Sabra Health Care REIT, Inc.

Good day, everyone. My name is Christina, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sabra second quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, you can press star one again. I would now like to turn the call over to Lucas Hartwich, SVP of Finance. Please go ahead, Mr. 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 2024 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, 2023, 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 that 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 investor section of our website at cyberhealth.com our form 10q earnings release and supplement can also be accessed in the investor section of our website and with that let me turn the call over to rick matros ceo president and chair of cyber healthcare e thanks lucas good day everybody thanks for joining us we appreciate it as noted in our press release the court had demonstrated progress in all key areas guidance was increased

Our shop cash NOI growth was 17.7%. Our senior housing and skilled nursing occupancy increased. Our EBIT-DARM rent coverage increased for both senior housing leased assets and our skilled nursing portfolio. Our skilled nursing portfolio continues to surpass pre-pandemic levels. And in fact, coverage is higher than when we hit our occupancy high in 2019, which was approximately 200 basis points higher than it is today, all of which bodes really well for the future. Nine of our top ten operators had improved rent coverage, with McGuire being the only one that didn't, but came in at a strong 1.79 EBITDA on coverage with no concerning trends. Leverage ticked down. We announced approximately 136 million in new investments. Medicaid rate increases on a weighted basis are estimated to be roughly 7%, which is 200 basis points higher than last year's increases. 71% of sovereign states have new effective Medicaid rates on July 1st of every year. The other six states are spread throughout different months of the year. The Medicaid rate increase for our top five SNF tenants was actually 10.6%. And then, of course, Medicare has finalized its market basket increase at 4.2%. Additionally, our skilled nursing mix was up 110 basis points. Our labor costs, including contract labor for that asset class, are now at their lowest level since March of 2021. And agency is now down 50% from a year ago. Our skilled nursing EBITDA margins are now higher than pre-pandemic margins. And again, that's with occupancy still about 200 basis points lower than pre-pandemic occupancy. So we would fully expect to see margins and coverage continue to improve. One comment I want to make on our behavioral segment Our rent coverage was down, but if you look at the last five quarters, it's always up and down in the behavioral segment. You have to think about it a little bit differently than skilled nursing and senior housing, which are actually very predictable businesses, pandemics notwithstanding. The behavioral business is very dynamic, much shorter length of stay, but also has a break-even point at much lower occupancy. And the coverage is still quite strong at 3.69. So there's a lot of breathing room there. So we have no concerns about that. And you should expect going forward to see that move up and down a little bit more than you would expect to see in our skilled nursing asset class or our senior housing asset class. In terms of our investment pipeline, we're starting to finally see some skilled nursing opportunities in the pipeline and expect to increase over the course of the coming months. We're also seeing an uptick in the behavioral space. And with shop cap rates much more attractive relative to our cost of capital, we'll continue to invest in the shop and shop as well. At this point in the year, we continue, we expect to continue to execute in the course we set before the year began and create a much stronger base from which to grow in 2025. And with that, I'll turn the call over to Talia.

