantify what that upside opportunity looks like from an NOI perspective and really the timing of those taking place and how much they could contribute to '27, I guess?

Not yet, we can because we're still in the process of negotiating that. And -- but I would expect that there'll be a full 2027 year impact or pretty close to it. So -- but we're just -- we're still in the process of negotiating those.

Yes. And to the extent those are completed by the time we release our fourth quarter earnings and our 2027 guidance, those will obviously be reflected in there as well.

If there's a reason to do an update, say again?

No, I was just going to say, is there -- could you give us a sense where the coverage ratios are for those specific leases today?

They're well over 2x.

Got it. And then you mentioned some SNF and preferred equity deals that you did subsequent to the third quarter. Are you seeing a larger number of skilled nursing investment opportunities? And is that something that's of interest to you to mix in with some of the SHOP investments in the awarded pipeline?

No, not at all. These are off-market deals. We're not seeing any uptick in sort of traditional down the fairway triple net skilled deals. So -- and then on the prep, the prep all relates to the development that we're doing on the senior housing side with existing operating partners. And one of the reasons it works for us, where as in almost every development deal that we look at, they don't pencil. In the instances that we're doing deals, one, they're with operators that have their own in-house capabilities. Very often, they go land for a while, so the basis is low. So they're really distinct opportunities as opposed to kind of the beginnings of any trend on the development side.

That's helpful data.

Yes. And also, we may not wait until fourth quarter earnings to -- on the optimization stuff if we have something that we can just do a business update on before then.

Your next question comes from the line of Michael Stroyeck with Green Street.

Can you just talk a bit about the behavioral health business? Where is coverage for that portfolio? How did that change this quarter? And maybe any color on the kind of the near-term outlook for that business would be helpful.

So all we really have left, we're pretty much out of the substance abuse disorder business. We have Signature left, which is 5 site hospitals. So it's actually quite a different business. They've been a tenant since 2017. And so now they sit more -- without the substance abuse disorder business, that business fits much more aligned with our other category, which includes rehab hospitals and some acute hospitals and a couple of other things that are more specialized in nature. So the coverage, it's a much more dynamic business as is the acute hospital business. So you're going to see occupancy and coverages go up and down a little bit, but the coverage is really strong in that other category in total is closer to 4x and 3x. So we feel like we're in pretty good shape there.

In terms of the future of our relationship with Signature, as we've said in the past, this is not -- it's not RCA. They've been a reliable tenant for a long time. They'd like to own the real estate, but it's got to be compelling for us. We can't -- we're not going to -- we're not willing to take dilution to earnings in order to get a deal done there. So for right now, I'd say they'll continue to be our tenant. And that other category is now down to 10% of the total portfolio and will continue to shrink as we grow the rest of the business. So it becomes less and less impactful.

Got it. That's helpful. And then maybe can you provide some color on the coverage stratification you guys started disclosing this quarter? What segments or operators make up that 1 to 1.5x bucket? And are there any concerns that rent cuts could be needed on any of those assets?

No, there's no concerns that any rent cuts are needed. And I would say those buckets, it's a mix of skilled nursing and senior housing that's in there.

Your next question comes from the line of Wes Golladay with Baird.

I just want to get a little bit more color on the deferred cash rent payment of over $10 million this quarter. Is that a sign of a tenant getting healthy and going back to accrual accounting?

That's actually a sign of, yes, getting healthier, but then also a transition that happened with that particular operator. And as part of that transition as part of us agreeing to that transition, combined with their stronger financial position today, we require that they repay that deferred rent, and they gladly did to make that transaction happen.

Okay. Going to the senior housing, is the RevPAR growth broad-based? It's pretty strong, over 7%. And what is driving that? Is it just pricing power the concession burn off? Is it mix at all? Just trying to get a little bit more details on that.

Yes, it's interesting because we get the question, others get the question as well regarding pricing power. Are you going to be able to increase rates above market when you're above 90% occupancy. And while that intuitively makes sense, we're not seeing any evidence of that within our portfolio, at least not yet. There are some facilities that are over 90% occupancy that are be able to push higher rates, but we have some that are in the 80s that are be able to push higher rates as well. I think probably the one thing that we would probably chalk up the strong RevPOR growth to most significantly is acuity. And the ability of a lot of our operators to increase -- take on higher acuity residents and provide the care that they need and be able to charge those levels of care accordingly, that's having a positive contribution on the RevPOR side.

Your next question comes from the line of Vikram Malhotra with Mizuho.

I guess just maybe first one, Rick, you talked about the trajectory of SHOP. You went from 20 to 40 now pro forma, I guess, 50. I'm just wondering like where do you see this ultimately shaking out? Meaning, at what point do you say like we've had enough SHOP growth. Now you just referenced cap rates coming in, perhaps taking more value add. So you have like a good balance. You have these rent resets all adding to growth next year. By just my math, you should be at least 6%, 7% FFO growth with everything you've done. So I'm just wondering, bigger picture, like how big do you grow the SHOP platform? And how much more risk do you take in terms of value add?

Well, I think we don't view ourselves taking risk on value add. It's funny how everything changes. Now that people are thinking about occupancy in the 90s, all of a sudden 80%, which is actually quite stabilized. It's viewed as not stabilized. But if you're at 80%, you've got a good operator in there and a good asset, there's not much risk there. So we'd like to do more of that. In terms of our SHOP exposure overall, our focus is on growing earnings, and we're going to follow where the opportunities are. So right now, the predominant opportunities are in SHOP, and that's why we're anticipating 12 months out, we'll be closer to 50% SHOP and closer to 40% skilled nursing. We're happy to do more skilled nursing, and we can do both. So if the SHOP opportunities remain what they are and there are more skilled nursing opportunities, we're just going to do both. So we're not sort of putting any parameters on how much SHOP we want to have or how much skilled nursing we want to have. We want to have a very well-balanced portfolio. We like the idea of having more SHOP than skilled. But as we all know, for those of us that are -- have been around for a pretty long time, the outlook is great for both SHOP and skilled. But life happens and stuff happens, and we just don't want to have everything. We don't want to make a bet just on one asset class only, particularly with the contributions that we're getting out of the skilled portfolio now. And as I mentioned earlier, if you look at our lease expiration schedule, we're going to have outsized contributions from our skilled portfolio through the end of the expiration -- the lease expiration schedule in 2031. So that's a good place, I think, for us to be. So does that answer your question, Vikram?

That's helpful. I guess just a bigger picture question. We'll see what the midterm outcome is today. But I'm wondering like are there any specific states you're watching from a -- is there any Medicaid growth implications or even bigger picture, like if there's a blue wave versus not, like any thoughts around what that may mean for skilled and the reimbursement landscape?

Yes. Sure. So if the chambers are split with the Republicans holding the Senate and DEMS getting the House, I don't think there'll be much change if or much of a fight over anything. If the DEMS win both the Senate and the House, they've already put this paper together. It's like 81 pages on health care overall, and there's some stuff in there that we like with the workforce investments. And it's not just about long-term care, by the way, it's about the entire health care space. We would expect that there may be things coming up like staffing again or private investment in health care facilities. So that kind of stuff will bubble up again. When we beat those things down in the past, we did it with bipartisan support. Not everybody sees it that way on the DEM side. So we feel pretty comfortable with it. There'll be probably a little bit more noise about it if the DEMS win the Senate as well, I think, is probably the best way to put it.

The other thing I'd point out is -- to remind everybody, every state that we're in has staffing mandates currently. And that the, the staffing mandate that was originally recommended at the federal level was one that Sabra in the aggregate already met. So it's just not a concern. So I think it's going to be more noise and headlines than actual impact on the day-to-day business.

Okay. Great. And then, sorry, just if I can clarify one thing. Assuming this trajectory continues and you're headed to then pro forma, let's say, 60% SHOP, meaning in terms of acquisitions next year. Just remind us like capital available to fund incremental deals into 1Q '27? And then what your order of preference would be? Like would you be doing more disposition? Would you use leverage? Just remind us sort of the preference for funding all of this?

Yes. I mean, in terms of financing, I think between our cash on hand, availability on our line of credit and what we've raised on the ATM, we have enough capital to close everything we need to close through early '27, call it, Q1 or even early Q2 of '27. And then going forward, I think when you look at investment opportunities that come our way, we would look to fund them similarly, use our credit facility to fund the debt portion of it, call it, 30% to 35% -- and the rest would come from either retained earnings or from raising equity in the ATM or even the traditional ways if there's enough volume to do so. From the disposition side, look, you're always going to have some level of dispositions. I think that's something every company should be doing and looking at their portfolio and pruning it off periodically. I wouldn't expect it to be of a meaningful volume. It's not going to be of a volume that's going to allow us to fund our existing -- our entire pipeline or anything like that, but it will be part of the equation, but albeit a small part of it.

Your next question comes from the line of Seth Bergey with Citi.

I guess I just wanted to go back to kind of the pipeline and how much of kind of the awarded pipeline is either off-market or from existing operators that are kind of already with you?

Sure. So the off-market transactions we've been doing through the beginning of the year, we've been averaging about 30% off-market. And then as far as existing operators, we're only changing operators in about 35% of the total closed and awarded opportunities. So 65% of the incumbent operator will be staying in place.

And by the way, last year, we had almost no off-market deals, and we've intentionally developed relationships where we can do more off-market. So we jumped from about 0% to 30% just in the last year.

Great. And then maybe going back to some of your earlier comments around occupancy and 90%, how should we kind of think about kind of the operating leverage and the incremental margin flow-through as you kind of achieve higher occupancy within some of the more stabilized assets?

So where occupancy currently is, you're going to see a minimum 50% pull-through to the margin. As you get to 92% and 93%, that's going to grow probably to 70-plus percent. There's just not that much more cost associated with bringing in just a few extra residents. So those are probably good numbers. But we've already -- to be clear, we've already surpassed the operating leverage mark. So that pull-through has already started to happen, which is really one of the reasons that we've got sector high cash NOI margins.

Your next question comes from the line of Dave Rogers with Raymond James.

I think you addressed this maybe a couple of questions ago but maybe ask it in a different way. 40-some-odd percent of your skilled expirations are kind of after 2035. And I think Ensign has been out there desiring to buy some assets out of their REIT partner portfolios. I don't know if they've approached you or not, but how do you think about some of the long-dated SNF assets and maybe offloading some of those continue to accelerate the growth in the company overall, but keep some of the near-term opportunities that you mentioned earlier in the call?

Yes. At this point, we feel like we've pretty much cleaned the portfolio of anything that we didn't want to retain on the skilled side. So we'll see what the environment looks like. But as we sit here today, I wouldn't anticipate any material dispositions with our skilled operators. I mean the space has such a nice runway ahead of it. But the environment may change over the next couple of years. We've got time, obviously, to make those judgments. We're not having those conversations with anybody right now kind of to answer your question about that with Ensign. So we'll see. We'll be open-minded about it.

And then just a quick follow-up on the leased senior housing portfolio. Any opportunities there as well for rent resets, transitions to manage anything like that, that would benefit you as well?

We've pretty much done as much as can be done there. If there's any other opportunity, it's going to be incremental. So basically, that piece of the portfolio, which is down to about 7% of our NOI right now are legacy operators that like everybody else kind of went through hell during the pandemic. They're doing really well now. They're good operators. And so they're content with where things are. We're happy to have them as operators. We're not going to force them out of the portfolio just because they're triple net. So you're just going to see that number continue to shrink as a percent.

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

Just curious on the SHOP side of the business, how you're thinking about costs as a result of your tech and data initiatives and how you think about export trending from here?

So in terms of the costs that we're incurring at the corporate side, I mean, I think it's really incremental in the grand scheme of things. We're making investments today. We have a lot of the infrastructure already in place, adding to it incrementally, as I mentioned. So I don't see that as being anything that's going to meaningfully move the needle. From a cost perspective, obviously, from an efficiency perspective, we fully believe that to be the case on the corporate side as we continue to take on more operators, as we continue to expand that portfolio. The initiatives that are happening at the facility level, I think is more -- speaks more to your question in terms of export. Look, I think all those initiatives are done with an eye towards making operations more efficient, whether that's on the housekeeping side, whether that is on the caretaker side, whatever it may be, it's all with an eye towards improving the efficiency and the ultimate delivery of care there.

And just one last one for me. There was a mention of kind of value-add investment opportunities. So just curious on how you guys think about CapEx for the SHOP business on a per unit per year basis, presumably those may be having some deferred CapEx. And any thoughts about why you guys don't include SHOP CapEx now that SHOP is 40% of the business in your FAD calc? I think most of the peers do that.

I mean in terms of the FAD calc years ago, we decided we didn't want to put FAD in our supplement or anywhere else just because the SEC prohibits you from showing it on a per share basis. Now with that said, as we talked about before, the numbers are all there, right? We do disclose what our recurring CapEx is. We disclose what our nonrecurring CapEx. So the math is all there if somebody really wants to calculate what FAD is on an apples-to-apples basis with a competitor or a peer of ours, I should say. We just don't want to disclose it because we can't show it on a per share basis. That's simply it.

And in terms of CapEx spending, right now, everything that we've been buying is less than 10 years old, including the value-add stuff. So there's not much in the way of meaningful CapEx spend. I think it's reasonable to assume as time goes by and the amount of newer assets kind of dwind us a little bit, you'll pick up some older assets and that will require more CapEx spend going forward.

And then the rule of thumb, I guess, on how much you guys think is the appropriate amount to spend on a per unit per year basis?

Yes. It depends on the age of the property, but it's, I guess, rule of thumb is around 1,200 to 1,500.

Your next question comes from the line of Michael Goldsmith with UBS.

Maybe sticking with value-add SHOP investments that you've already closed. Can you give us an update on how those assets are actually tracking relative to the original underwriting? And are you still comfortable with that 1 to 2-year stabilization time line and roughly 9% stabilized yield?

Yes. So the -- they are actually performing ahead of underwriting and projections, both from an occupancy perspective and an NOI. So it's still early days, but so far, so good.

Got it. And then just to clarify the comment made earlier, I think, around that when you get to 90% occupancy, you get pricing power and you're not seeing it. Are you -- was the purpose of that comment to suggest that you're seeing pricing power before you hit 90% occupancy? Just wanted to clarify that.

I mean the comment was more directly around the 7-plus percent RevPOR growth we saw this quarter wasn't because our portfolio is over 90%. We're seeing facilities that have occupancy in the 80s being able to drive higher-than-average rate growth, right? So it's not directly correlated today. It's not directly correlated with being over some occupancy threshold. That's it.

Right. So once you get into the lower 90s, I think is an intuitive assumption. It seems that everybody's part that there will be pricing power. And there may be, we're not saying there won't be. We're just not there yet on occupancy. So the fact that our RevPOR has been as strong as it's been, it's not just this quarter, by the way, without that bodes really well going forward.

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

I just wanted to go back to something discussed on the first quarter call around the landmark assets that were intended to be sold. Where does that stand? Has anything been completed on that front? I'm just looking for a general update.

Yes. Thanks for that stuff has gone. There's a couple left that are dwindling out, and that's kind of rounding.

There are no further questions at this time. I would now turn the call back to Rick Matros for closing remarks.

Thanks for your time today. I appreciate your continued support, and we look forward to seeing a lot of you at NAREIT in a few weeks. Take care.

This concludes today's call. Thank you for attending. You may now disconnect.

Good day, everyone. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Healthcare REIT Second Quarter 2026 Earnings Call.

[Operator Instructions]

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

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 2026 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, 2025, 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 Investors section of our website at sabrahealth.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 Health Care REIT.

Thanks, Lukas, and welcome, everybody to our second quarter earnings call.

