Sabra Health Care REIT Inc

NASDAQ:SBRA

Earnings Call Analysis

Strong Performance and Raised Earnings Guidance

Sabra Health Care REIT had a strong second quarter in 2024 with significant performances in managed Senior Housing, reflecting a 17.7% year-over-year cash NOI growth. This growth, driven by occupancy and revenue increases, allowed for a raising of full-year 2024 guidance ranges. Key metrics include an improved net income guidance of $0.52 to $0.55 per share and a normalized FFO guidance of $1.36 to $1.39 per share. They also announced a quarterly dividend of $0.30 per share. Their outlook remains optimistic with anticipated continued growth in cash NOI and stable performance across portfolios.

Increased Guidance and Robust Growth

During the second quarter of 2024, Sabra Health Care REIT demonstrated solid operational recovery and growth. Normalized Funds From Operations (FFO) per share rose to $0.35, while Adjusted FFO per share improved to $0.36, reflecting a $0.01 increase from the previous quarter. This was primarily driven by higher cash rents collected, totaling $4.5 million, alongside improved net operating income (NOI) from their managed Senior Housing portfolio. Notably, year-over-year growth for both normalized FFO and AFFO per share was an impressive 6%. Sabra's updated guidance for 2024 projects net income in the range of $0.52 to $0.55, with a target of $1.33 to $1.36 for FFO and $1.36 to $1.39 for normalized FFO.

Strength in Senior Housing and Nursing Portfolio

Sabra's managed Senior Housing portfolio saw significant cash NOI growth of 17.7% year-over-year, attributed to stable expenses and increasing occupancy. The same-store revenue for the quarter grew by 6.8%, with Canadian properties performing even better at a 9.6% increase. As occupancy in Canadian facilities exceeded 91%, the overall NOI growth continued to paint a positive picture for both stemming from current asset performance and growth potential. Importantly, 71% of states reported Medicaid rate increases of about 7%, enhancing revenue further.

Behavioral Health Segment Insights

The Behavioral Health segment showed a minor downturn in rent coverage, dropping slightly from previous quarters; however, it remains comparatively strong at 3.69. This segment is characterized by more volatility than Senior Housing and Skilled Nursing, which typically exhibit more predictable earnings trends. Despite fluctuations, the management expressed no concern regarding long-term stability in this sector, indicating potential for renewed interest and investment once market conditions normalize.

Operational Leverage and Future Investments

Sabra’s management highlighted the importance of operational leverage in enhancing margins, particularly as increased occupancy leads to better earnings predictability. They affirmed a strategic focus on investing in Senior Housing properties, especially at cap rates starting from around 8%, with a robust pipeline of approximately $750 million in potential deals under review. Notably, the management's strategy remains cautious, opting for smaller, manageable deals over larger, riskier acquisitions.

Strong Balance Sheet and Liquidity Position

With a net debt-to-EBITDA ratio of 5.45x, a decline of 0.10x, Sabra appears to maintain an effective balance sheet. They reported a liquidity of approximately $906 million, comprised of $36 million in cash and $870 million available under their credit facility. This liquidity offers Sabra the flexibility to pursue investments without compromising financial health, positioning the firm well for future growth.

Quarterly Dividend and Shareholder Returns

On August 7, 2024, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share, representing an 83% payout of their Q2 normalized AFFO. The dividend remains adequately covered, highlighting the company’s commitment to returning capital to shareholders while still maintaining growth reinvestment strategies. This balance between dividends and reinvestment could signify a well-managed approach to shareholder value creation in the long term.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, everyone. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Second Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lukas Hartwich, SVP of Finance.

Please go ahead, Mr. Hartwich.

[Lukas Hartwich, executive]

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 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, executive]

Thanks, Lukas. Good day, everybody. Thanks for joining us. We appreciate it. As noted in our press release, the quarter 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 EBITDARM 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 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.

