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

Financial Performance:

• Normalized FFO per share reached $0.39 and normalized AFFO per share reached $0.41 in Q3 2026, marking an 8% year-over-year increase for both metrics.
• Cash rental income totaled $93.5 million, including a $10.2 million payment of deferred rents; normalized cash rental income was $92.3 million.
• Shop Cash NOI grew to $48.4 million (up from $44.6 million), driven by new acquisitions and same-store occupancy gains; same-store Shop portfolio saw 14.6% Cash NOI growth YoY.
• Net debt to adjusted EBITDA ratio improved to 4.54x as of September 30, 2026, down from 4.61x, while maintaining compliance with all debt covenants.
• Liquidity stands at approximately $1.2 billion, comprising $36.2 million in cash, $873.5 million available on the credit facility, and $292.5 million from forward sales agreements.

Guidance and Future Outlook:

• 2026 per-share guidance was updated upward by $0.005, with midpoints now projecting 7% growth in normalized FFO and 8% growth in normalized AFFO.
• Management targets a portfolio shift to 40% Shop exposure by year-end 2026 and 50% by the end of 2027, at which point senior housing will outweigh skilled nursing.
• Fourth quarter outlook is supported by strong Shop portfolio performance, with management expecting mid-teens same-store NOI growth.
• Future capital deployment plans indicate sufficient liquidity via credit facilities, retained earnings, and ATM equity to fund deals through Q1/Q2 2027.

Business Segments and Product Lines:

• Shop segment added seven communities in Q3 ($222.8M invested) and four more subsequently ($140.7M), bringing YTD investments to over $747M with an 8% estimated yield.
• Total closed and awarded Shop pipeline exceeds $1.17 billion, with an additional $260 million actively pursued; awarded deals are primarily Shop with $24 million in skilled nursing.
• Same-store Shop portfolio achieved 9.3% revenue growth and 8.5% NOI growth; occupancy rose 160 bps YoY to 89.2% (86.9% in US, >90% in Canada).
• Skilled nursing and behavioral health portfolios continue to optimize rent coverage via lease expirations; legacy Ensign/SNF assets are being pruned, with a focus on value-add opportunities.
• Value-add Shop investments are performing ahead of underwriting assumptions regarding occupancy and NOI, with stabilization targets of 9% yield being met.

Market and Competitive Landscape:

• Deal flow remains robust, with a strategic shift toward off-market transactions, which now comprise 30% of the pipeline compared to near zero in prior years.
• Cap rate pressure on senior housing has moderated despite rising interest rates; current pipeline yields remain in the low double-digit to mid-teens unlevered IRR range.
• Competitive advantage is attributed to operator relationships, with 65% of new deals retaining existing operators and strong rent coverage (over 2x for targeted leases).
• Market trends indicate strong revenue growth (RevPAR up 7.3%) driven by resident acuity rather than purely pricing power, allowing rate growth even in 80s occupancy facilities.

Risks and Challenges:

• Political uncertainty regarding the US election and potential changes to Medicaid/staffing mandates; however, management views this as "noise" rather than immediate operational disruption.
• Lease rollover risks are mitigated by strong current coverage ratios (many over 2x), providing significant upside upon lease renewals and expirations through 2031.
• Potential for future CapEx spending increases as the asset portfolio ages beyond the current average of <10 years old (current benchmark $1,200–$1,500/unit/year).
• Concentration risks are managed through a balanced mix of asset classes, avoiding over-reliance on a single sector despite the strategic tilt toward Shop.

Management Commentary and Tone:

• Tone is highly confident, describing same-store NOI margins as "best-in-class" and REF4 growth as "stellar."
• Management emphasized a disciplined approach to value-add acquisitions, noting that 80% occupancy does not equate to high risk if the operator is strong.
• Strong emphasis on "natural deleveraging" and optimizing the balance sheet without sacrificing earnings growth.
• CEO and CFO expressed satisfaction with the $53 million annualized rent increase from the Avermeer transition and the continued momentum of the Shop strategy.

Analyst Questions and Answers:

• Lease Optimization: Skilled nursing rent increases will come primarily from lease expirations (2027–2031) where coverage is reset to market rates; specific quantitative updates will be provided in Q4 or via separate business update.
• Deferred Rents: The $10.2M deferred rent collection was a result of an operator transition and improved financial health, not a systemic credit issue.
• Pricing Power: RevPAR growth is driven by increased acuity and resident care levels rather than facility occupancy hitting 90%; management does not expect pricing power solely based on high occupancy thresholds yet.
• Capital Structure: Funding for future deals will prioritize credit facility usage (30-35% debt) and equity via ATM, with minimal reliance on dispositions.
• Regulatory Environment: Management anticipates more legislative noise if Democrats control Congress but expects existing state staffing mandates to remain the primary constraint, which Sabra already meets.

Other Key Points:

• Dividend of $0.30 per share declared for Q4 2026, covering 73% of Q3 normalized AFFO.
• Revenue growth in same-store Shop portfolio was supported by 4.7% expense growth, driven by maintenance and marketing, while labor costs grew less than 3%.
• Legacy Ensign/SNF assets are nearly cleared, with the segment shrinking to ~7% of NOI; management is open to selling remaining long-dated assets but sees no immediate pressure.
• FFO calculations exclude "FFAD" (Fixed Fee Adjusted Distributions) per share disclosures due to SEC restrictions, though underlying CapEx and FAD data remain available in supplements.