Sabra 3rd Quarter 2026 Earnings Call - SABRA HEALTH CARE REIT INC

Explicit Guidance:

• Increased 2026 normalized FFO and AFFO guidance midpoint by $0.01 per share; year-over-year growth at midpoint expected at 7% for FFO and 8% for AFFO.
• 2026 earnings guidance midpoint implies 7%–8% year-over-year earnings growth for the skilled nursing portfolio.
• Projected 2027 full-year impact from new skilled nursing lease negotiations (rent increases).
• Dividend declared at $0.30 per share (paid Nov 30, 2026), representing 73% payout ratio of Q3 normalized AFFO.

Business-Segment Outlook:

• Skilled Nursing & Senior Housing Mix: Progressing toward 40% SHOP exposure currently, targeting 50% SHOP by end of 2027, at which point senior housing portfolio will outweigh skilled nursing portfolio for the first time.
• NOI Growth: SHOP NOI expected to see 14.6% year-over-year growth in Q3 2026, driven by occupancy gains and rate growth; same-store revenue growth of 9.3% YoY (8.5% in Canada).
• Lease Expirations: Significant lease renewal opportunities scheduled between 2027 and 2031; expect rent resets to fair market levels resulting in coverage ratios of ~1.5x for skilled nursing, with potential for further optimization.
• Portfolio Transition: Behavioral health/SNIF exposure shrinking to 10% of total portfolio; remaining "legacy" triple-net senior housing portfolio (approx. 7% of NOI) expected to shrink further as SHOP grows.
• Value-Add: Current 80% occupancy threshold for "stabilized" assets; value-add projects (e.g., the one with 80% occupancy) expected to deliver significant upside over a one-to-two-year stabilization timeline.

Market and Competitive Outlook:

• Deal Flow: Robust pipeline; $425 million awarded investments (nearly all SHOP) expected to close soon; $260 million additional SHOP investments actively pursued.
• Yields: Unlevered IRRs on pipeline estimated at low double-digits to mid-teens; Year-1 going-in yield on closed/awarded pipeline estimated at 7% (competitive with cost of capital).
• Cap Rates: Cap rate pressure on senior housing noted earlier in the year, but pressure appears moderated despite rising interest rates.
• Off-Market Activity: Shift in strategy to 30% off-market transactions (up from near zero in 2025); 65% of deals involve existing operators remaining in place.
• Pricing Power: REV4 growth (7.3% YoY) driven by acuity mix rather than pure pricing power; facilities in the 80% occupancy range demonstrating ability to raise rates, not strictly correlated with >90% occupancy.

Macro / Industry Outlook:

• Political Risk: Anticipated increased legislative "noise" regarding healthcare staffing mandates if Democrats control both Senate and House; however, current federal staffing mandates already met by portfolio, and state-level mandates are already in place.
• Medicaid/Reimbursement: Expect potential future focus on workforce investment and private facility investment in healthcare legislation, but no immediate material operational impact anticipated from election outcomes.
• Interest Rates: Higher rates currently impacting underwriting, but no signs of cap rate compression or inflation in exit caps used for modeling; utilizing market cap rates for current valuations.

Strategic Initiatives:

• Investments: $750 million closed in SHOP (plus $100M skilled nursing) YTD 2026; $425 million awarded YTD; additional $260 million pipeline; total closed/awarded/active pipeline exceeds $1.4 billion.
• Expansion: Added 7 SHOP communities in Q3 (222.8M) and 4 subsequent (140.7M); target to add 18 SHOP communities YoY (18% asset growth, >60% NOI growth).
• Funding: Financing strategy utilizes 30–35% credit facility leverage; equity funded via retained earnings or ATM program ($332.7M remaining availability); liquidity position ~$1.2 billion.
• M&A/Dispositions: No material dispositions of skilled nursing assets anticipated; legacy operators content with current terms; focus remains on pruning non-core assets if opportunities arise, but not for pipeline funding.
• Tech/CapEx: Incremental corporate tech investment expected to have negligible cost impact but improve efficiency; SHOP CapEx rule of thumb estimated at $1,200–$1,500 per unit annually, dependent on property age.

Risks and Headwinds to Outlook:

• Negotiation Uncertainty: Upcoming skilled nursing lease renewals (2027–2031) subject to negotiation; upside not yet quantified in guidance.
• Political/Regulatory: Potential for increased "noise" on staffing mandates and healthcare policy if Democrats win full control of Congress, though operational impact deemed minimal.
• Asset Age: As the portfolio shifts from newer (<10 years old) to older assets, future CapEx requirements may increase.
• Occupancy Stabilization: Value-add investments rely on achieving 80% occupancy; if operators fail to stabilize faster, yields could be lower than projected.
• Market Dynamics: Potential disconnect between intuition (90% occupancy = pricing power) and actual market data; ability to raise rates above market may not materialize at current occupancy levels.

Management Tone on the Future:

• Confidence: High confidence in "best-in-class" margins (34.9%) and momentum; "no barriers" expected to continue current trajectory.
• Strategic Shift: Strong preference to grow SHOP portfolio to 50% exposure by end of 2027; willing to maintain balance with skilled nursing as long as yields are attractive.
• Hedges: Explicitly states "life happens" and avoids rigid percentage caps on asset class exposure; maintains flexibility to pursue both SHOP and skilled nursing opportunities based on market availability.
• Valuation: Cautious regarding acquisition pricing; unwilling to accept dilution to earnings for strategic acquisitions (e.g., potential Signature sale); requires compelling economics.

Miscellaneous:

• Yield Measurement Change: Yield metrics in supplements shifted to "Year-1 Yield" (or Year-2 for value-add stabilized assets) rather than initial cash yield to reflect actual performance expectations.
• Financial Definitions: Reiteration that FAD is not disclosed on a per-share basis due to SEC prohibitions, though recurring/non-recurring CapEx is disclosed for independent calculation.
• Avamir Impact: Rent reset effective Oct 1, 2026, added $5M+ YoY NOI; full impact realized in 2027.