9 of our top 10 operators had improved rent coverage with McGuire being the only one that didn't, but came in at a strong 1.79 EBITDARM 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 Sabra states have new effective Medicaid rates on July 1 of every year. The other 6 states are spread throughout different months of the year. The Medicaid rate increase for our top 5 SNF tenants was actually 10.6%. And then, of course, Medicare has finalized its market basket increase of 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 EBITDARM 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 5 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 breakeven point at much lower occupancy. And the coverage was 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 -- in SHOP as well. At this point of the year, we continue -- we expect to continue to execute on 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 Talya.

[Talya Nevo-Hacohen, executive]

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 REVPOR gains, the trends we have been noting for the past few quarters.

Sabra's same-store managed Senior Housing portfolio with joint ventures at share include 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. REVPOR in the second quarter of 2024 increased by 3.1% year-over-year, while exPOR 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 of occupancy growth.

As Rick mentioned, our net leased 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 committed focus and are accelerating activity.

And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

[Michael Costa, executive]

Thanks, Talya. For the second quarter of 2024, we recognized normalized FFO per share of $0.35 and normalized AFFO per share of $0.36, both up $0.01 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 nonrecurring.

While there were various moving parts in our numbers this quarter, many of which are nonrecurring. What shines through is that the earnings growth we have experienced over the last 2 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, $0.52 to $0.55; 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 G&A 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 G&A 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 our 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 5.45x as of June 30, 2024, a decrease of 0.10x 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 utilized our ATM during and subsequent to the quarter to source capital to fund our announced investing activity. Year-to-date, we utilize the forward future 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 $0.30 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.

[Operator]

[Operator Instructions] And your first question comes from the line of Nick Yulico from Scotiabank.

[Elmer Chang, analyst]

This is Elmer Chang on with Nick. We appreciate more explicitly communicating your seniors housing managed same-store NOI growth expectations. And you mentioned 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 for -- or expense growth at operators?

[Talya Nevo-Hacohen, executive]

Well, I can tell you that we're continuing to see some consistent growth in all -- in both AL and IL across the portfolio. 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 our -- in Canada, where I think our Canadian portfolios together is at about [ 93% ] of occupancy, ahead of the number I gave you for second quarter. And we're seeing it also in our leased portfolio where the -- call it just under -- 3/4 of our operators in our leased portfolio are at 85% or higher occupancy. So it's really -- it's 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 and keep going into the pandemic and throughout the pandemic, that's being absorbed. And that's in excess of 10% increase in supply in Senior Housing in total, so it's a big number. And yet, these numbers are going up.

[Elmer Chang, analyst]

Got it. Appreciate that. 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're seeing more activity across the board of all segments. And then in terms of pricing, does that 8% initial cash yield, is that representative of deals that you're seeing today?

[Talya Nevo-Hacohen, executive]

Okay. I'll take the first -- 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 7%. And if you're looking at active adult, it's going to be lower than that. My guess is it's in the 6s, but we are not pursuing active adults, so 7s, 7.5-ish on Senior Housing, going to 8%. 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 5 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 drove pricing down was -- really based 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 $0.75 billion 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 LOI 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.

[Rick Matros, executive]

The only other comment I'd make on the SHOP cap rates is that those are going in yields and 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.

[Operator]

Next question comes from the line of Austin Wurschmidt from KeyBanc Capital Markets.

[Austin Wurschmidt, analyst]

I think you alluded to the SHOP segment kind of instability and triple-net overall driving the guidance increase. But 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?

[Michael Costa, executive]

Yes. I would say the investment impact is probably -- is pretty muted for this year, given that 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 full year numbers as a result of it. You'd expect to see more of that impact going into the 2025 and beyond.

So yes, I would say that the performance in our core portfolio, our same-store portfolio, that again, combined with the stability in our triple-net portfolio, is really what's driving our optimism for the back half of the year.

[Austin Wurschmidt, analyst]

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

[Rick Matros, executive]

I'll take the first shot at it. And I just think that more time has passed as we've recovered from the pandemic. It's really as simple as that. This is a 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.

[Austin Wurschmidt, analyst]

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

[Michael Costa, executive]

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

[Talya Nevo-Hacohen, executive]

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 -- 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.

