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

Explicit Guidance:

• FY2026 normalized FFO per share growth: Midpoint increased by half a penny; year-over-year growth expected at 7% midpoint.
• FY2026 normalized AFFO per share growth: Year-over-year growth expected at 8% midpoint.
• FY2026 same-store shop cash NOI growth: Full-year outlook elevated to the mid-teens, supported by increased visibility in Q4.
• FY2027 normalized FFO/AFFO impact: Anticipated "outsize contributions" from skilled nursing lease expirations and rent resets (e.g., the AVE/Avamir lease transition) expected to be fully reflected in Q4 2026 results or subsequent 2027 guidance updates.
• Dividend: $0.30 per share quarterly cash dividend declared for payment on November 30, 2026 (payout ratio of 73% of Q3 normalized AFFO per share).

Business-Segment Outlook:

• Strategic Portfolio Shift: Targeting 50% senior housing (SHOP) exposure by end of 2027, up from 40% current pro forma; skilled nursing exposure will drop to 40%, causing the senior housing portfolio to outweigh skilled nursing for the first time.
• Skilled Nursing (SNF) Optimization: Expecting rent increases on leases expiring between 2027 and 2031; targeting rent coverage resets to ~1.5x; two specific SNF assets currently undergoing negotiation for extension/rent hikes, with full 2027 impact expected if closed.
• Senior Housing (SHOP) Growth:
  • Pipeline: $425M awarded (nearly all SHOP) expected to close in near future; $260M actively pursued.
  • Acquisition Strategy: Willingness to acquire stabilized assets at 80% occupancy ("value-add" via stabilization) to drive upside; year-one yields on total pipeline projected in low seven percent range, competitive with cost of capital.
  • Performance: Same-store SHOP revenue up 9.3% YoY; cash NOI growth of 14.6% YoY; occupancy up 160 bps to 89.2%.
• Behavioral Health: "Signature Left" (5 psych hospitals) coverage remains strong (~3x to 4x); portfolio share shrinking to 10% total as SHOP grows; no intent to force sale unless deal is compellent for earnings.
• Legacy Operators: "Legacy" triple net operators (approx. 7% of NOI) considered stable; no active plans for forced rent resets or disposition, though their NOI share will naturally dilute.

Market and Competitive Outlook:

• Demand & Pricing: Revenue per available room (RevPAR/REVPAR) growth driven by increased acuity and operational efficiency rather than purely occupancy-driven pricing power; rate growth observed in facilities with 80% occupancy, not just those >90%.
• Cap Rates & Yields: Cap rate pressure on senior housing has moderated amid rising rates; current underwriting uses market cap rates without assumptions for compression or inflation; value-add deals offer upside but lower initial yields (stabilized yields targeted).
• Lease Expirations: Significant lease expiration wave scheduled 2027–2031; management anticipates utilizing these windows for rent resets to fair market rates given current coverage levels.
• Deal Flow: Off-market transactions have increased from near zero to ~30% of closed/won deals; 65% of incoming deals retain existing operators; deal flow "shows no signs of slowing."

Macro / Industry Outlook:

• Political Environment: Management views potential Democratic sweep of Senate/House as creating "noise" regarding staffing mandates and workforce investment, but expects bipartisan support for operational realities; federal staffing mandates already met; unlikely to cause material day-to-day disruption.
• Regulation: No anticipated changes to staffing mandates; management confident current compliance levels are sufficient.
• Interest Rates: Rising rates have moderated cap rate pressure; underwriting assumes current market cap rates without compression.

Strategic Initiatives:

• CapEx: Rule-of-thumb CapEx spending estimated at $1,200–$1,500 per unit/year for SHOP assets; most current acquisitions are <10 years old, implying low near-term CapEx needs, though costs may rise as asset base ages.
• Tech/Efficiency: Incremental corporate investments in tech/data initiatives aimed at operational efficiency (housekeeping, caretaker) to reduce OPEX and support NOI growth; costs viewed as immaterial relative to portfolio size.
• M&A/Dispositions: No meaningful volume of expected dispositions in skilled nursing or senior housing to fund pipeline; funding order of preference: retained earnings, credit facility (30–35% of debt portion), and ATM equity issuance.
• Timeline: $1.17B+ in closed/awarded investments to date; $260M active pursuit; potential business update on SNF optimization possible prior to Q4 earnings if negotiations conclude.

Risks and Headwinds to Outlook:

• Negotiation Uncertainty: Upside from skilled nursing rent resets is currently contingent on ongoing negotiations; full 2027 impact is expected but not yet finalized.
• Operational Volatility: Behavioral health and acute hospital segments are described as "dynamic" with fluctuating occupancy and coverage ratios (3x–4x), though currently stable.
• CapEx Trajectory: Long-term risk of increasing CapEx per unit as the portfolio ages beyond the current wave of newer (<10 years) assets.
• Political Headwinds: Potential for increased regulatory "noise" and staffing mandates if Democrats gain full congressional control, though immediate business impact deemed low.

Management Tone on the Future:

• Confidence: High confidence in the "momentum" continuing; management describes 2026 earnings growth (7-8%) as a mark "we feel good about."
• Strategic Flexibility: Willing to deviate from rigid asset class targets (40% SHOP) based on deal flow; emphasis on a "well-balanced portfolio" rather than fixed percentages.
• Value-Add Approach: Reframing "value-add" as low-risk stabilization (buying at 80% occupancy) rather than high-risk redevelopment; viewing 80% occupancy as stabilized.
• Discipline: Explicit refusal to "take dilution to earnings" to close deals (e.g., behavioral health tenant buyout).

Miscellaneous:

• Liquidity: $1.2B total liquidity as of Sept 30, 2026 ($36.2M cash, $873.5M revolver, $292.5M forward sales); $332.7M remaining ATM availability.
• Debt Metrics: Net debt to adjusted EBITDA ratio improved to 4.54x (from 4.61x); strategy of "naturally lowering leverage" without sacrificing growth continues.
• Yield Definition: Shifted reporting metric to "Year 1 Yield" for closed deals (vs. initial cash yield); stabilized yield applied only to select value-add deals where stabilization occurs in Year 2.
• Forward Sales: Issued 6.5M shares in Q3 at $17.89 weighted average; proceeds used to fund investments.