First, on to investment activity. We closed approximately $600 million in investments, including $100 million in skilled nursing, and we're closing on an additional $100 million in SHOP investments. Our pipeline is as active as it has ever been. The deals that we've done have been closed at attractive yields, and we've got an immense amount of deals that we're looking at, and we were able to remain competitive within the range of deals that we currently announced.

Going to operations. Our consolidated unconsolidated and same-store SHOP cash NOI margins continue to grow. Our triple-net skilled portfolio again shows increased rent coverage as does our top 10 in total. Our triple-net senior housing did show a drop in occupancy and coverage, but that was specifically due to the transition of a high-performing asset from triple net to SHOP. Without that, the results would be still quite strong, but essentially be flat. We expect Medicaid rates taken together to come in around 2% as rates continue to revert to pre-pandemic levels as we have been articulating. Even at that level, rate growth continues to feed the momentum of improved performance. The final rule for the Medicare market basket came in at 2.4%, the same as the proposed rule, which met expectations. We don't see any regulatory changes that would create any new hurdles, and we're particularly pleased to see leverage drop to 4.61%.

And with that, I'll turn the call over to Darrin.

Thank you, Rick.

Sabra's managed senior housing portfolio had another great quarter with continued growth. The total managed senior housing portfolio, including non-stabilized communities and joint venture assets at share had sequential revenue growth of 9.6%, cash NOI growth of 14.4% with margin expansion of 130 basis points. These statistics demonstrate sequential improvement in operating results that reflected continued growth and strong performance in Sabra's senior housing portfolio. During the second quarter, Sabra invested $274.1 million, adding four properties to Sabra's managed senior housing portfolio, three skilled nursing communities, the redevelopment of a senior housing community and acquisition of the operations of one senior housing property converting to managed senior housing.

Subsequent to quarter-end, Sabra invested an additional $223 million, adding seven properties to Sabra's managed senior housing portfolio, bringing total year-to-date investments to roughly $599 million with an estimated initial cash yield of 7.5%. Additionally, Sabra has another $100 million of additional awarded managed senior housing and skilled nursing investments, which should close prior to year-end. In addition to the $700 million in closed and award investments, Sabra has an additional $330 million of managed senior housing investments that we are actively pursuing.

On a year-over-year basis, Sabra added 21 assets to our managed senior housing portfolio, a nearly 24% increase by number of assets and nearly 76% increase in total managed senior housing NOI. Deal flow continues to be extraordinarily robust and Sabra remains competitive on new investments.

Moving on to the same-store portfolio. Sabra's same-store managed senior housing portfolio, including joint venture assets at share, continued its strong performance in the second quarter. The key numbers are: revenue for the quarter grew 8.6% year-over-year with our Canadian communities growing revenue by 7.8% in the same period. Second quarter occupancy in our same-store portfolio was up 170 basis points to 88.2% year-over-year. Notably, our domestic portfolio occupancy increased 170 basis points to 85.7% during that period, while our Canadian portfolio grew 160 basis points to 93.2% in the same period, marking the ninth consecutive quarter where occupancy was over 90%.

RevPOR in the second quarter continued to rise with an increase of 6.6% year-over-year with our Canadian portfolio increasing 5.9% in the same period. While RevPOR and occupancy continue to grow, exPOR increased 4.1% for the same period, providing for cash NOI growth of 13.7% on a year-over-year basis. With $700 million in closed and award investments to-date, a very robust pipeline and industry tailwinds at our backs, we should continue to see solid growth in our portfolio.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darrin.

For the second quarter of 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.40 compared to $0.38 and $0.39, respectively, in the first quarter. Year-over-year, our second quarter normalized FFO per share and normalized AFFO per share posted increases of 3% and 5%, respectively. For the quarter, total cash NOI was $144.3 million compared to $138.7 million in the first quarter. This $5.6 million sequential improvement was the primary driver of our sequential normalized AFFO per share growth and reflects continued operational improvement in our managed senior housing portfolio and the benefits to our triple net portfolio from diligent portfolio management.

Cash NOI from our managed senior housing portfolio was $44.6 million this quarter compared to $39 million last quarter. This increase reflects both the contribution from recent investment activity and continued occupancy gains, rate growth and margin expansion in the same-store managed senior housing portfolio. Cash rental income from our triple net portfolio was $94.1 million for the quarter compared to $89.8 million in the first quarter. During the quarter, we exercised our option to reset the rent under our lease with Avamere to a fixed amount tied to the portfolio's historical performance. This increased the annualized fixed cash rent to $48 million and was retroactive to February 1, 2026, which compares to $41 million of cash rent paid in 2025. This added $3.2 million of rental revenue during the quarter, which includes $1.6 million of out-of-period revenues that we normalize in our quarterly results. We also recognized a $1.6 million increase in cash rental income from several smaller portfolio initiatives, including rent resets, lease amendments and lease extensions.

Our ongoing proactive portfolio management generally flies under the radar, but provides meaningful benefits to our earnings profile and portfolio quality and are a direct product of the incredible work that the Sabra team does day in and day out. In addition, recent triple net acquisitions and investments added $823,000 of cash rental income sequentially. Offsetting these increases was a reduction of $1.3 million as a result of the CommuniCare sale announced last quarter and a $226,000 reduction related to the transition of a triple net senior housing facility to our managed senior housing portfolio.

Interest and other income was $5.8 million for the quarter compared to $10 million in the first quarter. The decrease was primarily due to reduced interest income from the discounted payoff of the RCA mortgage loan discussed in our July 21 business update. Cash interest expense was $27.4 million for the quarter compared to $26 million in the first quarter. The increase reflects higher borrowings under our credit facility to fund completed investment activity. Normalized cash G&A was $10.7 million for the quarter compared to $11 million last quarter. This modest decrease is the result of incurred expenses in the first quarter related to hosting our 2026 operator conference, partially offset by an increase in performance-based compensation expense this quarter.

This quarter, we recorded a $102.4 million provision for loan losses and other reserves. This is primarily related to the discounted payoff of the RCA mortgage loan discussed in our July 21 business update, and this charge was excluded from our normalized quarterly results. During the quarter, we moved the leases with two tenants from cash basis accounting to accrual basis accounting. Accordingly, we realized a $3.1 million recovery of straight-line rent receivable and lease intangibles, of which $3 million is normalized in our quarterly results. This will have a positive impact on FFO going forward and more importantly, reflects the continued strengthening of these operators' underlying performance and payment history.

We also wrote off $1.3 million of straight-line rent receivable from a triple net senior housing facility that was transitioned to our managed senior housing portfolio during the quarter. This amount was also normalized in our quarterly results. As noted in our July 21 business update, we increased our earnings guidance for 2026 and have reaffirmed that earnings guidance. At the midpoint, this represents approximately 7% year-over-year growth in normalized FFO per share and 8% year-over-year growth in normalized AFFO per share.

Now briefly turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 4.61x as of June 30, 2026, compared to 5.04x at March 31, 2026. This meaningful improvement reflects the payoff of the RCA mortgage loan and continued earnings growth within our portfolio, positioning us comfortably below our previous target leverage of 5x. We had approximately $1.3 billion of liquidity at quarter end, consisting of $231.6 million of unrestricted cash and cash equivalents, $682.5 million of available borrowings under our credit facility and $411.8 million related to shares outstanding under forward sale agreements under our ATM program. As of June 30, 2026, we are in compliance with all of our debt covenants. We continue to use the forward feature under our ATM program to efficiently fund future investment activity and preserve balance sheet flexibility. During the quarter, we utilized the forward feature of our ATM program to allow for the sale of up to 921,000 shares at an initial weighted average price of $20.72 per share net of commissions. As of June 30, 2026, 21.4 million shares remain outstanding under forward sale agreements at an initial weighted average price of $19.24 per share net of commissions, and we have $334.1 million of availability remaining under the ATM program.

Finally, on August 3, 2026, 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 31, 2026, to common stockholders of record as of the close of business on August 14, 2026. The dividend is well covered and represents a payout of 75% of our second quarter normalized AFFO per share.

And with that, we will open up the lines for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from the line of Farrell Granath with Bank of America.

My first one is really just diving in a little bit deeper to your same-store SHOP guidance. I know maintaining that low to mid-teens with now the first half of the year averaging about 14.1% same-store NOI growth. And as we're heading now into peak leasing season, I wanted to touch base on really how you're feeling about the current market conditions, especially when we've seen the stabilization in same-store SHOP NOI guidance kind of across the peer set.

Yes, sure, Farrell. So in terms of our SHOP guidance, we've reaffirmed that low to mid-teens growth rate that we put out earlier this year. As you noted, we've been right firmly within that range. And we continue to see opportunities for upside in that portfolio, but also at the same time, want to preserve that flexibility with how the rest of the year pans out. As we get further into the year and we have more visibility on what the second half is going to hold for us, it's something that we'll revisit.

Okay. And I also just wanted to touch on in the press release, there have been mention about additional or a few value-add opportunities, especially in the SHOP pipeline. And I was curious if you can just dive in a little bit deeper of how you're evaluating those? And kind of what are the hurdles that need to be reached for them to become under LOI or for you to move forward with the transaction of value add?

Sure. We've discussed previously that we are interested in investing in opportunities where there's a bit of a turnaround opportunity, but nothing monumental. These opportunities, the upside opportunities here encompass six properties and about 713 AL memory care units with an average age of five years. Five of the properties are located in desirable Atlanta suburban markets and the six is located in a solid Denver market. Occupancy is roughly 80% and the expected year one yield is, say, roughly 6%. We see a clear path to stabilization in the next year or two with stabilized yields around 9% and teen IRRs. All of these are being purchased well below replacement cost. And both of these opportunities are with existing relationships and the incumbent operator.

An additional data point I'll give you, Farrell, is a lot of the stuff that we've been buying over the last couple of years has been high 80s or 90-ish occupancy. So the value add for us is maybe closer to 80%. It's not 70% or 65%, right.

Our next question will come from the line of Seth Bergey with Citi.

I just wanted to kind of talk about the pipeline of future opportunities that you're seeing. I think you mentioned kind of $100 million of SHOP opportunities and maybe $300 million of visibility after that. Just what's the mix between skilled and SHOP in that pipeline? And where are you seeing the most kind of opportunities today?

So the $100 million that we referred to, we're in the process of closing. So that will take our total for the year to $700 million. The other $300 million plus we're working on is all SHOP. And most everything else we see in the pipeline that's under review, which exceeds $1 billion as we sit here today is almost entirely SHOP.

And I guess just a quick follow-up on that within SHOP, like should we expect to see additional kind of value-add acquisitions? Or where are you seeing the most opportunity with SHOP today?

Yes. I would say the bulk of it will be stabilized, which is really what we've been articulating. But given the volume of investments that we're doing, we will continue to look for value-add as well because as Darrin noted, that takes us from sort of low double-digit IRRs, which is great, but it takes us to mid-teens on the IRR. So we're going to continue to look for those opportunities.

Our next question will come from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Rick, I guess with the RCA loan now behind you, what are sort of the latest thoughts of exiting the behavioral segment altogether? I know it's something you've talked a little about and kicked around. Just curious what the latest thoughts are there.

Yes. Sure, Austin. So the bulk of our -- the bulk of what we have left is Signature Behavioral of the psych hospitals. Everything else is kind of in the process of going away and following few things. So as it pertains to Signature Behavioral, as I mentioned before, they are interested in taking us out. They've been a very reliable tenant for nine years now. It's a completely different situation than RCA, obviously. So we'll see. We'd be open to it having them take us out. It's going to have to be something that's compelling to us. And assuming that happens, then we're pretty much out. I think our other category, which is mostly a couple of hospitals and a rehab hospital and those coverages are off the charts, so they just kind of knock out of the park, will be down to 4% or 5%. So we'll be 95% senior housing and skilled nursing.

That's helpful. I mean any sense around what proceeds or pricing could look like on Signature taking you guys out or out of the bulk of that segment altogether?

Not yet, but we do -- we are confident that if there's a deal to be done, we'll have a really nice return on that investment.

And last one is just on the $1 billion kind of future pipeline, you mentioned entirely within the managed senior housing. Is that mostly one-off type opportunities? Are there any portfolio transactions in there that you're evaluating? Just kind of what comprises that kind of longer-term pipeline?

Yes, there's a couple of smaller portfolios, I'd say, three to five assets, and most of it though is single asset opportunities.

Our next question will come from the line of Juan Sanabria with BMO Capital Markets.

Just on the guidance that was reiterated from [ 7/21 ], could you just talk to what's included in terms of the acquisitions closed subsequent to quarter end? I think you said they were in a 6% cap. And if they're not included, why?

Yes. So everything that was included in our guidance from two weeks ago now, everything that was closed as of that date was included in there and everything that closed in the last two weeks is effectively included in that same guidance. If you think about where we were two weeks ago, and we had a good line of sight into what the rest of the year was going to shape up as, what the second quarter was going to shape up as, so that was all factored into that guidance. And the investments that were made subsequent in that two-week intervening period would have moved the needle for 2026 -- for 2027 and beyond, yes. But given that it's only five months, we're going to move the deal.

And how much was closed subsequent to the 7/21 in those last 2 weeks? What's the dollar amount?

I'd have to get that few, Juan.

We'll get a few over on the call. Great. And then just as a follow-up, just curious how we should think about exPOR going forward and sort of the operating leverage inherent in the portfolio.

Yes. I mean in terms of exPOR, this quarter, we saw a little bit of spike in that, and it was a mix of things. There's choppiness with things like repairs and maintenance, which is kind of a constant factor in this type of business. We saw some increases in things like incentive management fees. It was actually kind of a good outcome to see an increase there because it just shows that our operating partners are exceeding our expectations and their expectations for those portfolios. So I would say outside of lumpiness when you have things like repairs and maintenance, the exPOR growth should return. Our expectation is that it should return to what we've been seeing in the last couple of quarters, 2%, somewhere in that range.

Our next question will come from the line of Connor Mitchell with UBS.

The funding side of the transaction equation that plays into the targeted acquisitions. The stock price reacted positively following the business update in July, but it's come back a little bit since. So when you experience an improved cost of capital, does that change the type of assets that you would buy or add on to the pipeline?

No, it doesn't. We've been able to get things done at attractive yields given where our cost of capital was before the business update. And so no, it doesn't change that at all. We're still in a better place than we were before the update. There has been a pullback sort of across the space. So hopefully, that will pass, and hopefully having a solid quarter like we just announced will help as well. But no, it doesn't change that calculus. It just makes things a little bit more accretive a little bit sooner. That's all.

Yes, of course. I appreciate that color. And then maybe just sticking on the funding side. You still have room to run with the forward ATM, the spot ATM and then now your leverage profile is lower, focusing on the equity issuances from the forward ATM and regular ATM? Or do you kind of look at debt as more of an opportunity to bring the leverage profile back up to that 5x target that you were mentioning?

Yes. In terms of the leverage, I mean, we're not looking to jack up our leverage back to 5x with the next deal we do, right? So the beauty of having our leverage where it's at right now is that it gives us plenty of cushion as deals come up and as we finance additional opportunities that if the equity markets aren't cooperating, we could still execute on those transactions without being concerned about where our leverage levels are. So it just gives us a lot of breathing room in that regard.

With regards to the forward equity issuances that we have already made and that are currently outstanding, when we look at executing on the forward, it's an internal conversation that we have with regards to what our line of sight is and our visibility is into investment opportunities. And if the stock price and the cost of equity at that point in time makes sense and allows us to transact on these opportunities accretively, that's when we look to lock in that cost of capital. So said differently, what we've already locked in, in terms of forward ATM proceeds would allow us to close on all the things that Darrin was talking about earlier at an accretive price. And that's just going to be our philosophy going forward. If we see the stock market and our equity price cooperating with us vis-a-vis our investment opportunities, we'll continue to proactively take advantage of that.

