Detailed Narrative
Investment Pipeline and Strategy
Sabra's deal flow remains robust, with $400 million in closed or awarded investments year-to-date, already exceeding 2025's total. The company has an additional $690 million of managed senior housing investments actively being pursued. The focus remains on off-market deals, particularly in unskilled and SHOP segments, with an estimated initial cash yield of 8% on recent investments. The company is geographically agnostic but primarily targets secondary markets, where cap rate compression is less severe.
Managed Senior Housing Portfolio Performance
The total managed senior housing portfolio saw sequential revenue growth of 7.2% and cash NOI growth of 9.5%, with margin expansion of 60 basis points. The same-store managed senior housing portfolio achieved 14.4% year-over-year cash NOI growth, driven by 7.9% revenue growth and only 1.8% expense growth. Occupancy in the same-store portfolio increased 280 basis points year-over-year to 88.4%, with the Canadian portfolio reaching 93.4% and the domestic portfolio 85.6%.
AI and Automation Initiatives
Sabra is implementing AI and automation initiatives to streamline back-office workflows, data processing, and analysis, particularly within its SHOP portfolio. The goal is to enhance scalability, improve decision-making, and provide deeper operating insights to operators. Clinical pilots leveraging AI for medical records and fall detection are also ongoing at the facility level, aiming to improve efficiency and resident care.
Balance Sheet and Capital Allocation
The company's net debt to adjusted EBITDA ratio was 5.04x, in line with its target. Sabra utilized its ATM program, issuing $128 million on a forward basis at an average price of $20.19 per share, bringing total outstanding forward contracts to $451 million. Liquidity stands at $1.2 billion, including cash, revolver capacity, and forward sales agreements. A quarterly cash dividend of $0.30 per share was declared, representing a 77% payout of normalized AFFO per share.
Regulatory Environment and Reimbursement
The regulatory environment is stable, with the Medicare market basket proposal and expected Medicaid rates falling within expectations. Management noted a normalization of rates post-pandemic, reverting to historical norms. The company is bullish on value-based care, working with operators to embrace these models for both skilled nursing and senior living, which are seen as opportunities for increased referrals and improved outcomes.
Behavioral Health and RCA Loan Update
Sabra is exiting its Landmark behavioral health assets, having secured attractive pricing for some sales and actively selling others. This follows regulatory issues and unfortunate incidents at Landmark facilities. Discussions regarding the RCA loan are progressing constructively, with a potential announcement before the Q2 call, reflecting Deerfield's continued belief in the portfolio.