Thank you, Rick. Sabra's 82 property managed senior housing portfolio, including joint ventures at share, had a very strong quarter. On a sequential quarter basis, the managed portfolio in total, including non-stabilized communities, had 9.3% quarterly cash NOI growth. and 1.7% cash NOI margin increase, and that's sequential. This is a product of flattening expenses and continued occupancy and rev pour gains, the trends we have been noting for the past few quarters. Sabra's same-store managed senior housing portfolio with joint ventures that share includes 70 properties, 46 of which are in the U.S. and 24 in Canada. Excluding non-stabilized assets, the headline numbers are Same store portfolio revenue for the quarter grew 6.8% year over year with our Canadian communities growing revenue by 9.6%. Cash NOI for the quarter grew 17.7% year over year and 9.9% sequentially. In our Canadian communities, cash NOI for the quarter increased 23.9% over second quarter of 2023 and 20.1% sequentially. Rev pour in the second quarter of 2024 increased by 3.1% year-over-year, while ex-pour decreased by 70 basis points, a functioning of stabilizing expenses and growing occupancy in both the U.S. and Canada. Canada's senior housing recovery has accelerated, with occupancy exceeding 91% this past quarter and cash NOI margin at nearly 32%. While occupancy has been strong for several quarters, expense control has moved into focus as the path to gain margin and grow cash NOI. Domestically, the story is similar, but the opportunity to reap the benefit of operating leverage is even greater given the potential for occupancy growth. As Rick mentioned, our net lease stabilized senior housing portfolio continues to thrive with consistently rising rent coverage reflecting the underlying operational recovery. Sabra's total investment in behavioral health remains relatively static this quarter. We've begun to see more interest in this asset class, as Rick mentioned. Investors and operators are increasingly interested in the segment, and brokers have have committed focus and are accelerating activity. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Talia. For the second quarter of 2024, we recognized normalized FFO per share of 35 cents and normalized AFFO per share of 36 cents, both up one penny from our first quarter results. The sequential increase was driven by the following. higher cash rents collected of $4.5 million, primarily related to first quarter cash basis rents that were collected in the second quarter, and $1.8 million of improved NOI from our managed senior housing portfolio. This was partially offset by a $2 million increase in cash G&A as a result of truing up performance-based compensation expense estimates and a $900,000 increase in cash interest expense due to higher outstanding borrowings under our revolving credit facility during the period. Additionally, last quarter, we recognized $900,000 of business interruption insurance income that was non-recurring. While there were various moving parts in our numbers this quarter, many of which are non-recurring, what shines through is that the earnings growth we've experienced over the last two quarters was driven by the continued improvement in our managed senior housing performance, which translates to 6% year-over-year growth in both normalized FFO and normalized AFFO per share. Because of this improvement and the continued stability in our triple net portfolio, our outlook for the remainder of the year has improved, resulting in an increase to our 2024 normalized FFO and normalized AFFO per share guidance. Our updated full-year 2024 guidance ranges on a diluted per share basis are as follows. Net income, 52 cents to 55 cents. FFO $1.33 to $1.36, normalized FFO $1.36 to $1.39, adjusted FFO $1.39 to $1.42, and normalized adjusted FFO of $1.41 to $1.44. I would like to highlight a few data points that are embedded in our updated guidance. First, our triple net cash NOI run rate for the second half of the year is approximately $90 million per quarter, which is consistent with the actual results of the first half of 2024. Second, our recurring cash GNA run rate for the second half of the year is $10.4 million per quarter, which is also consistent with the actual results for the first half of 2024. Excluded from recurring cash GNA is stock compensation expense, which we expect to be approximately $2.5 million per quarter in the second half of 2024. Lastly, our guidance assumes year-over-year same-store cash NOI growth for a managed portfolio to be in the mid to high teens. Our guidance incorporates all announced investment and disposition activity as well as the announced activity under the at-the-market equity offering program and does not assume additional investment, disposition, or capital transactions beyond those already disclosed. Now briefly turning to the balance sheet, Our net debt to adjusted EBITDA ratio was 5.45 times as of June 30, 2024, a decrease of .10 times from March 31, 2024. As of June 30, 2024, we are in compliance with all of our debt covenants and have ample liquidity of $906 million, consisting of unrestricted cash and cash equivalents of $36 million and available borrowings of $870 million under our revolving credit facility. With the recent improvements in the cost of our equity capital, we utilize our ATM during and subsequent to the quarter to source capital to fund our announced investing activity. Year to date, we utilize the forward feature under our ATM program to allow for the sale of up to 4.7 million shares at an initial weighted average price of $14.72 per share net of commissions. and currently have 2 million shares with an initial weighted average price of $15.11 per share net of commissions that are available to use to match fund our investment activity. Finally, on August 7, 2024, Sabra's Board of Directors declared a quarterly cash dividend of 30 cents per share of common stock. The dividend will be paid on August 30, 2024, to common stockholders of record as of the close of business on August 19, 2024. The dividend is adequately covered and represents a payout of 83% of our second quarter normalized AFFO per share. And with that, we'll open up the lines for Q&A.

Thank you. And at this time, I'd like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Nick Ulico from Scotiabank. Your line is open.

Hi, thanks for the question. This is Elmer Chang on with Nick. We appreciate more explicitly communicating your seniors housing manage same story and why growth expectations and you mentioned in your in your remarks that operating seems to operating leverage seems to be improving, but is there any more color you can provide around? the occupancy ramp expectations you have for the segment in the second half of this year and how that might impact growth or expense growth at operators?