And going back to awards question, we closed on $223 million in the last two weeks.

Our next question will come from the line of Vikram Malhotra with Mizuho.

I guess just first one, going back to the value-add assets that you bought. I know you flagged this maybe a quarter or two ago of shifting away. But I'm just, I guess, stepping back and wondering like what's compelling you to go down kind of more -- a bit more risk on into this value-add kind of segment where there's a lot of competition, cap rates are compressing. You've already sort of grown your -- correct me if I'm wrong, I think your SHOP revenue is now 30-plus percent. So it seems like you're in a good spot. So I'm almost wondering like does it make sense to actually pause and just now see the benefits of the hard work you've done in the last, call it, two years?

Well, a couple of things, Vikram, I appreciate the question. So one, we're not doing very much of it. Two, there's not really risk attached to it because the value add that we're doing is already at 80% occupancy. So you're already at your leverage inflection point in terms of the revenue pull-through that you get as you get additional residents into the facilities. And we're only doing these with some operators that we currently have relationships with and have already proven to us what they can do with other assets that were in the exact same place. So there's a clear path to going from 80% to 90%, say, on these assets. So if we were doing stuff that was at 65%, then I would really take your point and say, okay, we're not going to do that. And we're not going to do that. So again, it's a small number relative to the amount of volume that we're doing, and it's relatively stabilized with a clear path to an improved stability.

Does that answer your question?

Yes. No, that's helpful. I mean I guess I was just saying you kind of had 1.5 years ago stated you'd like to be close to 35%, 40% drop. I think you're there now. So I'm sort of wondering, you have a lot of embedded growth in the next two years through the SHOP pool. So is it actually almost more accretive to just pause here and just see the benefit of the organic growth that everyone is going to see in the next two years? That's kind of the point I was trying to get at.

No, I get it. And again, if we were doing, I guess, true value add with much lower occupancy, I would agree with you, but we're not doing that. And then the other point I would make is we said that we wanted to be at a 40% SHOP NOI run rate by the end of this year, but that's not where we want to end. We want to continue to grow that exposure. So we're not content to be where we are now, even though the 450 basis point improvement in SHOP NOI exposure from last quarter was significant. So again, we're not taking real risk here. And again, we're doing this with operators that are currently -- that we're currently partnered with that have taken assets that are very much like these and taking them to the next level.

That's fair. Just maybe one more, I guess, maybe, Michael, I guess, on this year, I mean, in terms of the benefits that flow through, obviously, next year, you'd have the bumps, you'd have, I guess, half a year, correct me if I'm wrong, but the annualized the step-up from the transition assets and then all the acquisitions you do and the benefit of the organic growth there. So I'm just wondering like are there any big pieces we're missing like the Street is kind of at 6% growth from what I can see on Bloomberg for next year. Given all the acquisitions, like is there something we're all missing? Is there -- I mean you don't have a lot of debt coming due. It doesn't seem to be like any other -- you've got a lot of sources for funding. So I'm just wondering, as we look at any big picture building blocks given all the acquisitions you've done we should think about next year?

Yes. I think you named off all the major building blocks. Look, we have an increasing -- a SHOP portfolio that's increasing by size by every quarter that passes, right? That's going to continue in our expectation, I think the market's expectation as well, continue to drive outsized earnings growth compared to triple net. We have an extremely healthy triple net portfolio that's going to increase by those contractual rates. We've been making these acquisitions that have solid embedded growth in them. And I think all those building blocks set us up to be able to deliver not just for 2027, but into 2028 and beyond with solid earnings growth on a year-over-year basis, and that's our overall objective.

Yes. I guess maybe just to clarify, so like your peers who've also been kind of maybe -- I don't want to say taking on risk, but like trying to accelerate the growth through other strategies have all sort of saying we're trying to create a growth profile, which used to be 4% on AFFO to more like 6% plus. And it seems like you're getting there. I'm just trying to figure out like how sustainable is this 5%, 6% growth as we look forward into next year and beyond?

So I think it's quite sustainable. We're actually at 7% and 8% on our upgraded guidance at the midpoint because in 2027, we're really going to start to see much more of the benefit of the acquisitions that we've been doing, and that will flow into 2028 as well.

Our next question will come from the line of Rich Anderson with Cantor Fitzgerald.

So on the RCA payoff, the $100 million of, I guess, call it, discount that you offered, the $200 million is essentially a capital raise at over 11% cap rate. And if you apply that to a 7.5% return on redeployment, then that's about $0.05 of annualized dilution. First of all, do I have that right? And second of all, is that baked into this new guidance? Would your guidance been $0.025 greater had it not been for that transaction?

Yes. I mean, look, if we hadn't -- if -- well, let me answer your second question first. Yes, it is factored into our guidance. And those proceeds because we don't assume any investments over and above what has been completed in our guidance, effectively, we're assuming we're just paying down debt with those proceeds. There's better use of our capital in the form of investments that, that capital is going to be used for. But that's what's assumed in our guidance. So I think it is reasonable to assume that our guidance would have been higher absent that, right?

Yes. Understood. I hate seeing $100 million go proof like that. I understand why you do it, but it comes through in the numbers one way or another. So I just wanted to sort of get the numbers right in my model. Second, more SNF transactions are popping up into the system. I understand a lot of your future is SHOP, but you did say $100 million of SNF transactions. What do you think is causing that, Rich? I mean what's changing in the environment that has caused more in the way of SNF opportunities passing the smelt test for you guys?

So I don't think anything has changed. Those opportunities were off market brought to us by existing operators. And I think that's where it's going to come from going forward. We're just not seeing the kind of SNF volume that we saw pre-pandemic where guys that didn't have to sell wanting to monetize and would sell. I think that operators got beaten up pretty badly during the pandemic, and they've been recouping their losses and now they're doing well, and they're just not willing to put their assets on the market unless they have to for some other reason. And so there's such a small amount, and I'm talking about sort of the straight down the fairway, triple net skilled nursing, not loan investments and things like that. There just isn't enough available for it to go around for all of us. And so the private guys that are buying opcos and propcos can always outbid us because we're just bidding on the real estate.

So I think going forward, at least in the immediate -- in the foreseeable future, it will be more off-market opportunities that will come our way, hopefully. Maybe in 2027, we'll see behaviors that revert back to sort of the norm, the pre-pandemic norm where folks finally were doing well enough for a long enough period of time that it's time for them to start monetizing their assets and moving on.

Okay. And last question for me, SHOP and specifically Canadian opportunities. There's a little bit more of a ceiling in terms of your ability to grow rents in Canada, whether it's real regulatory stuff or social issues around rent growth for seniors. Does that make it a little bit more difficult to be active in that market? Or can you still find the requisite return even going forward relative to your U.S. pipeline?

Sure, sure. So the Canadian market certainly still continues to be very active, and we're still bullish on the Canadian market. I think the biggest issue with investing in the Canadian market, at least for us, is that cap rates still are 100, 150 basis points or so inside of what they are in the U.S. So we see better opportunity in investing in U.S. senior housing today.

But do you agree with that about just sort of the -- whether it's real regulatory issues in Quebec or something or social issues elsewhere? Do you feel that? Or am I maybe misstating that observation?

Well, we're still seeing very positive RevPAR growth on a year-over-year basis despite the fact that our Canadian same-store portfolio has been over 90% occupied for the ninth quarter, I think, in a row. And there's definitely some more regulations in Canada certainly than there are in the U.S. But I don't think it's had a significant impact on rate growth to date. To say it in the future is a guess.

Our next question will come from the line of Rich Hightower with Barclays.

So a couple from me. One on Avamere and the transition there. And just give us a sense of maybe any sort of risk factor embedded in, I guess, '26 guidance and even beyond as we think about timing for all the approvals required, if there's any potential delay transition expenses? Anything related to that, that we should be aware of?

No, we don't see anything going forward that's going to impact guidance or performance. There's a big difference when you do a transition that isn't friendly, which was the case with the Holiday transition and a transition like this, which has been sort of planned for quite a long time, is completely cooperative between the two parties. And also in this case, with Cascadia, they have already acquired other Avamere properties, non-Sabra properties and turned them around. And those other properties had the same exact characteristics from an upside perspective that these have. So it's really a great transition, and we really don't have any concerns.

Okay. That's great. And then I guess maybe more broadly, just on private market competition for SHOP assets specifically. What's your sense of what whether it's private or public or anybody else you're sort of competing against, what are other buyers underwriting in your sense of things in terms of going in yields, unlevered IRRs, cash flow growth in the interim? Just give us a sense of kind of how -- what does it take to sort of win a deal that might be a marketed deal rather than something that comes off market?

Yes, sure. I think it's really deal specific. Oftentimes, I think if you have a strong relationship with the owner and/or the operator, even if it's a marketed deal, that provides a little bit of an edge and some insight. It's hard to say what others are doing. We've certainly lost deals to competitors in the past, but we've been scratching our head after you hear the announcement on what that yield was, didn't make sense to us as far as how they were getting there. We've also elected not to bid on transactions that some of our competitors have purchased as well at high 6, low 7 cap rates where we just saw too much risk for the risk-adjusted return associated with that. But it's really hard to guess at what's -- what our competitors are assuming as far as a stable occupancy or rate growth. I think it's really transaction specific.

Yes. The other thing I would say is kind of like SNFs. When it comes to our peer REIT, we don't pretty much value assets similarly. So there is a huge discrepancy there. The private guys are a little bit different, obviously.

Our next question will come from the line of Alec Feygin with Baird.

The first one, on the G&A front, which functions is Sabra hiring for today?

I mean we're looking across the organization. Obviously, our investments team has been extremely busy for the last several quarters, and we continue to add resources there when necessary. We're looking across the company to things like asset management, accounting, finance, other areas where we're experiencing growth, particularly areas that are more impacted by our growth on the SHOP side.

On the other side of that, and we talked about it a little bit on the last call, there are several initiatives we're undertaking as we speak and have been for the last several quarters on the technology and AI side that are going to help us be more efficient and be able to perform those same duties at a larger scale without the -- what would have previously been the requisite number of additional heads.

Another way maybe to think about it is we're not looking at reductions, but particularly with the AI initiatives, we're going to be a lot more scalable, so we won't need to add as many positions as we might otherwise need to add in the absence of those initiatives.

Got it. That makes sense. And then switching gears a bit. I think, Michael, you said that you moved two tenants from cash basis to accrual accounting. Can you tell us what is the percentage of [ ABR ] that is now on cash basis?

I mean it's going to be the vast majority of our tenant base. I don't have the number in front of me. I can get that to you after the call, but we have a very small amount of tenants that are on a cash basis. And ever since this concept of cash basis accounting came into play, I don't know when it was, 2018, 2019. One thing I was always made a point to clarify is there's tenants that are on a cash basis because of the accounting rules, but they're paying their rent. They're paying their full rent and there's not any variability in the revenues that we're recognizing period-to-period. But there were some that were paying varied amounts and that created some level of variability.

The tenants we put on accrual basis have been paying their contractual rent for quite some time. So there's not -- they weren't in the latter category, right? And that's really the area we focus on, the people that weren't paying us their full rent, where is our real risk there? And what can we do about those? And that number is such a small amount today, even more so after some of the initiatives I referenced in my prepared remarks of transitioning tenants, resetting rents or amending leases, that's even further reduced because of those actions. So it's a very small amount, which is obviously a good place to be.

We were in the high 90s on accrual.

Our next question will come from the line of Michael Stroyeck with Green Street.

Can you maybe provide a bit of color on what drove the acceleration in RevPOR growth during the quarter? Is that greater than 6% growth rate sustainable in the near term? And has there been any broad-based change in pricing strategy among your operators given sequential RevPOR growth was also quite a bit stronger versus historical seasonal levels?

No, I think it's nothing new. I think we should continue to see as far as RevPAR is concerned, mid- upper mid-digit increases.

It's just the natural growth of occupancy and efficiency and a little bit of pricing power. So there's nothing strategically different that's happened.

Yes. Makes sense. Then maybe one on the transaction market, can you just talk about replacement costs? Where are you acquiring at? And how does that compare to, call it, 6 to 12 months ago or so?

Sure. So we're acquiring at -- it depends. It depends where the asset is. It depends on a lot of factors. But I think I'd say we're acquiring at somewhere between the mid-$200 per unit up to $500 per unit. And I think from a replacement cost perspective, that would compare to, say, $400 to $600 plus. It's really dependent upon where in the country those assets are.

In the aggregate, it's probably somewhere around $300 plus a unit.

Our next question will come from the line of Dave Rodgers with Raymond James.

Rick, I wanted to talk about the transition. Obviously, a very successful quarter between Avamere and the other transitions that you were able to announce. Can you maybe talk about that other $9 million? I think you've discussed Avamere quite a bit, but that other $9 million of annualized NOI that you picked up, how much of that is recurring in nature? How much of that can you do going forward? How many opportunities do you have? It all hit this quarter because it was a good time to offset RCA. Like I guess, how did you think about kind of delivering so much in one quarter? And what are the opportunities going forward to kind of do even more of that?

Yes. So the whole thing has been a little strange in terms of how quickly it's happened. There are a couple of other opportunities that we are pursuing. And my guess is that there will be similar transactions, transitions there. It's really a group of individuals. I don't know that it's a trend or anything, but the pandemic really burned out a lot of people. Like we had operators during the pandemic that said, take us out, we're done, we want to retire, we've been doing this for decades.

Now that things have been going well for a number of years on the skills front, that same thing has happened. In every single case that we're looking at, it's basically a CEO, Founder and perhaps other executive members that are ready to retire. And so that's why these things also go so smoothly is it's all very productive. They want to get taken out. They want it to work for them. They wanted to work for us. They want it to be somebody that can take over and have a smooth transition and there aren't any sort of cultural ruptures and things like that. But it's interesting that the pandemic just took a lot out of particularly operators that have been around for 30, 40 years.

Yes. And Dave, the other thing I'll highlight too, we announced it this quarter with our business update. We called it out in our prepared remarks. This all didn't come together in the second quarter. Some of it did, no doubt. Some of it came in the first quarter. but they're all so individually small, we wouldn't have spent any time talking about in the first quarter and stuff happened in prior quarters before that, right? These are like kind of the things we're doing day in and day out that don't grab headlines. But when we're putting together that business update, we're putting the pieces together and like there's a big piece missing from it. What is it? Well, it's this stuff that we've never really talked about publicly, but it is extremely beneficial and extremely meaningful.

So to Rick's point, there's going to be some of this stuff on a go-forward basis. And we just are going to do the right thing in terms of improving our earnings profile and our portfolio, and we'll all be benefiting from that.

Maybe just a follow-up on both of those, Rick, your comment in particular that there's people that want to get out. I mean, from a sizing perspective, are we thinking more like a couple of transitions that add up to the $9 million? Or are there a couple of Avamere-sized transitions out there that you could envision whether they happen or not?

These would be smaller transitions than that. And it's a couple that we're currently having conversations with, but they'll be much smaller than that. There will be some incremental benefit to us in all likelihood, but it won't be material.

That's helpful. I appreciate the added color there. And I wanted to follow up on the G&A increase. Obviously, this year, a little larger than the past couple of years. It sounds like a lot of that's related to SHOP. I guess as we think about going forward without talking about '27-'28 kind of guidance, but the increase we see this year, is that something we would expect to see continue as you -- if you were to buy $700 million, $800 million of SHOP a year? Or are there some of these onetime tech AI investments? Is it SHOP management fees that kind of bleed through? Maybe just a little more color on what that run rate looks like given what we've seen this year versus what we've seen in years past.

