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DATE

Monday, August 3, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• EVP, Finance - Lukas Hartwich
• CEO, President and Chair - Rick Matros
• Chief Financial Officer - Michael Costa

TAKEAWAYS

• Normalized FFO Per Share -- $0.38, reflecting consistent operational results across the investment portfolio.
• Normalized AFFO Per Share -- $0.40, driven by a $5.6 million sequential increase in total cash net operating income.
• Total Cash NOI -- $144.3 million, representing sequential improvement from $138.7 million in the first quarter of 2026.
• Managed Senior Housing Cash NOI -- $44.6 million, reflecting contributions from recent acquisitions and occupancy gains in the same-store portfolio.
• Triple-Net Cash Rental Income -- $94.1 million, including the benefit of rent resets and proactive portfolio management.
• Same-Store Managed Senior Housing Cash NOI Growth -- 13.7%, driven by occupancy expansion and rate increases across the domestic and Canadian portfolios.
• Same-Store Revenue Growth -- 8.6%, reflecting increased pricing power and rising occupancy levels.
• Same-Store Portfolio Occupancy -- 88.2%, an increase of 170 basis points compared to the second quarter of 2025.
• Domestic Senior Housing Occupancy -- 85.7%, representing a year-over-year increase of 170 basis points.
• Canadian Senior Housing Occupancy -- 93.2%, marking the ninth consecutive quarter where occupancy exceeded 90%.
• RevPOR Growth -- 6.6%, driven by strong demand and efficient pricing strategies.
• ExPOR Growth -- 4.1%, reflecting higher repairs, maintenance, and incentive management fees.
• Second Quarter Investments -- $274.1 million, including four managed senior housing properties and three skilled nursing communities at an 8.1% initial cash yield.
• Subsequent Investments -- $223.0 million, consisting of seven additional managed senior housing properties closed after the quarter end.
• Year-to-Date Investments -- $599.0 million, achieving an estimated initial cash yield of 7.5% across the total capital deployed.
• Awarded Investments -- $100 million, including managed senior housing and skilled nursing properties expected to close by the end of 2026.
• Investment Pipeline -- Over $1 billion, which is almost entirely comprised of senior housing opportunities currently under review.
• Net Debt to Adjusted EBITDA -- 4.61x, a significant reduction from 5.04x at the end of the first quarter of 2026.
• Liquidity -- $1.3 billion, consisting of $231.6 million in cash, $682.5 million in credit facility availability, and $411.8 million in forward equity sales.
• Forward ATM Availability -- 21.4 million shares outstanding at a weighted average price of $19.24 per share net of commissions.
• Avamere Rent Reset -- $48 million annualized fixed cash rent, an increase from the $41 million paid in 2025.
• Loan Loss Provision -- $102.4 million, primarily related to the discounted payoff of the RCA mortgage loan.
• Quarterly Cash Dividend -- $0.30 per share, representing a payout ratio of 75% of second quarter normalized AFFO.
• Full-Year Earnings Guidance -- 7% to 8% growth, reflecting midpoint expectations for normalized FFO and AFFO per share in 2026.
• Medicare Market Basket Rate -- 2.4%, matching the proposed rule and meeting management expectations for the final rule.

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RISKS

• Matros stated, "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," noting the negative impact on the remaining triple-net senior housing portfolio metrics.

SUMMARY

Management reiterated its full-year 2026 guidance, noting that the portfolio transition toward managed senior housing assets continues to drive operational performance. The company indicated that its investment pipeline has reached record activity levels, with a strategic focus on senior housing acquisitions and select value-add opportunities. Management also reported progress in triple-net portfolio management through rent resets and the resolution of legacy mortgage loans, which contributed to a strengthened balance sheet and lower leverage profile.

• CEO Matros highlighted the strength of the deal pipeline, stating, "Our pipeline is as active as it has ever been," with nearly all current review activity focused on senior housing.
• The company is pursuing value-add acquisitions with occupancy levels around 80% to achieve mid-teens unlevered internal rates of return.
• CFO Costa discussed technological investments, stating that "several initiatives we're undertaking as we speak... on the technology and AI side" are designed to improve scalability and operational efficiency.
• Management expects Medicaid rate growth to stabilize at approximately 2% as pandemic-era funding adjustments revert to historical norms.
• CEO Matros noted that pandemic-related burnout has led several long-term operators in the skilled nursing sector to seek exits or retirement, creating transition opportunities.
• The Avamere portfolio transition is expected to increase annualized fixed rent to $53 million once fully closed later in 2026.
• Management indicated that leverage will remain below the 5.0x target to provide flexibility for future investment activity without immediate reliance on equity markets.

