Sabra Healthcare REIT, Inc. 2026 Q2 Earnings Call

Thank you. 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 31st, 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. 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 Investor section of our website at sabrahealth.com. Our Form 10-Q, earnings release, and supplement can also be accessed in the Investor section of our website. With that, let me turn the call over to Rick Matros, CEO, President, and Chair of Sabra Health Care REIT.

Thanks, Lukas. 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. We're closing on an additional $100 million in SHOP investments. Our pipeline is as active as it's ever been. The deals that we've done have been closed at attractive yields. We've got an immense amount of deals that we're looking at. We're 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, 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. 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 reflect the 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 the 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 awarded 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 that 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%. RevPAR 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 RevPAR and occupancy continued to grow, ExpPAR 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. With that, I'll turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Darren. 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 a 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 1st, 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 recognize 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 21st 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 21st 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 21st 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. Briefly turning to the balance sheet.