So I mean one of the biggest drivers in the G&A increase, both primarily in our full year guidance numbers is performance-based compensation. And our Board sets our performance targets at the beginning of the year. And as the year progresses, we evaluate whether or not we think we're going to meet or exceed those targets. And as we put out guidance that was higher this quarter, which implies that we expect that performance to come in higher than what we had initially estimated at the beginning of the year, which drove that increase.

In terms of a run rate, what we gave in terms of G&A at the beginning of the year for our guidance, that's effectively assuming no performance-based compensation or basically at our target performance-based compensation expense. So when we go into 2027 and future years, we sit down and we make an estimate, we sit down with our Board, we come up with a performance target and where we land relative to that, we will determine whether we have an increase over that number. So I think probably the run rate we gave for our initial guidance is probably a decent starting point adjusted upwards a little bit for inflation and the like.

Now to your point on additional AI initiatives and stuff like that, that is going to add some G&A cost to us, especially upfront. What that is, is to be determined. It has been very incremental to this point. But that will add a little bit to it, but we expect to be saving on the efficiency gains at the same time.

The only other point I'd make, Dave, is even in the absence of AI initiatives, which will make us more scalable, any adds with the growth of SHOP would be incremental because we built our platform almost 10 years ago. So everything that we've done over the last 10 years to add to that platform, both on the human resource side and on the systems side has been incremental. So the AI piece will just make that a little bit better.

[Operator Instructions] And our next question will come from the line of John Kilichowski with Wells Fargo.

Rick, back on some of your comments on the value-add stuff, you talked about the 80% occupied versus maybe something 70%, 65% and noted that it's far less risky. However, there still is some risk. It's not tracking with the rest of the SHOP universe that's kind of mid- to high 80%s at this point. So I guess what explains that occupancy delta? Is it just in that part of its lease-up process and you're seeing occupancy momentum gains in maybe year-over-year? Or are these assets stuck at 80%, there's something operationally that you and your operators can do that the previous owner isn't capable of?

It could be a number of factors. It could be a relatively new facility that's still in lease-up, and everything is going fine. They're just not all the way there yet. It could be a facility that has an operator that just wasn't very good. And so we're bringing in an operating partner that has a track record with us and understands that market, which is an important consideration. So it's usually one of those two factors.

Yes. And the only thing I'd add to that is sometimes you'll see ownership who's hired an operator, but the ownership wants to metal in operations where they should be kind of staying a little bit more hands off. Oftentimes, they'll be limiting marketing funds, other different things instead of just letting the operator do their thing and focus on leasing up and getting it stabilized.

Okay. And then my second one, Mike, you gave some helpful color in the opening remarks, but plenty of moving parts in the quarter between the Avamere Cascadia step-ups that are to come. You've got the re-tenanting. We also have some straight-line adjustments. Could you walk through -- and the transition assets, could you just walk through what's a fair run rate number for your revenue items and your straight-line number given what's happened in the quarter versus what's due to happen post quarter end?

Are you referring specifically to Avamere?

All the above, if you could touch on what's included in the quarter number as far as Avamere is concerned, but also if any of that $9 million was already included, I think most of it after. And then also at the same time, the earnings impact from the transition, is there anything due to come after? Or is that all captured within 2Q and the accrual numbers as well, the cash basis of tenants flipping to accrual?

Yes. So I could give you a couple of those items and have to get back to you on probably the straight-line number. But in terms of the $9 million, about $1.6 million we saw a hit in the second quarter. And that's due to a variety of things, namely timing of some of these things being completed. Some of that $9 million effect got effectuated post quarter end. So that's probably the best way to think about it. I would say going into 2027, you should assume that full $9 million, right? And like I said, about $1.6 million was recognized in this quarter.

For Avamere, I think the best way to think about it, think about it like a two-step reset, right? So we triggered the rent reset effective February 1 or retroactive to February 1 that took the rent from $41 million to $48 million. And then we expect the transition to close sometime later on this year, at which point that $48 million goes to $53 million, right? And you can make your own assumptions on the timing of that, whether it's sometime late third quarter, early fourth quarter, what have you, going into 2027, however, that number would be $53 million.

Okay. And is the $1.6 million a quarterly number or an annualized number?

That's a quarterly number. That's just -- we recognize an additional $1.6 million in this quarter related to those initiatives.

And this concludes the question-and-answer session. I'll hand the call back over to Rick Matros for closing comments.

Thanks, everybody, for joining us. We look forward to follow-up with you, and I hope the remainder of your summer is great. And we'll see a bunch of you at the BAML Conference in September. Thanks again.

This concludes today's call. Thank you all for joining. You may now disconnect.

Good day, everyone. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Healthcare REIT First Quarter 2026 Earnings Call. [Operator Instructions]

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

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 2026 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, 2025, 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 Investors section of our website at sabrahealth.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.

Thanks, Lukas, and thanks, everybody, for joining us today. Starting with our deal flow. Our deal flow continues to be robust. We fully expect to materially exceed 2025's total investments. We've already been closed -- we've already closed or been awarded $400 million year-to-date.

In addition to the opportunities we see in SHOP, we're also seeing some unskilled, but the ones that are appealing are off-market deals, both acquisitions and development brought to us by existing operators. Our skilled nursing rent coverages continue to grow as did our senior housing, triple net, and behavioral, all of which hit new highs in coverage. Our occupancy growth continued in our skilled and senior housing triple net portfolios. Our top 10 coverage is stronger than it's ever been.

Our SHOP margins continue to grow in our consolidated, unconsolidated, and same-store portfolios. Our year-over-year same-store SHOP NOI growth came in higher than the 2 previous quarters. SHOP occupancy dipped slightly overall, but it was all in Canada, which had very strong year-over-year growth and currently sits at 93.4%. So it's almost effectively full and they'll probably -- there'll be ups and downs a little bit with that portfolio.

The U.S. portfolio was up 10 basis points sequentially. For the first time in the company's history, our private pay concentration is now over 50% of the portfolio. Our leverage ticked up slightly, but is still on current target. The regulatory environment is stable. The Medicare market basket proposal is within our expectations. We expect Medicaid rates to be within expectations as well.

We have a number of AI initiatives that will streamline and enhance the effectiveness of Sabra Corporate. Our intent is to be an AI-enabled REIT. This, of course, is in addition to the numerous clinical pilots we have ongoing primarily in our SHOP portfolio, which have been really exciting to watch evolve. We're affirming guidance, but we will be revisiting guidance in Q2 given all the current trends.

And with that, I will turn the call over to Darrin.

Thank you, Rick. Sabra's managed senior housing portfolio had another great quarter with continued growth. The total managed senior housing portfolio, including non-stabilized communities and joint venture assets at share had sequential revenue growth of 7.2%, cash NOI growth of 9.5% with margin expansion of 60 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance of Sabra's senior housing portfolio.

During the first quarter, Sabra invested $102 million, adding 3 properties to Sabra's managed senior housing portfolio, 1 skilled nursing community, and preferred equity investment in a senior housing development. Subsequent to quarter end, Sabra invested an additional $104.1 million, adding 2 properties to Sabra's managed senior housing portfolio and the redevelopment of a senior housing community, bringing total year-to-date investments to roughly $206 million with an estimated initial cash yield of 8%.

Additionally, Sabra has another $107 million of additional awarded managed senior housing and $94 million of awarded skilled nursing investments, most of which should close in the second quarter. In addition to the over $400 million in closing awarded investments, Sabra has an additional $690 million of managed senior housing investments that we are actively pursuing. On a year-over-year basis, Sabra added 21 assets to our managed senior housing portfolio, a nearly 25% increase by number of assets and 62% increase in total managed senior housing NOI.

Deal flow shows no signs of slowing and Sabra remains competitive on new investments. As our investment pipeline continues to be extremely active, particularly in managed senior housing, we've remained focused on ensuring the foundation underneath is built to accommodate that growth.

Over the past several quarters, we've been advancing automation, data, and AI-enabled initiatives to support faster, more consistent decision-making, deeper operating insights across the portfolio for us and our operators, and importantly, meaningfully increase the scalability of our platform. This is a continuation of how we've evolved the platform over the last decade, and we view it as an accelerator of portfolio and earnings growth as well as long-term value creation.

Moving on to the same-store portfolio. Sabra's same-store managed senior housing portfolio, including joint venture assets at share, continued its strong performance in the first quarter and key numbers are: Revenue for the quarter grew 7.9% year-over-year with our Canadian communities growing revenue by 9.6% in the same period. First quarter occupancy in our same-store portfolio was up 280 basis points to 88.4% year-over-year.

Notably, our domestic portfolio occupancy increased 280 basis points to 85.6% during that period, while our Canadian portfolio grew 270 basis points to 93.4% in the same period, marking the eighth consecutive quarter where occupancy was over 90%. RevPOR in the first quarter continued to rise with an increase of 4.6% year-over-year with our Canadian portfolio increasing 6.5% in the same period. While RevPOR and occupancy continue to grow, exPOR increased only 1.8% for the same period, providing for cash NOI growth of 14.4% on a year-over-year basis.

With over $400 million in closed and awarded investments to date, a very robust pipeline and industry tailwinds at our backs, we should continue to see solid growth in our portfolio. Our net lease senior housing portfolio continues to do well with continued strong rent coverage.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darrin. For the first quarter of 2026, we recognized normalized FFO per share of $0.38 and normalized AFFO per share of $0.39, which represents a 9% and 5% increase, respectively, over the same periods in 2025. In absolute dollars, normalized FFO and normalized AFFO totaled $96.1 million and $100.6 million this quarter, respectively.

Cash NOI from our triple net portfolio increased $2.2 million from last quarter, primarily due to annual rent escalators and increased collections from certain cash basis tenants. Cash NOI from our managed senior housing portfolio totaled $39 million for the quarter compared to $35.6 million last quarter. This $3.4 million increase was primarily the result of recent investment activity, together with sequential growth in our same-store portfolio.

Interest and other income was $10 million for the quarter compared to $10.6 million last quarter. This decrease was primarily due to paydowns received during the quarter and lower interest income on our cash balances. Cash interest expense was $26 million compared to $26.6 million last quarter. Normalized cash G&A was $11 million this quarter compared to $10.6 million last quarter. This increase was primarily related to hosting our 2026 operator conference last month.

Subsequent to quarter end, we completed the disposition of 3 skilled nursing facilities in Maryland leased to Communicare for gross proceeds of $79.4 million, equating to a 6.8% lease yield. These facilities were classified as held for sale as of March 31, 2026. As noted in our earnings release, we have reaffirmed our previously issued 2026 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 5.04x as of March 31, 2026, and continues to be in line with our targeted leverage. As we have stated previously, while we are comfortable with our leverage level, we will continue to assess opportunities to reduce leverage over time, where doing so supports our continued focus on strong year-over-year earnings growth.

As of March 31, 2026, the cost of our permanent debt was 3.92% and the weighted average remaining term on our debt was approximately 4 years, with the next material maturity being in 2028. Additionally, we have no floating rate debt exposure in our permanent capital stack with the only floating rate debt being borrowings under our revolving credit facility.

As Darrin noted, our pipeline of investment opportunities has remained extremely active, and that has coincided with continual improvements in the cost of our equity capital. Accordingly, we have been actively utilizing the forward feature under our ATM to lock in this attractive cost of capital to fund our investment pipeline.

During the quarter, we issued $128 million on a forward basis at an average price of $20.19 per share after commissions. And in total, we have $451 million outstanding under forward contracts at an average price of $19.03 per share after commissions. We expect to use a portion of the proceeds from the outstanding forward contracts, together with the proceeds from the Communicare asset sales to close on the investments we have been awarded on a leverage-neutral basis while still retaining meaningful dry powder to fund additional investments.

As of March 31, 2026, 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 $117 million, available borrowings under our revolving credit facility of $645 million, and the $451 million outstanding under forward sales agreements under our ATM program. As of March 31, 2026, we also had $353 million available under the ATM program.

Finally, on April 29, 2026, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on May 29, 2026, to common stockholders of record as of the close of business on May 15, 2026. The dividend is adequately covered and represents a payout of 77% of our first quarter normalized AFFO per share.

And with that, we'll open up the lines for Q&A.

[Operator Instructions] Your first question comes from the line of John Kilichowski from Wells Fargo.

Rick, I really appreciate the opening remarks. It sounds like it was a great quarter all around on the SHOP side. We got the acquisitions done. Looking at the guide being held still here, what's the reason for the conservatism there? I understand that that's typical in 1Q for you, but it sounds like things are working, and I understand future acquisitions aren't considered. But what would it really take at this point to get to the lower midpoint?

So yes, we are typically conservative this early in the year, but all the trends are obviously going in the right direction. You see the yields that we're investing in. So that looks good for us as well. So it's really just kind of as simple as that. We'll reevaluate earnings guidance rather for the second quarter.

And then on the opening remarks, you have the $200 million awarded. If you could talk to maybe a cadence of that closing. And then beyond that, the $690 million, if you think about deals historically that have been in that level of the, call it, of the funnel, what's been your historical rate of execution on those deals? Just trying to distill what might be the final number that you execute on?

I'll make one comment and kick it over to Darrin. The $200 million, from our perspective, we will close. We don't have any doubt or concern about the $200 million. Darrin?

Yes. So with respect to the $690 million, these are investment opportunities that we are actively pursuing. These include opportunities where we have submitted an initial LOI and are moving forward in the process. As far as the probability of success, it's hard to tell because it is a bit of a competitive environment, but we would expect to close on a fair number of that investment opportunity.

Yes. The volume is so high, John, there really hasn't been a precedent for this in terms of trying to be a little bit more predictive about what the percentage of deals we'll close on. But it will be a good enough percentage that, as I said in my opening remarks, we'll exceed pretty materially how much we did last year.

Your next question comes from the line of Farrell Granath from Bank of America.

This is Farrell Granath. I first wanted to ask about your pipeline also. What percentage of that are you sourcing off market or just through your relationships? And what percentage is through marketed deals?

Yes, I don't have the exact percentages, but on the skilled nursing side, it's 100% off market through existing relationships. On the senior side, it's maybe, say, 20%. We do have existing relationships that bring us off-market deals, but the bulk of the pipeline that we have is marketed.

And I also just want to note, on the Communicare sale, that it's not indicative of us sort of aggressively looking to sell the skilled assets. This is a very unique situation where Communicare approached us wanting to exit Maryland, which is not an easy state. We actually had other buildings in Maryland that we exited several years ago. There's a lot of markets in Maryland that are over-bedded. So we were happy to work with Communicare on that. And Communicare is also one of our operators that we're doing some of these off-market things with.

And I also wanted to touch on the export growth that you highlighted, the 1.8%. Is that being driven just based on the operating leverage of where you are in your occupancy? Or are there other puts and takes that are going into that number?

It's the operating leverage. So we would expect it to continue at levels that low for the foreseeable future.

Your next question comes from the line of Austin Wurschmidt from KeyBanc.

Just within the SHOP portfolio, just wondering how you're feeling about the exit velocity and kind of leading indicators from March looking into kind of April and May. And I think you surpassed the 1-year anniversary this month since transitioning the communities away from holiday. What's just sort of the latest update and trajectory for that portfolio?

Yes, it's definitely getting better.

Yes. We're not disclosing the numbers on that, but it is progressing. We're also assessing -- you probably noted there was a slight change in same-store. So -- and that's just a function of having had these new operators in that portfolio for a year now, we've determined that a few of those assets are assets that we no longer want to be -- want to retain in the portfolio.