INDUSTRY GLOSSARY

• SHOP: Senior Housing Operating Portfolio; a structure where the REIT participates in the operating income of a property rather than just receiving fixed rent.
• RevPOR: Revenue Per Occupied Room; a metric used to measure the average revenue generated by each occupied unit in a senior housing facility.
• ExPOR: Expense Per Occupied Room; a metric measuring the average operating expenses incurred for each occupied unit.
• Triple-Net Lease: A lease agreement where the tenant is responsible for paying all property expenses, including real estate taxes, insurance, and maintenance.
• EBITDARM Coverage: A ratio measuring an operator's ability to pay rent, calculated as earnings before interest, taxes, depreciation, amortization, rent, and management fees divided by cash rent.
• Normalized FFO: Funds From Operations adjusted to exclude one-time items and reflect the ongoing performance of the REIT.
• AFFO: Adjusted Funds From Operations; a non-GAAP financial measure used to estimate the cash flow available for distribution to shareholders.
• Forward Sale Agreement: A contract to sell shares at a future date, allowing a company to lock in a price while delaying the receipt of proceeds and the dilution of share count.
• SNF: Skilled Nursing Facility; a clinical care setting providing 24-hour nursing care and rehabilitation services.

Full Conference Call Transcript

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

Lukas 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.

Rick Matros: 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.

Darrin Smith: 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.

Michael Costa: 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.

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

Farrell Granath: 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.

Rick Matros: 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.

Farrell Granath: 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?

Rick Matros: 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.

Darrin Smith: 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.

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

Seth Bergey: 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?

Rick Matros: 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.

Seth Bergey: 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?

Rick Matros: 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.

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

Austin Wurschmidt: 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.

Rick Matros: 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.

Austin Wurschmidt: 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?

Rick Matros: 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.

Austin Wurschmidt: 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?

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

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

Juan Sanabria: 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?

Rick Matros: 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.

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

Rick Matros: I'd have to get that few, Juan.

Juan Sanabria: 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.

Rick Matros: 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.

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

Connor Mitchell: 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?

Rick Matros: 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.

Connor Mitchell: 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?

Michael Costa: 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.

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

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

Vikram Malhotra: 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?

Rick Matros: 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?

Vikram Malhotra: 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.

Rick Matros: 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.

Vikram Malhotra: 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?

Michael Costa: 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.

Vikram Malhotra: 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?

Rick Matros: 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.

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

Richard Anderson: 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?

Michael Costa: 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?

Richard Anderson: 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?

Darrin Smith: 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.

Richard Anderson: 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?

Rick Matros: 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.

Richard Anderson: 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?

Rick Matros: 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.

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

Richard Hightower: 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?

Rick Matros: 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.

Richard Hightower: 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?

Darrin Smith: 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.

Rick Matros: 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.

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

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

Rick Matros: 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.

Darrin Smith: 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.

Alec Feygin: 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?

Michael Costa: 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.

Rick Matros: We were in the high 90s on accrual.

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

Michael Stroyeck: 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?

Michael Costa: 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.

Rick Matros: 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.

Michael Stroyeck: 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?

Michael Costa: 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.

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

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

David Rodgers: 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?

Rick Matros: 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.

Darrin Smith: 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.

David Rodgers: 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?

Rick Matros: 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.

David Rodgers: 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.

Michael Costa: 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.

Rick Matros: 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: And our next question will come from the line of John Kilichovich with Wells Fargo.

William John Kilichowski: 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?

Rick Matros: 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.

Darrin Smith: 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.

William John Kilichowski: 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?

Michael Costa: Are you referring specifically to Avamere?

William John Kilichowski: 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?

Michael Costa: 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.

William John Kilichowski: Okay. And is the $1.6 million a quarterly number or an annualized number?

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

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

Rick Matros: 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.

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