Well, I can tell you that we're continuing to see some consistent growth in both AL and IL across the portfolio. And in fact, together, they're at about, currently at around the same occupancy. I know our holiday portfolio hit 83%. at the end of July and that puts them 200 basis points below where they were in at the end of 2019 right before the pandemic when we were all worried about increasing supply and what we were going to do with all that supply. So I think the momentum is there. We're seeing similar momentum on occupancy in Canada, where I think our Canadian portfolio together is at about 93% occupancy ahead of the number I gave you for second quarter. And we're seeing it also in our leased portfolio, where of the just under three quarters of our operators in our lease portfolio are at 85% or higher occupancy. So it's really looking good. It just seems to be growing. And the additional supply that I alluded to, which is really substantial, what came on the market kind of going into the pandemic and throughout the pandemic, that's being absorbed and that's you know, in excess of 10% increase in supply and senior housing in total. So it's a big number. And yet these numbers are going up.

Got it. Thank you. Appreciate that. And and sticking to the managed segment as well on the investment side, what is the are there any high level numbers you could put around the investment pipeline? and what that might mean for transaction activity. I know you mentioned, you know, you're seeing more activity across the board of all segments. And then in terms of pricing, does, you know, that 8% initial cash yield, is that representative of deals that you're seeing today?

Okay, I'll take the second question first. So I'd say in the market today in general for senior housing, cap rates are going to start at a seven. And if you're looking at active adult, it's going to be lower than that. My guess is it's in the sixes, but we are not pursuing active adults. So sevens, seven and a half-ish on senior housing going to eight. The assets that we've been able to acquire for an 8% yield initially or 8% cap rate going in are relatively new. They're kind of five years old or younger. So they're completely modern and they're well leased up and they're in good locations. I think that's where the market is because that's where the debt markets are, frankly. So the competition that used to outprice us or who drove pricing down was really base their pricing on debt and availability of debt. So it's the cost and availability. In terms of our pipeline, we are seeing a significant amount of deal flow. I would tell you right now, there's probably... three quarters of a billion dollars of deals under review. That does not mean we're committed to them or have LOIs out on them. It just means that's what we're looking at. A small portion of that will proceed to LOIs submitted, and then we're being very selective of where we're placing our capital because our intent is to make those investments in a way that really enhances and improves Sabra's portfolio.

Neil, the other comment I'd make on the shop cap rates is that those are going in yields, that the business is still recovering from the pandemic. So we're looking forward to really nice growth in all those investments that we've announced. Got it.

Okay. Thank you.

This question comes from the line of Austin Werkschmidt from KeyBank Capital Market. Your line is open.

Great. Thank you. I think you alluded to the shop segment kind of, you know, instability and triple net, you know, overall driving the guidance increase. But I'm just curious if shop was the sole driver of the guidance increase or did any of the investment activity have a positive impact on this year's outlook as well?

Yeah, I would say the investment impact is pretty muted. For this year, given that, you know, most of it is in the second half of the year, so you're not going to see a lot of uplift in our 2024 four-year numbers as a result of it. You'd expect to see more of that impact going into the 2025 and beyond. So, yeah, I would say the performance in our core portfolio, our same-store portfolio, that, you know, again, combined with stability in our triple net portfolio is really what's driving our, you know, our optimism for the back half of the year.

Got it. And then, you know, you guys were previously a little reluctant to provide, you know, the same store NOI growth guidance for the senior housing managed assets. You discussed this mid-teens growth. I guess what's given you the confidence to incorporate that into your assumptions more formally, and how should we think about that, you know, mid to high-teens growth versus whatever was in the initial outlook?

I'll take the first shot at it. I just think that more time has passed as we've recovered from the pandemic. It's really as simple as that. You know, this is the business that, as I mentioned in my opening remarks, pre-pandemic was an extremely predictable business. That predictability, as we all know, disappeared, but it's starting to come back now. So it's really just a function of time giving us more confidence.

So should we expect going forward that you'll be willing to kind of give us the outlook on an annual basis for the shop portfolio, given things have stabilized a bit?

I mean, to the extent the portfolio is stabilized when we put out our next guidance for 2025 or anywhere beyond that, if the portfolio is stabilized, it becomes a lot easier to predict that. And if we could easily predict it or more easily predict it, I think it's something we definitely consider.