And I guess, how deep is the opportunity set for SHOP investments in that 8% yield range? And can you provide some characteristics just around the size, vintage of the facilities that you acquired in the first quarter, and as well as what's in that awarded pipeline?

Yes. So there's definitely some cap rate pressure. Most of what we see on the market and the opportunities right now are in the 7% range, low 7s. What we closed on is IL, AL, and memory care, although it's more heavily weighted to AL and memory care. On the vintage, these are roughly 14 years old is the average age with respect to the 690 that I mentioned that has an average age of 8 and also low 7% for those that are more stable, but we are actually also looking at some slight value-add opportunities where there's lower occupancy, but a clear line of sight to stabilization and some of those we're looking at will have initial yields in the 6s, but should provide more meaningful IRRs with the upside opportunity.

And as you know, we focus on secondary markets. So we're not seeing the same level of cap rate compression in the secondary markets as you all see in the primary markets.

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

Just hoping you could talk a little bit more about those SHOP assets that you transitioned last year that you're now seems like looking to sell. If you can comment on the book value or the expected proceeds. 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?

We're just selling those right now, Juan. So we're not -- we don't know what the outcome is going to be. We're not disclosing any of that information at this point. So when -- 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.

And just to confirm, these were old original holiday assets. Is that fair?

Yes, they are. It's 3 assets that we're selling, and we brought another holiday asset into same-store that has stabilized.

And just to switch gears, I appreciate that. 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?

Sure. We always reserve the RCA question for you, Juan, just so you know it's special. So on Landmark, we work -- we've been working with them, obviously, in the court system for an exit with those facilities, and we were able to -- we actually help 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 3 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 as we've talked about, 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 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.

And was there any NOI or rents collected related to Landmark flowing through the first quarters? And should we think about that as -- how should we think about, I guess, that going forward?

Yes. There is somewhere around like $1.5 million, I want to say, Juan, in the first quarter that we collected on them. And we would expect that same run rate through whenever these assets ultimately transact.

Your next question comes from the line of Seth Bergey from Citi.

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 skills business?

Yes. So I'll take that one, Seth. So at a corporate level, 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. And at the same time, we're also advancing some initiatives that are going to further reduce manual processes and accelerate analysis. Not the sexiest thing in the world. I'll be very -- 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, we have pilots going on at the facility level that 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.

And then maybe just a little bit on kind of the deal flow and the opportunity set. What's kind of the mix between SHOP and field of the opportunity set? And are there any particular geographies you're looking at?

Nothing has really changed. It's still, I'd say, 95% plus SHOP is the opportunity set. The skilled nursing investments and opportunities that we've announced were all done off market with direct relationships. Still don't see that much volume in the skilled space. And when you do, it's very heavily competitive and the private groups tend to be able to pay up a little bit more.

Remember, the private buyers that we're all up against are buying opco and propco, and they also are feeding ancillary businesses. So as a buyer of real estate, we just can't compete with that. And there's not enough volume out there for everybody to go around for everybody as there is on SHOP or there was on skilled, if you go back to prior to the pandemic when there was enough for everybody to go around.

And at this point, we don't see that changing at least for a while. I think a lot of it is just a function of a lot of these operators who don't have to sell but really slam during the pandemic and had pretty huge losses. And now you've had a couple of years of some really good performance and that performance will continue to improve. So I think for a lot of the operators out there that don't have to sell that normally would put their assets on the market, they're just recouping and they're probably enjoying some really nice cash flow that wasn't the case a few years ago. So maybe we'll see that change later on in the year or going into 2027, but it's a little hard to tell.

On the SHOP side, as far as the markets are concerned, we're still looking at secondary markets is the focus here. And as far as the volume is concerned, it's showing no signs of slowing whatsoever. In fact, it actually feels like it's picking up speed.

And we're geographically agnostic, though, in terms of what states we'll be in for either asset class.

Your next question comes from the line of Michael Stroyeck from Green Street.

Maybe following up on that question and just going back to the strong pricing on the Communicare sale and your comments on not being able to compete as well in the SNF transaction market. I guess just what sort of yields or multiples are you seeing there on those marketed SNF deals? And how different is that versus the typical, call it, 9% to 10% lease yields we see in SNFs?

There's not a lot of data out on that. It's a problem because they are all private deals. And so I don't really have a good answer for that. Darrin, I don't know if you've seen anything.

No. I mean it's definitely a couple of hundred basis points inside of what the standard skilled nursing transaction would typically run at.

And then maybe going back to the behavioral health discussion. 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?

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

Your next question comes from the line of Alec Feygin from Baird.

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?

As far as developments, there's -- 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 cost 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 is 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?

Yes. So the one pref equity development that we announced is 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.

Your next question comes from the line of Vikram Malhotra from Mizuho Securities.

I guess I just want to go back to the question on the guide, just the cadence of FFO or AFFO, you just take your quarterly number and just multiply it by 4, you're very easily in the range. So I'm just wondering, is there a onetime item? Is there maybe this loan that you've got baked in? Any other asset transition or sale? Like how should we -- what should we infer a pretty steady number. So I'm just -- if you can go back and give us any more color on like what are there other puts and takes for the year that we should be modeling?

Yes. 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've 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 NOI 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 reaffirm the guidance that we put out. We still feel, as we sit here today, 2 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.

And we totally -- look, we totally get the questions, particularly since some of our peers raised guidance in some form or fashion over this past week. So we totally get it, but we like the trends we're seeing, as I said earlier, we like the volume that we're seeing, and we like the yields we're getting things done. So we will see how it goes.

And then, I mean, I'm not reading into the community care pricing. But in general, there seems to be downward pressure on cap rates for SNFs given especially this hope to improve the operations. So I'm wondering, is there an opportunity for you to, given your desire for SHOP, do a bigger portfolio sale in SNFs and lease $500 million, $1 billion and recycle that into SHOP?

Well, I'm not sure there's downward pressure on cap rates because of the private buyers. The REITs are pretty disciplined about holding firm on the cap rates that we've historically acquired SNFs at. But we're -- we like the fact that we've got a very strong triple net skilled nursing portfolio. We're at all-time highs on rent coverage. We're at all-time highs on margins. Occupancy continues to grow. So there's still upside there. And it's something -- it's a base that we have that everybody can depend on.

And then the SHOP side of it, which gets bigger and bigger for us, obviously provides more outsized earnings growth. So we like having that balance. And our portfolio today is better balanced than it's ever been for us to pass the 50% mark on private pay revenues is a material change. We started out as a 96% skilled REIT. So we've evolved quite a bit. But we're not going to sell portfolios that we think are really good just to shift the percentages of SHOP. We've got plenty of access to capital. We have plenty of liquidity available to invest in all the SHOP opportunities that we have ahead of us.

And then if I can just clarify, Rick, I think you said the Canadian portfolio is 93%, you think it's essentially full. But I guess in this environment, everyone -- a lot of folks are talking about 95% plus. So is 93% sort of the peak for the Canadian portfolio in absolute?

No, no, not necessarily. I just think when you start to get to the mid-90s, you'll have some ups and downs. But look, we have a facility up there that's 100% almost all the time. That's unusual, but it happens. So I think it's important to focus on -- I think we had a 270 basis point year-over-year growth in the Canadian portfolio. So we expect occupancy to continue to trend up there, but it's not going to be sort of the same -- at the same velocity as if it was still 86% or 85%.

Your next question comes from the line of Richard Anderson from Cantor Fitzgerald.

On Communicare, you're selling or sold, Omega is selling, I think to Communicare, if that's -- correct me if I'm wrong about that. And if I'm...

That's not right.

That's not right?

Sorry, excuse me, that's not right. No.

In their case, I believe that's the case. But both Maryland. I'm just curious, is there any dotted line between what Omega is doing and what you're doing that you could share on Communicare and if there's some sort of trend that we can draw from both of those transactions?

I don't really think so. I mean they were hoping to get cooperation from both us and Omega. And they just really wanted to exit a state that was a really, really tough state for them. They thought it would strengthen their portfolio overall. And we're seeing that as a result. And when they first called us, I mean, it resonated with us because as I said earlier, we shed facilities in Maryland several years ago. It's just tough there.

So yes, but I don't think there's any trend here or anything like that. Communicare still wants to grow. As I said earlier, we're seeing some growth with them. Omega may or may not be as well. So yes, but no doted lines or anything like that other than we think the Omega team is a great team.

Rick, no guidance update, which is fine with me, but also no change to your target SHOP. I think it was 40% as of last quarter. Let's say you bite into the $690 million to a certain degree between now and 3 months from now. Are you closing in on 40%? And might we have an update on a new target for SHOP this time in 3 months?

Well, we will be closing -- I mean, if we say we're to do $1 billion this year, we're definitely going to be in pretty good shape in terms of the 40%, but then we'll just have a higher target. So as I said earlier, we're not going to shed any sort of major skilled portfolios, but there's always some stuff that you sell.

So between some of that, which is probably incremental around the margin and almost all of our investment activity being on SHOP, you're just going to continue to see skill being a smaller percentage of the portfolio and SHOP continuing to grow. But we don't have any sort of guardrails or anything about how much we want to do in SHOP.

And as you know, because we've been doing SHOP for over 10 years and with all the improvements we're making in the existing platform with our AI initiatives, we're going to be -- our platform is going to be more scalable than it's ever been. We'll be able to continue to grow our SHOP, our SHOP exposure and the amount of infrastructure we'll have to add as a result of that will be lower than it normally would have been in the absence of the AI initiatives.

And then last for me, and this is just more of a theoretical sort of big picture question. But obviously, a lot of your peers are taking a shot on goal, I guess, I'll say it that way. And a lot of -- kind of working in individual silos. It seems to me that you guys have been doing it for a while, so it's not a conversation about Sabra in particular. But what do you think about the potential that there will be some sort of combination activity to attack the SHOP opportunity? It seems like it makes sense. It's a business that requires scale and some of the things that you're doing. I'm just curious if you could comment on that at all, just generally.

Rich, are you talking about M&A activity with the REITs?

Yes. Yes.

Yes. So look, we all know there are too many of us now with everybody jumping on the SHOP bandwagon like it's a new form of breakfast cereal or something that everybody likes better now. I mean we -- the only concern I have, and look, there's a lot of mutual respect in our space between all of our teams. We all know each other really well. We hang together when we have the opportunity. And there's plenty to go around. I just hope people are prudent in making sure they have the infrastructure in place to support the operators and to assess the quality of deals that are being looked at.

This is much, much different than a triple net business. And I think for us, we've been able to be successful, not just because we've been doing it for a long time. But as you know, and I think most others do, Rich, our entire asset management team are operators. So the transition for them to work with -- to transition from working with triple net to SHOP really wasn't that difficult. So you get a little bit concerned about missteps with everybody and their brother jumping into it. And hopefully, that won't be the case. But as far as M&A activity, yes, I mean, you're right, there should be some M&A activity. But it seems like that's hard to make happen in the REIT world.

Your next question comes from the line of Michael Goldsmith from UBS.

Maybe first, can you 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.

Sure. So I'll give myself a little credit because I did predict that the Medicare market would have a 2 handle, and I predict that the Medicaid rate increases in the aggregate will have a 3 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 is 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.

And then just doing a little math, which can always be a little bit of a dangerous thing, but from your occupancy and unit numbers in the we estimate your non-same-store SHOP occupancy is in the high 70s percent. So just wondering if you could provide 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 if you could talk about what market the assets are in and the unit mix, that would be helpful.

Yes. 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 -- upper -- I'd say upper 80s to the low 90s percent occupancy. So I'm not sure -- I'd like to see that 70% math.

Where are you getting that from, Michael?

We just -- we ran some numbers based on what we saw in this, but we'll take another look at it or catch up offline. But maybe just to round it out, like when do you expect some of these AI initiatives to translate to measurable financial outcomes like lower G&A or higher margins or better asset level decision-making?

Yes. 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 will 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 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.

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

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

Sure. Thanks, Tayo. 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 then 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 LTAC 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 a 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, Lynne Katzmann, who runs the 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. So yes, really excited about that.

So I guess, how do we kind of juxtapose that versus comments coming out, for example, during this earnings season when some of the hospital names are saying it's helping them reduce referrals to skilled nursing and things of that like.

I think it's just a function of are you going to embrace what's inevitable and coming down the line and make sure that you've got the clinical products in place to take advantage of that. And then you'll have increased referrals. So I think -- I just think you have to be really forward thinking on this, and we've got a number of operators who are. And as I mentioned, we've got operators who have already embraced this and made inroads into it, and they're doing well with it.

So I think if you are more -- if you have operators out there that are more passive, then yes, it's not going to kind of go your way because as more and more time goes by, they're going to -- those insurers, the ACOs are going to have more opportunities to divert patients to operators that are really embracing these opportunities.

[Operator Instructions] Your next question comes from the line of Austin Wurschmidt from KeyBanc.

Thanks for taking the follow-up. I just want to go back to something to make sure I understand some of the components of guidance. The $1.5 million of income received from Landmark in the first quarter, was that contemplated in initial guidance? Or is that a source of upside when you go and reevaluate guidance in the coming quarters? And then I guess, is it appropriate to annualize the first quarter number given your plan to sell those assets?

So to answer your first question, the $1.5 million was included in our original guidance. Now in terms of annualizing that, yes, I mean, that's something that's going to go away at some point this year. Probably, I would say, probably end of the second quarter is probably when we would realistically think that would go away, but it could slip as well. But it isn't something we expect to have in there for the entire 12 months, if that's what you're asking.

And that concludes our question-and-answer session. I will now turn the call back over to Rick Matros for closing remarks.

Thanks, everybody, for your time today and your continuing support. And we'll look forward to seeing a lot of you at the Wells Conference and at Nareit in June. Thanks very much. Have a great day. And for any moms that are on the call, happy Mother's Day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, everyone. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Fourth Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Lukas Hartwich, Executive Vice President of Finance. Please go ahead, Mr. Hartwich.

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 2026, 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, 2025, and 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 Investors section of our website at sabrahealth.com. Our Form 10-K, 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 Health Care REIT.

Thanks, Lukas. Happy Friday the 13th, everybody. Sabra's NOI growth for the SHOP portfolio, excluding our transition facilities is expected to be sturdy in 2026 as it has been in 2025. And we expect the transition facilities as they continue to improve to add to the overall growth in our SHOP performance.

Our guidance at 4.9% and 5.4% growth at the midpoint for normalized FFO and normalized AFFO respectively, reflects continuing execution of our strategy. Our pipeline continues to be robust. We completed approximately $450 million in investments for 2025. We had discussed on our last call exceeding $500 million. A couple of those deals fell over into 2026, but no deals fill out. So we're closing on everything that we said we would close on, on our last call. Our investment activity has grown $200 million since our last call, and we're currently in the process of closing $240 million of awarded deals, most of which will close in Q1 and early Q2. Our expectation is that we will materially exceed the volume of 2025 investments and are clearly off to a strong start in 2026.

Moving on to our operational results. They continue to be impressive. Our SHOP operational performance showed strong occupancy gains and increased cash NOI margins. Our same-store senior housing also showed occupancy gains and margin improvement. Our same-store senior housing triple-net showed improved occupancy and maintained high rent coverage. The skilled nursing portfolio again showed increased rent coverage hitting an all-time high, as well as increased occupancy, and our top 10 triple-net relationships also had another strong showing. Our leverage stayed steady at our current target of 5x and the regulatory environment remains stable.

And with that, I'll turn the call over to Darrin for detail on our senior housing portfolio.

Thank you, Rick. Sabra's managed senior housing portfolio had another solid quarter with continued growth. The total managed portfolio, including non-stabilized communities and joint venture assets at share had sequential revenue growth of 15.8%, cash NOI growth of 18.4%, with margin expansion of 60 basis points. These statistics demonstrate sequential improvement in operating results that reflect the continued growth and strong performance in Sabra's senior housing portfolio.

During the quarter, Sabra invested over $150 million, adding 4 properties to Sabra's managed portfolio, bringing total year investments to roughly $450 million, with an estimated initial cash yield of 7.5% and an average age of less than 10 years. Additionally, Sabra closed on $27 million of additional managed Senior Housing assets subsequent to year-end, and has another $220 million of awarded Senior Housing and $20 million of awarded skilled nursing investments, most of which should close in the first quarter or early second quarter. Deal flow shows no signs of slowing and despite increased interest in the sector, Sabra remains competitive on new investments.

Moving on to the same-store portfolio. Sabra's same-store managed senior housing portfolio, including joint venture assets at [ share ] continued its strong performance in the fourth quarter. The key numbers are; revenue for the quarter grew 6.4% year-over-year with our Canadian communities growing revenue by 10% in the same period. Fourth quarter occupancy in our same-store portfolio was up 160 basis points to 87.9% year-over-year. Notably, our domestic portfolio occupancy increased 80 basis points to 84.7% during that period, while our Canadian portfolio grew 300 basis points to 94.2% in the same period, marking the seventh consecutive quarter where occupancy was over 90%.

RevPOR in the fourth quarter of 2025 continue to rise with an increase of 4.2% year-over-year with our Canadian portfolio increasing 5.2% in the same period. While RevPOR and occupancy continue to grow, exPOR increased only 1.6% for the same period, providing for cash NOI growth of 12.6% on a year-over-year basis. With industry tailwinds at our back and a very robust pipeline, we should continue to see both organic and external growth in our portfolio. Our net leased senior housing portfolio continues to do well with continued strong rent coverage reflecting the underlying operational recovery.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darrin. For the fourth quarter of 2025, we recognized normalized FFO per share of $0.36, normalized AFFO per share of $0.38. In absolute dollars, normalized FFO and normalized AFFO totaled $91.2 million and $95.2 million this quarter respectively. Cash NOI from our triple-net portfolio decreased $1.3 million from the third quarter, while cash NOI from our managed Senior Housing portfolio increased $5.5 million for a net sequential increase of $4.2 million.

As noted last quarter, we transitioned 4 previously triple-net leased Senior Housing facilities to our managed Senior Housing portfolio during the third quarter which accounted for the $1.3 million sequential decrease in triple-net cash NOI from the third quarter to the fourth quarter. Cash NOI from our managed senior housing portfolio totaled $35.6 million for the quarter, compared to $30.1 million for the last quarter. This $5.5 million increase was primarily the result of investment activity completed during the third and fourth quarters, together with sequential growth in our same-store portfolio.

Interest and other income was $10.6 million for the quarter, compared to $12.7 million last quarter. This decrease was primarily due to $2.8 million of lease termination income recognized last quarter and backed out of normalized FFO and normalized AFFO. Cash interest expense was $26.6 million, which is consistent with last quarter. Cash G&A was $12.5 million this quarter, compared to $9.1 million last quarter. The increase of $3.3 million was primarily due to [ truing ] a performance-based compensation expense for the year as a result of hitting certain performance targets. Normalizing for the portion of this adjustment that related to prior periods, cash G&A was $10.6 million for this quarter.

As noted in our earnings release, we have introduced 2026 earnings guidance, which I will discuss in further detail. Our full year 2026 guidance on a diluted per share basis is as follows: Net income, $0.60 to $0.64. FFO and normalized FFO, $1.49 to $1.53. AFFO and normalized AFFO, $1.55 to $1.59. At the midpoint, we expect both normalized FFO per share and normalized AFFO per share to increase approximately 5% over 2025. As a reminder, our guidance does not assume any 2026 investment, disposition or capital markets activities that have not yet been completed.

There are a few other important assumptions built into our guidance that I would like to point out. Cash NOI growth for our triple-net portfolio is expected to be low single digit at the midpoint, 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. Average full year cash NOI growth for our same-store managed Senior Housing portfolio is expected to be in the low to mid-teens. General and administrative expense at the midpoint is expected to be approximately $52 million, which includes $12 million of stock-based compensation expense. Cash interest expense is expected to be $103 million at the midpoint.

The weighted average share count assumed in our guidance is approximately $255 million and $256 million for normalized FFO and normalized AFFO respectively, and is in line with our fourth quarter weighted average share count after adjusting for the timing of ATM share issuances during the fourth quarter. Now briefly turning to the balance sheet.

Our net debt to adjusted EBITDA ratio was 5.00x as of December 31, 2025, in line with our targeted leverage and a decrease of 0.27x from December 31, 2024. As of December 31, 2025, the cost of our permanent debt was 3.92%, and the weighted average remaining term on our debt was 4.2 years, with the next material maturity being in 2028. Additionally, we have no floating rate debt exposure in our permanent capital stack, with the only floating rate debt being borrowings under our revolving credit facility.

We have continued to proactively use the forward feature under our ATM to issue equity when prices present an opportunity to lock in attractive cost of capital to fund our active pipeline of deals. During the quarter, we issued $206 million on a forward basis at an average price of $18.79 per share after commissions. And in total, we currently have $322.7 million outstanding under forward contracts at an average price of $18.60 per share after commissions. We also settled $40 million of outstanding forward contracts to fund this quarter's investment activity. 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.

As of December 31, 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 $71.5 million, available borrowings under our revolving credit facility of $782.4 million, and the $322.7 million outstanding under forward sales agreements under our ATM program. As of December 31, 2025, we also had $483 million available under the ATM program.

Finally, on February 2, 2026, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per common share of stock. The dividend will be paid on February 27, 2026, to common stockholders of record as of the close of business on February 13, 2026. The dividend is adequately covered and represents a payout of 79% of our fourth quarter normalized AFFO per share.

And with that, we'll open up the lines for Q&A.

[Operator Instructions] And our first question comes from the line of John Kilichowski with Wells Fargo.

Maybe just starting on the building blocks of your same-store growth. I know you don't give specifics, but maybe you could help us think about it in relation to what you accomplished in '25 from a RevPOR, exPOR and occupancy perspective? And then maybe just as we look forward to '27 '28, how does the success that you're achieving today make you feel about the long-term growth prospects of this business, given the supply-demand profile that you're facing?

Yes. I'll take your first question, John, with regards -- and I'm assuming you're referring to our 2026 same-store guidance, correct?

Yes, correct.

So I mean the main building blocks are, we expect to see continued occupancy growth in our same-store portfolio. We closed fourth quarter just under 88%. And we fully expect our portfolio to get into the low 90s. So that is one of the key building blocks in our guidance.

We do expect there to be some rate growth -- probably along the lines of what we've seen this last year in low single-digit rate growth and potentially more. On the expense side, especially since these assets in that pool are approaching kind of that 90% occupancy level, the overall expense growth should be inflationary, right, or somewhere in line with inflation. There's not a lot of incremental expense that's going to be added on as they keep pushing past that 90% occupancy level. So the export growth should remain pretty muted and below an inflationary level. Hopefully, that helps.

Yes, that was helpful. And then maybe if we could just jump to the loans receivable book. It looks like there's a maturity towards the end of the year. I don't know if you could tell us a little bit more about that, the yield. And then obviously, what's included in guide? I'm assuming that there's nothing on the other side of that. So what's -- is there any incremental upside from recapturing that and putting some of that back to work? Or is there an assumption of what you do with that capital at the end of it?

Yes. So the loan you're referring to is the RCA loan, and we're having conversations with [ Deerfield ], who is the equity sponsor as well as the RCA team kind of as we speak. And so there's nothing really to report on that. They're servicing their debt as they should be. So everything is copasetic there. And since it doesn't expire until the end of the year, the assumption on guidance is that the lease stays in place. It doesn't mean that's going to be the ultimate outcome, but it made the most sense for this year's guidance.

And our next question comes from the line of Juan Sanabria with BMO.

Maybe just piggyback on the back of that last question. On the RCA loan, could you just break any comments? Or could you update us on kind of how the tenants help in terms of financial strength, how they're positioned?

Yes. There's nothing else for us to comment on. We're having discussions, as I said, they're servicing the debt, which should give you an indication of their health. And they're a great operational [indiscernible].

Okay. Fair enough. And then just with regards to CapEx, could you just give us a sense of how much you're expecting to spend on maintenance CapEx, as well as anything kind of over and above? If I look at what you've disclosed, and thank you for adding disclosure around SHOP CapEx, it's been a bit outsized. I'm sure there's some deferred CapEx you're seeing it with others. So just curious if you can give us some rough expectations of what you think you'll spend in 2026 on the SHOP portfolio?

Yes. I mean in terms of maintenance CapEx, I think you could expect it to be at similar levels like we've been disclosing on our portfolio quarter-over-quarter. On the nonmaintenance CapEx, the nonrecurring, as we call it in our supplement, it's probably going to be somewhere in that $20 million to $30 million range, if I had to ballpark it for 2026.

And our next question comes from the line of Michael Goldsmith with UBS.

Maybe following up on the first question on occupancy. I think you talked fourth quarter, just under 88%. I think you said expected to get in the low 90%. Is that expected for '26? And then what is the maximum? Is this something that kind of caps out at low 90s, mid-90s, high 90s? Are you thinking about the opportunity on occupancy there?

Yes. So we think we can exceed 90%, how much further just in 2026, we'll see. But once you get to the mid-90s, you kind of effectively full as people are moving in and out. I mean we have buildings. We have a building in Canada that runs 100% for long periods of time, but that's unusual. So if you're looking at a decent sized portfolio in the aggregate, probably mid-90s is a pretty decent number to think about as effectively full.

And then a follow-up. A small portion of the $240 million of onboarded deals is skilled nursing. In your view, what held back the skilled nursing investment in 2025, do you expect that to change in 2026?

No. We still expect the lion's share of the investment activity to be SHOP of all the transactions we see, it's probably -- SHOP represents probably 95% of the opportunity of this skilled nursing investments that we have, that we're looking at that either have been awarded or we're looking at from an off-market basis, that they're all coming directly from existing relationships. I would expect that to continue, but it will be minimal compared to the senior housing investment.

And our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Great. Just when thinking about the SHOP NOI guidance, should we think about the holiday transition assets is lagging a bit versus the rest of the portfolio currently, but maybe there's potential for those to catch up and being a source of upside as the year progresses?

Yes. Definitely, the holiday portfolio is lagging the overall same-store portfolio, but they have a much longer runway as far as upside with respect to occupancy and all the other metrics.

And that goes to my opening comment that that's going to bolster our overall SHOP growth for the year. our non-holiday portfolio has been doing really well. And so that should bolster it because we do expect it to improve.

Can you give us just a sense of what that delta is between the holiday transition assets in the fourth quarter, and maybe what the rest of the portfolio did to just understand what the catch-up opportunity is? And then does guidance assume that it fully catches up or just kind of make some additional progress through the year?

Yes. I think the way we would answer that question is, I mean, you saw the year-over-year growth for our entire same-store portfolio and it's for the ex holiday portfolio that we transitioned last year, it's somewhere below that, right? And we're not going to give specifics on to what degree it is below that, but it's not at 13%, 12% like the entire portfolio was.

But to Rick's earlier point, and Darrin's earlier point, as those continue to recover, we do expect there to be some additional NOI uplift as a result.

Right. So we came in at 15% for the year. Prior to the transition, we were in high teens. And so that's an expectation that we have. It's just hard to pinpoint the time frame under which the transition facilities will improve enough to get us back there.

Yes. And then just one more. I was curious what the driver of the outsized occupancy growth for the SHOP assets in Canada was? I think you said it was 300 basis points year-over-year. I think that was closer to 150 basis points last quarter. I mean anything specific that's driving that sort of acceleration in occupancy upside?

No, nothing specific, I would just say that the Canadian market is ahead of the U.S. market as far as the recovery is concerned. And from a new supply perspective, I think Canada is even -- has a lower sort of construction rate that's happening there versus in the U.S., which we all know is at near historic lows.

And our next question comes from the line of Seth Bergey with Citi.

And maybe just going back to kind of the overall investment opportunity set. What part of the [ 240 ] is skilled versus shop? And then maybe broadly, how are you seeing kind of the investment landscape change and the opportunity set changed? Are your return requirements changing at all? Or how is the acquisition pipeline changing as a result of -- as we kind of see more REITs kind of get involved in the SHOP space?

So number one, the $240 million of awarded transactions is significantly weighted towards SHOP. There are a couple of skilled nursing -- actually there's one skilled nursing opportunity that we discussed, which is only $20 million of that $240 million. As far as the continued competitiveness in the market. We're definitely seeing more competition. But with such an enormous deal volume in the market, we're still able to find high-quality newer vintage assets at good yields.

And our return expectations haven't changed. So our IRR return expectations are still low double digit.

And our next question comes from the line of Michael Stroyeck with Green Street.

Can you shed some light on how the non-same-store SHOP assets are growing? And are you expecting meaningfully different NOI growth within that portfolio relative to the same-store pool in 2026?

Yes. I mean in terms of the facilities that are not included in our same-store pool, there's a component of that, that are more recent investments, right? They just don't meet the same-store criteria because we haven't owned them long enough. And as we've talked about on calls -- the last couple of calls, the investments that we've been making are -- we're going into those with, call it, high 80%, maybe even low 90% occupancy. But there is still some room to run there on the NOI side. And once those get folded into the same-store pool, those will be -- their performance will be reflected.

And then in terms of other assets that may not be included in the pool that are not recent transactions, their occupancy is a little bit lower. They've they're excluded for a reason. There may have been some renovations done, some repositioning of the asset at some point in time, and those assets are in the process of recovering. And once they get to a reasonable spot, then we'll include them into the pool. But those assets, by definition, will have some opportunity for increased NOI growth given where they are performance-wise today.

But as same-store gets folded in over time, it's not going to result in reduced numbers for us.

Okay. Understood. And then maybe one question on pricing power. How long do you expect that mid-single-digit RevPOR growth to continue within the Canadian portfolio? And then when, or if, do you expect the U.S. business to catch up?

I would expect the Canadian portfolio should continue on with that same sort of trajectory at least over the next year. And it depends with respect on the U.S. portfolio. It depends on occupancy as occupancy continues to increase, there will be more pricing power, and we should see some elevated growth at that point.

It's pretty impossible to even take a guess at how long it's going to take for the U.S. market to catch up to the Canadian market because it's a pretty big gap right now.

And our next question comes from the line of Farrell Granath with Bank of America.

My first one is regards to, as you're entering into these SHOP assets [indiscernible] which occupancy are you trying to enter in at? And does that allow a greater ramp as that enters from your nonsame-store into your same-store providing potentially greater duration as we're talking about the same-store NOI growth?

Yes. A lot of the assets that we're acquiring sort of 86%, 87%. There's some that are a little bit higher, but mostly the -- sort of 86%, 87% range. So that gives us plenty of room for growth, particularly when you factor in the operating leverage once you get into those higher numbers. You just have a great pull-through on the revenue side because as Mike mentioned earlier, you don't have much in the way of incremental costs. So if the growth becomes outsized.

Great. And I guess, similar along those lines, while we were just speaking about the Canadian portfolio, and thinking about NOI margins going forward. At what point is that almost cap out? Or have you -- do you have an example of one facility with higher pricing power, high occupancy that has been able to really level out expenses? Just to give a sense of what direction this portfolio can go towards.

So we have some anecdotal evidence in Canada with a couple of buildings where they really maxed out and the margins are really quite high, but it's anecdotal. It's 1 or 2 buildings you can't really extrapolate from it, much less take that and make assumptions about the U.S.