I'm going to add one more thing to the response, and that is, Operating leverage in our senior housing managed portfolio is particularly relevant, and that's why it's a little tough for us to give you a great, you know, a very detailed and specific and narrow answer. Because we're at the cusp of hitting operating leverage in many of the assets in the SHOP portfolio. In some of those, we've already passed it, which is, I think, why you're seeing the incredibly strong numbers in the Canadian portfolio that I outlined. In the U.S., we're sort of on the cusp of that as well. And that's going to be the driver of the significant EBITDA contribution from incremental occupancy growth.

That's helpful. Just last one, kind of along the similar lines for the operating leverage. These assets that you're seeing at 8% cap rates on the senior housing managed side, Are those assets similarly where the in-place portfolio is from an occupancy and margin perspective, or do you see outsized opportunity? Just trying to understand where they are in the lifecycle of the recovery to where you're stepping in. Thank you.

They're in line. Some of them are doing somewhat better than others, but there is, as Rick mentioned before, significant growth opportunity there as well. over the next couple of years. So we're not underwriting to an 8% stabilized. We're underwriting to an 8% going in with upside.

The other thing I'd point out is that the investments we announced post-quarter are with Leo Brown Group, which is one of our strongest operators. We've been doing business with them for years, both from a development and an operating perspective. And so to... enter into these new investments with an operator that is so familiar to us and has had so much success, I think bodes well for the growth going forward as well.

Great. Thanks, everybody.

And your next question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is open.

Hi, this is Robin Hayden. I'm sitting in for Juan. Just curious, what would make you more inclined to pursue portfolio acquisitions?

You know, at this point, we're just not seeing quality portfolios out there, and we're not willing to take on anything that's going to create a lot of work or a lot of noise. You know, we've made a commitment to our shareholders that we are going to be predictable and disciplined and rigorous in everything that we do. And we're more than happy to do small, digestible deals and do as many of those as possible. than to take on a portfolio that at least pays what we're seeing out there tends to require some work.

Okay. And on Medicaid, what's the expectation for increases next year? I know inflation coming down significantly. I guess ask differently. Is there any catch-up left on inflation?

Yeah. So I think my guess is we may have hit a high point this year. I think next year we'll still be capturing inflation, so I think we'll still have outsized Medicaid rates next year. But certainly over the next few years, assuming inflation moderates, those rates will moderate as well. But I think we still have some outsized rates ahead of us.

Just the last one on the pipeline. How should we think about funding investment growth, and what can we expect from a debt-to-equity split?

Yeah, so as I mentioned in my prepared remarks, given the strength we've been seeing and continue to see in our cost of equity capital, that is an available and viable source of funding where we could go out, use the ATM, use our revolver, match fund investments on a leverage neutral basis, and still make very accretive investments to Sabra no matter how you define accretion, whether it's from earnings, NAV, so on and so forth. So as long as we have that cost of equity capital and that attractive cost of equity capital, you should expect to see us use that with our revolver to fund these. You know, we had some dispositions we pointed out in our earnings release that closed subsequent to quarter end, which are very attractive sources of capital. You can make a lot of accretive investments with that. It's a limited source of capital. We acknowledge that. But yeah, it is a source of capital we could use to combine with those other two sources I laid out. So as long as we have the cost of capital to be able to go out and find investments that we like, you know, there really isn't a cap on it necessarily.

Got it. Thank you.

Your next question comes from the line of Joshua Dennerlein from Bank of America. Your line is open. Joshua Dennerlein Yeah.

Hey, guys. Thanks for the time. I wanted to go back. I think in the opening remarks, there was a comment on the behavioral space EBITDA coverage or EBITDA coverage. I think you said 1.79, but could you confirm what that is today and then what was it in the prior quarter?

Joshua Dennerlein I said 3.79.

3.79. Okay. All right. That makes more sense. Thank you. Yeah.

And 3.6 actually. But if you look at the last five quarters, it does move around some. And as I stated, it's not as predictable a business because you have a much shorter length of stay with the residents in these facilities than you do in senior housing. or skilled nursing, but you also have a break even point on occupancy at about 50 to 60%. So it's a much different economic model. And I understand that this is new to everybody. And I think the comments and some of the notes reflect that newness that folks aren't yet looking at it differently than senior housing and skill. But we'll take any coverage that's hovering around 3.7, right?

Okay, and that 3.79, that's stripping out the specialty hospitals and other?

No, it's included in there.

Oh, okay.

It's what we disclosed in our supplement, Josh.

Oh, okay. Is there big variability between those kind of three categories?

Yeah, so the specialty hospitals have much higher coverage, but we underwrite the addiction treatment investments at two times or more so we we underwrite them at a much higher level than we do with either skilled nursing or senior housing so there's always going to be some nice breathing room there particularly given with where the break-even point is with occupancy okay and what why is the break-even point so much lower that that 50 percent level because the rates on in addiction treatment are far higher than

than what you have. Your cost structure is... Let me finish the sentence. The rates are far higher than you would have in senior housing or skilled nursing. It's like a super high Medicare rate for everybody, but you're turning people over average length of stays, call it 20 days, 19 days. So that's one. You have less clinical staff You have similar fixed costs, but you tend to have more beds without, you have greater scale over which to amortize those fixed costs. You don't have very much variable costs. And your biggest cost really is a centralized customer acquisition model. which is over the whole portfolio of any recovery company. So we underwrite a much higher so-called imputed management fee on our behavioral assets.

Okay, interesting. Thank you.

I'm happy to spend more time with you offline if you'd like.

Thank you, and your next question comes from the line of Michael Griffin from Citigroup. Your line is open.

Great, thanks. I want to go back kind of to the acquisition opportunity set. If you could give us a sense sort of of what the accretion spread is between your acquisitions and your weighted average cost capital. And then, Talia, I know you made some comments on debt capital markets. Are lenders open for lending again on both seniors and skilled nursing?

So there are loans available. Certainly the agencies are somewhat open. If nothing else, they've been open to the extent that you could meet the criteria. But it's still a it's still a challenge to get for people to refinance existing debt. And I think that's the single biggest challenge just because of debt service coverage, loan to value. Cap rates moving up means that in place values today are not, even if your building is stabilized, is not what it was five years ago when cap rates were six. So it's just, you know, and no one's going to buy No one's going to buy at a 6% cap rate when their borrowing rates are going to be 6.5% to 7.5%, right? There's not a lot of equity pickup and not a lot of positive leverage from the debt there.

Yeah, and in terms of accretion, your question on that, you know, based on the funding sources that we've sourced to date, which we all disclose, what we disclose in our filings with the ATM, which is we did that at a lower price than we're trading at today. the sales proceeds, so on and so forth, you know, these investments that we've announced are over 100 basis points accretive, right? So there's some spread there to be had. And I would expect that spread to be better as we, you know, are able to use ATM at more attractive prices. Great, Keller.

Appreciate it. That's good. And as the businesses continue to improve post-pandemic.

Right, yeah, because that's a good point, because the 100 basis points, over 100 basis points that I quoted was just ongoing in yields.

That sounds good, guys. Really appreciate the color there. And then I'd just be curious to get your thoughts on the skill mix increasing. Is this a deliberate action taken by your operators, or are there seasonality or other factors impacting this? And would you expect it to continue to increase in the future?

Yeah, so we still haven't hit our high on skilled mix, so I would expect it to increase. Seasonality may affect it a little bit, but basically I think what's happening is as occupancy continues to improve, operators are able to be more selective in who they admit so. Turning it around the other way, when you've got really low occupancy, everybody wants to get their beds filled and and they may. you may see a bigger increase in Medicaid census than you do in Medicare census in those circumstances. But the operators that we have in our portfolio are all high acuity operators, some obviously more than others, but they all focus on the high acuity model, which is really what positions them really well for the future, particularly when you think about value-based reimbursement. So they just are becoming more able to be more selective in their admissions because occupancy is continuing to recover.

Yeah, the other thing I'll add to that, too, is that skilled mix stat that we put out is based on revenue. And this quarter, you have six months worth of the Medicare increase that went into effect last October. So that's benefiting it as well, in addition to all the points that Rick laid out.

Great. That's it for me. Thanks for the time.

Thank you. Your next question comes from the line of Vikram Mahaltra from Mizuho Securities. Your line is open.