But the margin growth is -- we still have a pretty nice runway there. So to expect assisted living margins to exceed 35% is not low balling it or high balling it. It's a realistic expectation. From our perspective, the question is how much higher can it go than that? And obviously, independent living is even higher.

And our next question comes from the line of Alec Feygin with Baird.

Maybe if you can speak on deal flow and how competition is evolving. Maybe where are you seeing cap rate compression? And where is pricing holding up?

Sure. We're definitely seeing cap rate compression as the sector gains more and more popularity and then private equity as well as getting involved. However, the private equity investment, they haven't made a big splash. Typically, when you see them transacting on opportunities, it's kind of a 1 to 3 asset sort of acquisition, and they tend to be focused more on either trophy assets in premier locations, or deep sort of value-add opportunities, neither of which we're focused on.

Fortunately, the cap rate compression, although it's definitely there, we've still been able to find and continue to find newer assets in solid markets in that 7% cap range.

And, I guess, sticking with the SHOP stuff, are you willing to lend to the development of new SHOP? Are there any of those opportunities bubbling up?

Yes. Actually, we have a program that's preferred equity, so we're not lending. But we'll provide preferred equity on developments. Those typically carry with them double-digit returns with a purchase option and then a kicker on the back end. So it creates -- provides us with a solid investment return along the way, and provides optionality in the future and to some extent, creates a future pipeline.

Although the -- although -- I'm -- continue to see more development opportunities. Most of them still don't pencil, but I am starting, or we are starting to see deals that actually pencil. So I think it will pick up yes.

[Operator Instructions] And our next question comes from the line of Omotayo Okusanya with Deutsche Bank.

On the skilled nursing side for a second, could you just talk a little bit about how you're seeing the regulatory outlook for the rest of the year? Whether it's on the Medicaid side, whether, again, also on the Medicare [indiscernible] side, just kind of given some of what we saw with Medicare Advantage?

Yes, I don't think there's a [ REIT through ] from the MA rate decision. So I think for our space, look, it's very formulaic. Kind of, as I said over the last couple of calls, the outsized rate increases, both on the Medicaid side and the Medicare side. We got through the pandemic really started tapering down a little bit last year. We hit a high point think in 2023 on both Medicaid and Medicare rates because of the time frame through its [indiscernible] process runs. And when all that inflation was captured. So they came down a little bit in '25, but was still quite robust, and we expect them to come down some more this year until the -- and then maybe when you get into 2026, you're sort of back to where you were with historical averages.

So I don't see anything unusual there at all. And there's no -- there's no dialogue that's happening at the state level around Medicaid rates that are causing us any concern.

That's helpful. And then also on the SHOP side. Again, first kind of 6 weeks of 2026 has been a little bit strange, kind of higher fuel season, very strange weather. Just kind of curious if that's impacted [indiscernible], at least for the first 6 weeks of the year? And if it is, if that started to stabilize out?

Yes, not really. Been pretty muted. Flu season has been relatively muted. So yes, not much.

And our next question comes from the line of Rich Anderson with Cantor Fitzgerald.

So I have just one question as it relates to SHOP and the execution of the SHOP platform. [ Ventas and Welltower ] have established programs to grow in the year following. I'm not worried about people finding acquisitions. I'm worried about them executing on the operations and the aftermath.

You guys have been doing this for 10 years on the SHOP side. Now a lot of your peers are sort of getting into it today. Do you find -- or do you think back that, boy, you kind of learned a lot of lessons out of the gate that having been in it for 10 years has given you sort of an advantage from an operating point of view? And I'm just curious if you think that there are -- it's more complicated perhaps as an operating business than maybe some on the outside looking in might realize? And I'm wondering if there were lessons learned earlier on in your SHOP existence that you put into execution over the course of the past several years, that puts you at a better advantage to grow?

Yes. Thanks, Rich. So a couple of things. One, it is more complicated. It's becoming more complicated as acuity rises. Under the assumption that you're allowing yourself with operators that are pushing acuity up, which we are. I think one of the lessons that got learned along the way is when you've got a team at the REIT that's used to working with just triple-net, working and really getting into the details and working side-by-side with those operators under a SHOP structure is very different. And so it took some time, I think, to acclimate to that.

I think one of the advantages that we have is, from the very beginning, our asset management team has only been comprised of ex operators. So that was something that we did intentionally when we first did the spin and started building up all those functions. So I know folks know kind of my operating background, but it isn't just me. We've built a really deep operating bench throughout the company. And we've added a business intelligence unit along the way as well for better data analysis. And so I think being robust in those areas has paid off for us. And so as we grow the SHOP portfolio going forward, everything that we add from an infrastructure perspective, at this point, it's just incremental for us.

So now it's a matter of continuing to fine tune, especially with all the technological advancements and utilization of AI and things like that. But I think the formation of our business intelligence unit positions us well to do that.

And I'll add something to that -- sorry, I'll add something else to that, Rich. And it's not necessarily -- I wouldn't call it a lesson learned. I think it's just good management, which is the way that we internally manage, oversee and operate on that portfolio has evolved over the last 10 years as you would expect. I think it would be kind of foolish for somebody to assume somebody with a company with 10 SHOP assets is going to have the same infrastructure, same processes, same everything as somebody with 1,000 shop assets, right?

But that willingness and the appetite to continue to evolve ourselves and reinvent ourselves on how we do that and continue getting better. That's something that has changed over the years. I wouldn't say that's a lesson learned. I think that's just spirit of constant improvement.

When you think of -- I don't know, maybe you have 60 employees at Sabra, present company excluded, how many of them would you say are sort of focused primarily on Senior Housing operating?

I mean in terms of people that are completely dedicated Senior Housing operating? That would -- we have a section of our accounting group that's probably, I don't know, 6, 7 professionals. That's all they do. Our asset managers spend a lot of their time as you would expect on that portfolio. They also spend time on our triple-net portfolio as well. But I think everybody to a person here at Sabra is involved as we should be.

The other thing I would point out is our investment team, who don't necessarily have an operational background, they work completely in sync with the asset management team, and they go out to the buildings with them. So over the years, our investment management team who doesn't have an operational background has now spent so much time going through buildings that we're looking to acquire side-by-side with our asset managers who are operators, that their understanding of operations has really expanded tremendously.

So if you look at our investment team, our asset management team and the folks that are completely dedicated to SHOP in accounting and finance, it's a pretty big chunk of that with 55 people of that 55 -- of those 55 people.

[Operator Instructions] And with no additional questions at this time, I will turn the call back over to Mr. Rick Matros for closing remarks.

Thank you for your support, and thanks for dialing in for the call. And I hope you all have a great Valentine's Day weekend with whoever you spend Valentine's Day with. Take care.

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Good day, everyone. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT Third Quarter 2025 Earnings Call. [Operator Instructions]

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

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 Investors section website at sabrahealth.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 Health Care REIT.

Thanks, Lukas, and thanks, everybody, for joining us. I'll start by making some comments on our SHOP portfolio. So the growth of our SHOP portfolio has exceeded our expectations, and now stands at approximately 26% of our portfolio. As a result of that, we had set -- we had publicly set a target of increasing our SHOP from 20% to 30%, we're now setting a new target of setting our SHOP from where it is now at 26% to 40%. And as we get closer to that, we'll reach that target again.

Cash NOI growth was a solid 15.9%, excluding the 16 ex-Holiday properties included in same store and with those in same-store was still a solid 13.3%. We believe the performance of the 21 facilities in transition had bottomed out in July. We saw a really nice improvement in August and even stronger improvement in September. So we look forward to that portfolio continuing to stabilize and to contribute to earnings growth going forward.

We will exceed the high end of our investment targets. Originally, our investment target was $400 million to $500 million. We will exceed the $500 million. In addition to that, the pipeline continues to be robust, and we'll be working on deals diligently, obviously, through the end of the year, which will allow us to get 2026 off to a much stronger start and should bode well for volume next year.

Our EBITDAR rent coverage in all asset classes increased as they have been in the past 2 quarters. SNF occupancy and skilled mix continues to increase. Our top 10 had its best showing yet. Our skilled exposure dropped below 50% for the first time. We're really focused on having a very well-balanced portfolio between skilled nursing and senior housing, with senior housing, obviously, being SHOP specifically, being a much stronger driver of earnings growth than the triple-net portfolio. The regulatory environment for skilled nursing remains stable. Leverage came in below 5x.

And Talya and Darrin will both provide details on our SHOP performance. Talya?

Thank you, Rick. First, I want to say something, and that is this is my last earnings call at Sabra. So before I begin my remarks, I want to thank everyone for following and supporting Sabra for the past 15 years.

As of the third quarter, Sabra's managed senior housing portfolio contributed nearly 26% of our total annualized cash NOI as recent acquisitions contributed to Sabra's expanded exposure to manage senior housing and reduce Sabra skilled nursing exposure below 50%.

During the quarter, Sabra invested $237 million in managed senior housing, including $20 million for the acquisition of the operations of 4 leased senior housing properties. In addition, during the third quarter, Sabra was awarded an additional $124 million in managed senior housing investments, which closed after quarter end. Subsequent to quarter end, Sabra's pipeline of acquisitions remained strong, with an additional $121 million of awarded deals not including the acquisition of the operations of a leased senior housing community for an additional $14.5 million, all of which are expected to close later this year or in early 2026. Closed plus awarded deals in 2025 totaled more than $550 million.

We continue to see high-quality properties coming to market, and while competition for assets is real, pricing has remained reasonable, allowing Sabra to continue to be competitive. The full impact of acquisitions from the first half of the year and the partial impact of third quarter closings resulted in continuing positive momentum in the portfolio.

Cash NOI and cash NOI margin were up 18.6% and 90 basis points, respectively, on a sequential basis for the total managed portfolio, including non-stabilized communities and joint venture assets at share. Further, occupancy increased 60 basis points to 86.8% and RevPAR rose 4.3%, both sequentially in the total managed portfolio, excluding non-stabilized communities and those held for share, underscoring the quality of the properties in which Sabra has been investing. Development of new senior housing remains in a lull suggesting that the current supply-demand equation will continue for some time.

Now I will turn over the call to my colleague, Darrin Smith, to discuss Sabra's same-store portfolio operating results.

Thank you, Talya. Sabra's same-store managed senior housing portfolio, including joint venture assets at share and excluding non-stabilized assets, continued its strong performance in the third quarter.

The key numbers are: Revenue for the quarter grew 5.4% year-over-year with our Canadian communities growing 10.2% in the same period. Third quarter occupancy in our same-store portfolio was up 110 basis points to 86%. Notably, our domestic portfolio occupancy increased 90 basis points to 82.6%, while our Canadian portfolio was up 150 basis points to 93.1% over the same period and marking the sixth consecutive quarter where occupancy has been above 90%.

RevPAR in the third quarter of 2025 increased 3.4% year-over-year, while in our Canadian portfolio, RevPAR grew 5.8% over the same period. While RevPAR and occupancy continue to grow, exPOR remained relatively flat, only increasing 30 basis points across the same-store portfolio.

Cash NOI for the quarter grew 13.3% year-over-year in the same-store portfolio. Excluding the 16 properties in the same-store portfolio formally operated by Holiday, same-store cash NOI grew 15.9%. While in our Canadian communities, cash NOI for the quarter increased 20.2% on a year-over-year basis, demonstrating the impact of operating leverage that higher occupancy burnings.

Industry tailwinds remain strong, senior housing communities continue to gain occupancy while operators balance rate and occupancy to maximize revenue. With cost structure stable and revenue increasing, cash NOI and margin continue to grow.

Our net leased stabilized senior housing portfolio continues to do well, with sequentially improving rent coverage, a reflection of continued strong operating results.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darrin. For the third quarter of 2025, we recognized normalized FFO per share of $0.36 and normalized AFFO per share of $0.38. Year-to-date through September 30, normalized FFO per share was $1.09 and normalized AFFO per share was $1.12, representing an increase of 5% and 4%, respectively, over the same period in 2024. In absolute dollars, normalized FFO and normalized AFFO totaled $88.6 million and $92.2 million this quarter, respectively.

Cash rental income from our triple-net portfolio decreased $3.5 million from the second quarter, while cash NOI from our managed senior housing portfolio increased $4.7 million for a net sequential increase of $1.3 million.

The decrease in cash rental income was primarily due to a $1.4 million decrease from transitioning 4 previously triple-net leased senior housing facilities to our managed senior housing portfolio during the quarter, a $1.2 million decrease related to facilities sold late in the second quarter and during the third quarter and a $600,000 decrease in percentage rents. As we noted in last quarter's call, percentage rents were elevated during the second quarter while the third quarter was closer to the historical trend. These decreases were partially offset by annual rent escalators on leases accounted for on a straight-line basis which improved normalized AFFO, but do not have an impact on normalized FFO.

Cash NOI from our managed senior housing portfolio totaled $30.1 million for the quarter compared to $25.3 million last quarter. This $4.7 million increase was primarily the result of investment activity completed during the quarter, including $1.9 million from the aforementioned transition of 4 previously triple-net leased senior housing facilities. This transition also resulted in the write-off of $9.2 million of straight-line rent receivables and $1.2 million of lease termination expense, both of which have been backed out of normalized FFO and normalized AFFO.

Interest and other income was $12.7 million for the quarter compared to $10.3 million last quarter. This increase was primarily due to a $2.8 million lease termination income recognized as a result of terminating the Genesis leases and has been backed out of normalized FFO and normalized AFFO.

Cash interest expense was $26.7 million compared to $25.8 million last quarter. This increase is due to higher borrowings under our revolving credit facility to fund recent investment activity. Additionally, noncash interest expense increased by $500,000 from the previous quarter, primarily related to the repayment of our 2026 bonds and entering into our new 5-year term loan this quarter. Recurring cash G&A was $9.1 million this quarter compared to $9.4 million last quarter.

As noted in our earnings release, we have updated our 2025 earnings guidance ranges. However, the implied midpoint for both normalized FFO and normalized AFFO remain unchanged at $1.46 and $1.50 per share, respectively. Consistent with previous quarters, our guidance only includes completed investment, disposition and capital market activities.

We are also reaffirming the following assumptions included in our previously issued guidance. General and administrative expense is expected to be 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.

Our updated guidance assumes that full year average same-store cash NOI growth for our managed senior housing portfolio is expected to be in the mid-teens. For context, this quarter, cash NOI for our same-store managed senior housing portfolio increased 13.3% year-over-year, and on a year-to-date basis is approximately 16%. Our updated guidance also assumes that cash interest expense is expected to be approximately $104 million.

Lastly, our updated guidance assumes a weighted average share count of approximately 244.7 million and 245.7 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 4.96x as of September 30, 2025, a decrease of 0.04x from June 30, 2025, and a decrease of 0.34x from September 30, 2024. As of September 30, 2025, the cost of our permanent debt was 3.94% and the weighted average remaining term on our debt was 4.4 years, with the next material maturity being in 2028. All metrics that were meaningfully improved through the opportunistic refinancing of our 2026 bonds with a 5-year term loan during the quarter. Additionally, we have no floating rate debt exposure in our permanent capital stack, with the only floating rate debt being borrowings under our revolving credit facility.

We remain committed to maintaining a strong balance sheet, and this commitment, together with the anticipated future earnings growth of our portfolio were significant factors in Moody's upgrading our credit rating to Baa3 during the quarter.

This quarter, we entered into a new $750 million ATM equity offering program, which gives us added capacity to thoughtfully and efficiently finance the numerous investment opportunities we are evaluating.