Awesome. Thanks for taking the question. I just wanted to maybe get some clarifications on the 100 basis point spread you mentioned would imply the cost of capital is 7%. I'm just wondering just Do you take an inverse of ASFO, or do you use some other methodology to calculate cost to capital? And can you give us some context of how that 100-bit compares to what you've achieved historically on deals?

So in terms of how we come up with that over 100 basis point number that I quoted, you know, it's a combination of looking at what's the ASFO expectation baked in consensus, baked in our guidance, and a couple different estimates there. It factors in the dispositions that we announced as well, and the cost, if you will, relates to those, and then the cost of our credit facility. And, you know, when we do that, again, we're doing it on a leverage-neutral basis, and, you know, we're looking at it vis-a-vis the market expectation for our earnings and what those investments incrementally, or I guess on a standalone basis, produce on a per share basis. And it's very accretive on that measure.

And then just how that 100 bps compares to what you may have achieved historically, just so we can model out the ramp into 25 and 26.

I think the best way to think about it, Vikram, is whenever we've been in a position where our cost of equity capital was trading at a premium to our NAV in the past and we were able to execute on transactions at a similar point in time, I would expect that the accretion is probably somewhere in that same neighborhood.

Got it. Maybe a higher level question for you or for Rick. Now that we're clearly past COVID and you're starting to grow again, tenant health is no longer as much of an issue. I'm just wondering how the AFFO growth trajectory may differ from history. And I know in the past, we've talked loosely about a 5% AFFO growth trajectory over a multi-year period. I'm just wondering, is there anything that would change that higher or lower going forward?

You know, I think once our managed portfolio, you know, fully stabilizes and it becomes more predictable in terms of its growth prospects, you know, that AFSO per share growth, and absent any additional investments, of course, that'll contribute to it, you know, absent any additional investments, I think that, you know, five percent is probably not an unreasonable expectation for a steady state portfolio but keep in mind none of us are neither sovereign nor our peers or steady state portfolios we're we're constantly in the business of looking for additional opportunities to increase that so we can't sit here and say it's going to be five percent you know because things are going to change that but i think that's an okay assumption on a steady state portfolio the other point that i'd make is remember when it

very different inflection point with these asset classes there's no new supply occupancy is going to exceed pre-pandemic levels margins should exceed pre-pandemic levels we've already seen that on the skilled nursing side so um and we're going to in addition to doing skilled nursing investments and some behavioral investments we're going to continue to do shop investments And so that particular component of our portfolio is going to continue to have a disproportionate impact on our earnings growth. So, you know, we're pretty optimistic about it without putting sort of a fine point of what exactly the number may be.

Okay, thank you.

And your next question comes from the line of John Kielchowski from Wells Fargo. Your line is open.

All right, thank you. Maybe could you give us the cap rate on the purchase option for the loan you made this quarter? And then of the $750 million you mentioned under review, what percentage of those are under the loan-to-owner structure? I know recently that hasn't been much of a strategy, but curious if those deals are starting to get more attractive here.

The only loan to the purchase option we currently have is the one that we just closed that you mentioned. We're not in the business of making those. That was an off-market situation. That is with an operator with whom we've had a great deal of success who came and wanted to operate these. They make sense from a strategic perspective from us as an investment, both from the location, from the state of the situation, from that situation as well, and the operator themselves. Cap rate is hard to say because we... And it'll be upwards of 9%, I expect, based on the lease structure that we anticipate having.

And the other point I make, just to reiterate our position, is one, we totally get why some of our peers are putting so much capital to work on loans. But unless there's a strategic value to us, we're just in a different place, that's all. And all of our investments are going to be focused on contributing to earnings growth. The loans for us at this point in our organization's stage of development is basically short-term money that's got no growth to it. And really, there's only downside there. So you're just not going to see us putting money to work in that fashion.

Got it. And then maybe jumping to G&A here. I think originally in 4Q, you gave a guide that cash GNA was going to be near $37 million for the year. Based off the stock base comp numbers you gave and what's happened so far in the first half of this year, I think it implies roughly a $40 million number for cash GNA. So I'm curious what is causing the acceleration there.

Yeah. So this quarter, we had a true up of performance-based compensation expense. And that ties in with the fact that we increase guidance, right? We expect the year to shape up better than we had originally estimated. And that resulted in an increase there. So that increase, that's why I was focusing, if you notice in my prepared remarks on the first half of the year, we trued up, you know, two quarters worth, if you will, of that expense in the second quarter. But the first half of the year run rate is, you know, a good run rate to look at for the back end of the year. Got it. Thank you.

Your next question comes from the line of Rich Anderson from Wedbush Securities. Your line is open.

Hey, thanks. Good morning out there. On the ATM, you have this forward component in the high 14s, and you mentioned the stocks trading well above that. I understand why you did it, just looking at your stock chart over the course of the quarter, but what's the strategy and how fast you have to settle these forward contracts and move on to a better stock price to raise equity?

So these contracts generally, I don't think this is atypical. In fact, I think it's pretty standard that you have a year to settle those contracts. I don't I don't foresee us holding on to those proceeds or those potential proceeds for a year, just given the pipeline that we've been talking about. Because again, it's not a huge amount of dollars we have that's unsettled. I think it's somewhere in the neighborhood of just under $30 million. So I could see that being unwound in somewhat relatively short order as we see deal flow come through. But in terms of strategy, I don't want to ever be, I don't think any of us ever want to be in a position where we find an investment that we really like and our stock is trading at a place where it doesn't make sense. If I have the ability, if we have the ability to lock in some of that cost of capital, obviously within reason, but if we have the ability to lock in that cost of capital at a price that makes sense today, then we'll look to do that and find ways to ultimately deploy that into something we really like. I still want to be in a position to find something and can't transact on it because we picked a bad day in the market.

Okay. What about raising regular way ATM equity and putting it into an interest-bearing account? I imagine it would be still dilutive, but maybe that's a way to approach that strategy so you lock in better priced equity. It's still making you a little bit of interest income while you're waiting to deploy it. Is that something you think about?

Yeah, we have thought about it. I just think the trade-off doesn't make sense for us. I know some of our peers have done that because they trade at, you know, 50 plus percent premiums to NAV and, you know, their dividend yields like 2%. You know, if we're in that place, yeah, maybe someone we consider. I just think given where our stock trades today, it probably isn't the best trade-off for us. But, you know, I'd love to be in that position, Rich.

Okay. Michael, you mentioned some non-recurring events in the second quarter, and I think you did a good job sort of getting us, you know, on a run rate for the rest of the year. But you also mentioned cash-based tenants paid you, you collected in the second quarter, right? So because it's cash based, you know, it hit the second quarter, not the first quarter. How should we be adjusting that line item specifically for that? How much of that really happened where that you collected first quarter rents during the second quarter? And so it sort of skewed things.

Yeah, I think the number I laid out was somewhere around 4.5 million, somewhere in that range of that to account for that timing. Well, 4.5 was the increase in the cash, the cash triple net rent, and that was because of timing. I think the best way to think about it, Rich, is, you know, $90 million a quarter going forward is the run rate you should expect. And if you look at the first half of the year, it roughly blends out to that. There's always noise there because we had, you know, there's always going to be some volatility in the cash basis tenants, of course. But we also had sales too, so that's going to mess with that number a little bit. So that's why I laid out the $90 million per quarter as our run rate for the back half of the year.

Okay. Maybe Rick, absent from every single conference call this quarter has been minimum staffing. Just want to get on record here with the Chevron ruling. Is this essentially over with? Can we say that officially almost?

Well, you'll recall that I've said it was over with before at the Chevrolet.

All right. So I guess that's the answer to that. And then finally, on investing in shop, do you need more people if you get meaningfully larger on the shop side? Or do you have the scale to do a shop execution with a fair amount more and you don't need to hire more people? Again, I'm thinking about the G&A line. Thanks.

We're in pretty good shape from an infrastructure perspective, so we can scale up pretty nicely. And anything we would need to add going forward, because all the basic infrastructure in terms of people and systems are in place, would be pretty incremental at that point.

Okay. Thanks very much.

Yeah.

Your next question comes from the line of Michael Stroyuk from Green Street Advisors, LLC. Your line is open.

thanks and good morning um i i appreciate the comments surrounding the behavioral health occupancy and coverage um but maybe one on noi uh since i saw a sizable decline during the quarter despite no real change in property or bed count um but forward noi is essentially unchanged from last quarter so i guess just what what's driving the delta there and um just so we can better understand the cadence and volatility of noi in that business yeah i think

You know, if you look over the last couple quarters, even though the property count in that segment's been the same, they don't like jumps around, you know, quarter to quarter. So I don't think this quarter is necessarily an anomaly. You know, there's various reasons for that. There's, you know, percentage rents, there's lease up, there's all kinds of factors that go into it. So I would just say like the lumpiness you're seeing is not atypical for that segment.