During the quarter, we issued $58.5 million on a forward basis at an average price of $18.45 per share after commissions. And in total, we currently have $157.3 million outstanding under forward contracts at an average price of $18.14 per share after commissions.

We also settled $165 million of outstanding forward contracts to fund this quarter's investment activity. 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.

As of September 30, 2025, we were in compliance with all of our debt covenants and have ample liquidity of approximately $1.1 billion, consisting of unrestricted cash and cash equivalents of $200.6 million, available borrowings under our revolving credit facility of $717.8 million and the $157.3 million outstanding under forward sales agreements under our ATM program. As of September 30, 2025, we also had $690.9 million available under our ATM program.

Finally, on November 5, 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 November 28, 2025, to common stockholders of record as of the close of business on November 17, 2025. The dividend is adequately covered and represents a payout of 79% of our third quarter normalized AFFO per share.

And with that, we'll open up the lines for Q&A.

[Operator Instructions] Our first question comes from the line of Farrell Granath with Bank of America.

And first, I want to congratulate Talya. Thank you for everything you've done. And looking forward, I'm sure, to not having to be on these earnings calls again. But my first question is really around the guidance. So as you were saying, we saw strong core performance, especially in your SHOP portfolio as well as we've seen these increased acquisitions. And I'm just curious how the guidance was maintained, while we're also seeing these increasing core metrics?

Yes. I think the easiest answer to that, Farrell, is the fact that the vast majority of these investments that we're closing on this year are in the latter half of the year, so they're really going to have a pretty muted impact on 2025 performance, but we look forward to their contribution to 2026.

Okay. And I was wondering if you could also just give a little bit more color on the core SHOP portfolio and pretty much the metrics, excluding Holiday, specifically on the occupancy. If you can give any color on those transitioned assets and maybe the impacts that are causing the difference between the same-store NOI.

Yes, this is Darrin. So the same-store NOI is largely being driven down, as we had mentioned before, through Holiday. The Holiday same-store NOI is at 5.1%. All the other metrics are very positive.

Yes. And we also -- it was a pretty tough comp as well to a year ago, if you go back and look at it. So -- but from our perspective, one of the reasons we changed the guidance to reflect mid-teens versus low to mid-teens is because our confidence continues to grow in the stability and contribution of SHOP, but the comp was a big part of it.

The other thing I'll add to that, Farrell -- sorry, one other thing I'll add to that. Our same-store pool, the occupancy there was 86% for the quarter. The occupancy for those Holiday assets that are included in that same-store pool are probably closer to 80%. So you kind of do the math there on what the non-Holiday assets are, how they're performing.

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

Knowing that the same-store pool is a significant chunk of the overall SHOP portfolio, but can you just share what total portfolio occupancy is? And then also how that compares to where occupancy stands on the recent SHOP acquisitions?

Yes. So we don't disclose that, Austin. I would say the majority of the assets that are not in the same-store aren't in same store because they haven't been around long enough to be in same store. That's a good chunk of that. And the occupancy in those non-same-store assets is going to be largely in line with our same-store pool is probably the easiest way to describe it.

Got it. And I guess, as you continue to lease up the senior housing managed assets, what type of pricing power do you think is achievable for the markets that you're targeting as this becomes a growing part of the overall company?

Well, I think that's a really interesting question. Some of the statistics Darrin provided on our Canadian assets is very telling about pricing power. As those assets have been above 90% occupancy, the rate growth there, I think Darrin said, it was over 5% on a Q-over-Q basis. So I think you can extrapolate that over time, assuming there isn't a major development occurring in this country, which it doesn't look like it's going to be anytime soon, that we're going to -- our domestic portfolio will hit -- will get to that level of occupancy where pricing power becomes very relevant and very impactful in addition to operating leverage.

Can you share any sense what annual rent increases in the SHOP segment could look like heading into '26?

I think we're looking at mid...

Yes, mid-single digits.

Your next question comes from the line of John Kilichowski with Wolf Fargo.

My first one is on, Rick, you made some opening remarks about Holiday starting to improve this quarter. And I just wanted to hear more about the glide path of those assets and what are those operators accomplished so far? I think you noted that occupancy is a little bit lower there. Is there a possibility that they're additive to the overall growth of that portfolio?

Yes, they will be additive. I think the primary accomplishment to date with all 3 operators because they all assessed their piece of the Holiday portfolio the same way. And that is that they've rightsized and stabilized labor in the buildings because even in IL, there's been some acuity creep and the lack of stability in labor or the lack of appropriate staffing of labor prior to the transition did contribute to the -- just sort of meandering of occupancy and contributed to greater move-outs and move-ins because they simply couldn't take care of certain residents.

So job one basically has been accomplished, which is stabilize all that, now remarketing themselves to the referral sources so they can demonstrate that they can, in fact, take residents who are a little bit higher acuity, which should result in not just a wider number of residents that can be admitted but better length of stay, which obviously contributes to occupancy as well. So there's always going to be some lag time between stabilizing your infrastructure and having the benefits of that stability result in a stronger top line, but that's fully our expectation.

Okay. And then my second one is just on underwriting. Obviously, there's a bit of concern about cap rates are getting a little bit tight relative to where your spot cost of capital is. But maybe if we think longer term about that unlevered IRR that you're achieving today on these, I don't know if you can give color there. And then also talking about what that implies as far as like a stabilized occupancy or a stabilized margin.

Sure. This is Darrin. So the investments that we have closed on and are evaluating have going in yields of between 7% and 8% and are expected to deliver a mid-single-digit annual earnings growth. As a result, we estimate levered -- or unlevered IRRs, excuse me, for the investments we've made are in the low double-digit range.

As far as occupancy is concerned, it really depends on each individual micro markets, but we typically temper stabilized occupancy to be in the lower to mid-90% maximum.

Your next question comes from the line of Seth Bergey with Citi.

I guess my first one is just kind of on the pipeline. As you kind of increased your target for the SHOP exposure, how do you see kind of the mix of the pipeline of opportunities you're looking at skew between SHOP and skilled?

So this is Darrin again. So our current pipeline as it has been for the past several quarters, typically, we see 90% to 95% of that volume or opportunity set is within SHOP and only maybe 5% to 10% on SNF. So I would expect us to be heavily weighted towards SHOP moving forward.

We have a couple of smaller off-market SNF deals that we are working on that more likely to be in early 2026 event. And we do have some hope that we'll start seeing more SNF volume next year. We're not shying away from it. I mean we have our own standards relative to the quality we're looking for, but we are looking forward to being able to get more SNF deals done next year.

Great. And then I guess just a second one kind of on the loan book piece. You have the $300 million mortgage loan that matures next October. Can you just kind of give us an update on your thoughts around what happens as you kind of get closer to the maturity date there?

Yes. I think the only comments we'd make at this point is that the operations continue to get better. They have a great operating team in place. So that's really been great to see. And as far as what we're going to do on a go-forward basis as we get closer to the extension, we're having those conversations now.

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

Just hoping you could talk a little bit, Rick, about your appetite or lack thereof around pursuing skilled nursing or RIDEA or opco investments as everybody looks for external growth opportunities in the space?

No appetite.

I like succinctness. Secondly, just hoping you could give us a little bit more color on the U.S. versus Canada split for SHOP. What's the current split on an NOI basis today? Is Canada market you'd like to grow in? And is there any kind of limitations or governors on RevPOR growth in Canada? I know some markets, Quebec may or may have some pricing restrictions or rent controls. So just curious on that.

I'll take the part about appetite. So we would like to grow in Canada. We've had good success with the portfolio investments we've made there. I think the biggest -- and Canada faces even a longer time frame for getting new supply added to their existing inventory and they have the same demographic issues we do, but without the labor -- same labor pressures. So there's a really good setup there.

The challenge for us is pricing, and that is assets trade for, call it, 6 handle cap rates, and that's just not -- doesn't work for us right now. We continue to stay close to that market and obviously have enough exposure to see what's going on. I'll let Darrin respond to the rate and as such.

Yes. As far as the rate is concerned, it does determine which province you're located in, with Quebec having the most punitive or tempered sort of rate opportunity. That being said, there tend not to be any sort of rate restrictions with respect to care, so it's a balance.

And what's the split between the U.S. and Canada presently in the SHOP portfolio?

Of the 70 total same-store assets, Canada is 25.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald.

So I have a question about the fact that everybody is sort of doing the same thing, which is expanding into SHOP. And it reminds me of, I don't know, 2015-2016 time frame when operators were all pushing the REITs to move from a net lease model to a SHOP model. I remember thinking what do they know that we don't. And then next thing you know, we're oversupplied and the REITs are underwater, it's not underwater, but struggling with SHOP.

So I mean when you use that history of sort of everyone moved to SHOP, now everyone is buying SHOP and everyone is going in SHOP, do you have any concerns about this sort of mass wave of movement that everyone is doing it and maybe we should be thinking about this a little bit more closely because it does feel a little herd like to me. And I wonder if that enters any concern in your mind about pursuing this like everybody else is doing.

Yes. So I totally get your point. I think the dynamics are dramatically different right now. I mean you've got the demographics that everybody has been waiting for, for 3 decades are really kicking in. We've got several years, if not longer runway before new supply has any impact whatsoever.

When you look at the breadth of opportunities out there, for those of us who have been on the SNF side of the REIT business as well, it's almost like it was before the pandemic where there were just so many different SNF opportunities out there. They were enough for all of us to get sort of our fair share. And I think that's the case now.

And then the other thing, obviously, is a complete change in interest rates in the debt market from when the PEs got high on crack because of really 0 interest for so long and just leverage everything up. And of course, that all imploded on them once the pandemic hit. And even with interest rates coming down, it's not going back to what it was. And as PEs start to circle around and get more interested in maybe getting back into the space, they still need a spread and they're not going to be able to impact cap rates the way they did back then. So that's my answer, Rich.

Well, I mean -- go ahead, Talya.

I want to add one other thing, and that is we've been doing SHOP for a long time, like basically almost a decade, if not actually a decade. So that's one. We're not newbies to this. That's one. So we didn't follow everybody. But I think the important thing to note is we continue to be really selective of what we're buying. We're very intentionally buying recent vintage assets. All those assets that those PEs develop that then they took forever to lease up and it ruined their IRRs, we're taking advantage of that.

And it's been an opportunity to buy new assets that are geared to the future and those residents like me in a few years. And I think that's really important for people to understand. There's plenty of senior housing you can buy, that's value add at that 20-plus years old, there -- that may forever be in value-add mode. We're not buying those.

Okay. By the way, Talya, good luck to you. I will miss your perfect pronunciation of every word that comes out of your mouth. I don't know if anybody else has noticed that about your delivery, but I have.

Thank you.

My second question is what's the shelf life of this growth spurt? Like what -- do we have 5 years ahead of us? As soon we have a SNF of new supply coming at us, obviously, maybe that changes that dynamic. But assuming that holds off for the time being, is this a 5-year sort of story, 2 years? What do you think knowing what's out there today?

Yes, this is Darrin. I think at the very least, it's going to be 2 years. I think there's -- I've seen numbers around $20 billion of senior housing mortgage debt that's coming due over the next 2 years, which should provide a lot of opportunity there. I think it's at least 2 years.

Your next question comes from the line of Alec Feygin with Baird.

So first, may you speak about the managed seniors pipeline/deal flows, specifically what you were seeing between IL and AL?

Yes, sure. So we see a combination of both, but it's definitely much more weighted towards AL memory care than IL.

Okay. And second one for me is, are there any new observations with private capital entering or exiting either the skilled nursing or the SHOP acquisition market? And do you think Sabra and its public REIT peers are taking market share currently?

On the SNF side, I think you're still seeing very active private capital involved using HUD debt for leverage and REITs having to be clever in how they deploy capital into the SNF world.

On senior housing, we are starting to see private equity come in. They are not disrupting pricing, at least not yet because of the factors that Rick outlined, but we are seeing names come in, they're not coming in with doing huge deals, but they -- or take privates yet or other methods that they use to go in and make a big splash in the past. We're seeing them at the asset level, onesie-twosies start. I think they're tiptoeing coming back in. I think there's some institutional memory, although it's usually brief.

Your next question comes from the line of Michael Stroyeck with Green Street.

So you've now had 3 consecutive quarters of, call it, 1% to low 2% SHOP expense growth. Do you see this as a sustainable pace in the near term?

This is Darrin. Yes, we don't see anything that should disrupt that trend from continuing.

And the operating leverage as occupancy continues to grow just contributes to that.

Right. Okay. Is any of that low expense growth due to maybe weakness in occupancy within the Holiday portfolio or maybe that's actually been a headwind given some of your comments on labor rightsizing, just curious how the Holiday portfolio is impacting that?

Yes, it was more a headwind than anything. And we've talked about this now for several quarters now, Talya's always pointed this out. On an exPOR basis, we've actually seen flat to declining exPOR on our portfolio because of the operating leverage. Given where the occupancy is on this total portfolio, there's not a lot of incremental expense you need in order to increase occupancy.

[Operator Instructions] Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Talya, end of the road, we'll definitely miss you and all your advice, and I wish you all the very best. Congrats on the credit upgrade guys. Just kind of curious as you kind of think about the cost of debt the implications of the upgrade, does it kind of -- you're going to issue debt -- of unsecured debt going forward? Do you think you're kind of 25% -- or 25 bps in? Or does it have any impact on your pricing grid?

Yes, it's a good question, Tayo. I think the short answer is it doesn't have a material impact on our pricing today by having all 3 credit rating agencies rate us investment grade, probably a couple of basis points to be very honest with you. It doesn't impact our pricing grid on our credit facility anything like that. I think what it does for us more than anything. One, it validates our story, which is huge and something we've been pounding the table, with Moody's on for 15 years and finally, that worked.

But then importantly, is now that we have all 3 of those rating agencies onboard, we're not exposed to perhaps one of them going rogue one day and changing their rating methodology hypothetically, right, and that would impact our credit rating. If we only had 2 at that level and then one did that, then we'd be in a different situation from a pricing perspective. So now it just gives us more breathing room, more comfort over being able to continue being an investment-grade issuer going forward.

Got you. That's helpful. And then could you just talk a little bit about the behavioral portfolio at this point and kind of long-term plans around that?

Sure. So you'll see that continue to shrink as a percent of our portfolio. When we first started investing in it, it was really still during the pandemic, and it was just another pathway to growth. And it was before both the senior housing and skilled spaces really started recovering way more quickly than anticipated from the pandemic, and it became clear that the best use of our capital allocation was in senior housing and skilled nursing to the extent that we could find opportunities.

And we noted all along from the beginning of those investments that we thought it was an interesting space. It had some different dynamics and unit economics from both skilled and senior housing that we liked, particularly the fact that the breakeven point on profitability was sort of in the 50% to 60% range. We like that. We see it as a growing space. But all that said, we also noted that it was very young. There were -- the operators that have been proven were few and far between. And so the opportunities were always going to be incremental. And so that's kind of how we sort of got into it and why the growth is really was so slow initially, and we just haven't grown in that.

But again, since, call it, the latter part of '23, when it became so apparent what the runway was going to be for senior housing and skilled, that really is the best use of our capital. So it will shrink naturally, as I said, as a percent of our exposure. If we have opportunities to divest some of those assets, we'll explore that. And that's kind of it. Does that answer your question, Tayo?

Perfectly.

At this time, we have no further questions. I will now turn the call over to Rick Matros for closing remarks.

Thank you all for joining us today. We appreciate the support. As always, we're available for follow-up and look forward to talking with all of you again. And for those of you that we don't talk to before year-end, hope you all have great holidays and be safe. Thank you.

This concludes today's conference call. We thank you for your participation. You may now disconnect. Have a pleasant day, everyone.