I think that we've gotten, because we've been doing it for quite some time, and for what it's worth, I was doing it in my life before this as an operator. The luckiness is something that we're just accustomed to. We do deep enough dives to make sure there aren't any trends that are concerning, and we're not seeing that. So the luckiness is something that's a lot more normal than it is in some of the other business lines.

Okay, that's good to know. And then maybe one on the senior housing managed business. What do you think is driving the slowdown of REV4 growth we've seen in recent quarters for the sector? Just with market vacancy declining, you'd think street rents should be seeing greater traction all as equal, but that doesn't seem to be the case.

Customer willingness to pay 10% year-over-year increases. I think senior housing operators are really trying to manage occupancy growth versus rev pour growth. And at some point, you want to fill up your building and have it fuller, even if it means you're not taking really high increases. In the past couple of years, and that's probably too long a period that I'm using, There was an underlying justification, particularly in assisted living and memory care, to ask for higher increases because labor was so much and care labor was so much a part of the equation. As rates have stabilized there and labor has stabilized overall, And pricing in general throughout the economy, while it might still be going up to some extent, is not rising at the levels it was before. Frankly, it's much harder to justify the 10% plus increases year over year that were being demanded. I think a year ago, even, I was saying that our expectations were that we were going to be seeing 5% to 7% annual increases. And that is what we're, in fact, seeing for in-place residents. The balancing point is getting people to come in, to move in as residents, because you want to continue to grow occupancy. What operators are also trying to avoid is having a situation where they're losing residents because of financial reasons. Right now, more than 50% of residents who move out are moving out. That's a euphemism, I guess, because they either have passed or or they're moving to higher acuity facilities, i.e., skilled nursing and such. You want to maximize length of stay, and so that's the balancing act.

Got it. Thanks for the time.

Sure.

Your next question comes from the line of Alec Fagan from Baird Equity Research. Your line is open.

Hi. Thank you for taking my question. First one for me is, how much does SABRA have left for disposition candidates where the property is not generating stabilized NOI?

I don't know. I mean, 50-ish million, maybe, something like that?

Fifty-plus million, something like that.

Of asset value.

Right, of asset value. Yeah.

Got it. And number two is, what drove the impairment in the behavioral health segment this quarter?

Yeah, so subsequent to quarter end, as we announced, we made some sales, made some sales during the quarter as well. There's a few properties where we were planning on converting those at some point to behavioral. There were shuttered facilities. Our initial plans were to convert those properties and make them in behavioral based on you know, based on the market, based on those locations, we decided, you know, it wasn't going to work out in that fashion. So we, you know, are selling those buildings. That's exactly what led to it. So it wasn't like it was open or operating facilities that were sold. These were shuttered buildings that we were looking to convert.

Okay, that's helpful, Collin. Thirdly, is related to the Avomir portfolio and the options Zabra has on it. Is the company capturing any upside now or expect to over the next 12 months?

I think you're referring to our option to reset that lease. Is that what you're referring to?

Yep.

Yeah, so that option kicks in, I think, beginning early next year. and there's like a three-year window, I want to say, to do that reset. That portfolio has been performing really well. We have recognized percentage rents on there, as we had anticipated when we restructured that lease a couple years ago. So when we get into next year and in that three-year window, we're going to evaluate where the earning stream is looking like for that portfolio and see where it makes sense to reset that rent. But to answer your question, we have been receiving percentage rents to help recoup some of the rent cut that we gave them a several years back.

Got it. Thank you for that. And that's it for me. Thank you.

Once again, if you do have a question at this time, you can press star one on your telephone keypad. Again, if you do have a question, please press star one. Thank you. There are no further questions at this time. I'll turn the call back over to Rick Matros.

Thank you all for your time today. We appreciate the support. And as always, we're available to all of you for offline conversations. And have a great day. Thanks.

Thank you. This does conclude today's conference call. You may now disconnect. Have a great day.