[Austin Wurschmidt, analyst]

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 life cycle of the recovery to where you're stepping in.

[Talya Nevo-Hacohen, executive]

They're in line. Some of them are doing somewhat better than others. But there is, as Rick mentioned before, a 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.

[Rick Matros, executive]

The other thing I'd point out is that the investments we announced post quarter with Leo Brown Group, who's 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.

[Operator]

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

[Robin Haneland, analyst]

This is Robin Haneland sitting in for Juan. Just curious what would make you more inclined to pursue portfolio acquisitions.

[Rick Matros, executive]

At this point, we're not -- 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. 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 based on what we're seeing out there, tends to require some work.

[Robin Haneland, analyst]

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

[Rick Matros, executive]

Yes. 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.

[Robin Haneland, analyst]

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

[Michael Costa, executive]

Yes. 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 that'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. We had some dispositions we pointed out in our earnings release that closed subsequent to quarter end, which are very attractive sources of capital, and you can make a lot of accretive investments on that. It's a limited source of capital, we acknowledge that. But yes, it is a source of capital we could use to combine with those other 2 sources that 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, there really isn't a cap on it necessarily.

[Operator]

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

[Joshua Dennerlein, analyst]

I wanted to go back. I think in the opening remarks, there was a comment on the behavioral space EBITDAR coverage or EBITDARM coverage. I think you said 1.79, but could you confirm what that is today? And then what was it prior quarter?

[Rick Matros, executive]

I said 3.79.

[Joshua Dennerlein, analyst]

3.79. Okay. All right. That makes more sense.

[Rick Matros, executive]

3.69, actually. But if you look over the last 5 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 breakeven 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 on some of the notes reflect that newness that folks aren't yet looking at it differently than Senior Housing and Skilled. But I'll tell you, we'll take any coverage that's hovering around 3.7, right?

[Joshua Dennerlein, analyst]

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

[Michael Costa, executive]

No, it's included in there. It's what we disclose in our supplement, Josh.

[Joshua Dennerlein, analyst]

Okay. Is there big variability between those kind of 3 categories?

[Rick Matros, executive]

Yes. So the specialty hospitals have much higher coverage, but we underwrite the addiction treatment investments at 2x or more. So 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 where the breakeven point is with occupancy.

[Joshua Dennerlein, analyst]

Okay. And why is the breakeven point so much lower? That 50% level?

[Talya Nevo-Hacohen, executive]

Because the rates in addiction treatment are far higher than what you have. Your cost structure is somewhat -- let me finish this end. 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 stay is, 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 on a centralized customer acquisition model, which is the whole portfolio of any recovery company. So we underwrite a much higher so-called imputed management fee on our behavioral assets.

[Rick Matros, executive]

I'm happy to spend more time with you on off-line, if you'd like.

[Operator]

And your next question comes from the line of Michael Griffin from Citigroup.

[Michael Griffin, analyst]

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

[Talya Nevo-Hacohen, executive]

So the -- 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 I -- it's still a challenge to get for people to refinance existing debt. And I mean that's the single biggest challenge just because of debt service coverage. Loan-to-value cap rates moving up means that in-place values are -- today are not -- even if your building is stabilized, it's not what it was 5 years ago when cap rates were 6%. So it's just -- and no one's going to buy at a 6% cap rate when their borrowing rate's 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.

[Michael Costa, executive]

Yes. And in terms of accretion, on your question on that, based on the funding sources that we sourced to date, which we all disclose -- what we disclosed 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. 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 are able to use the ATM at more attractive prices.

[Rick Matros, executive]

And as the businesses continue to improve post-pandemic.

[Michael Costa, executive]

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

[Michael Griffin, analyst]

That sounds good, guys. Really appreciate the color there. And then I'd just be curious to get your thoughts on the skilled 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?

[Rick Matros, executive]

Yes. 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 little occupancy, everybody wants to get their beds filled. 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.

[Michael Costa, executive]

Yes. The other thing I'll add to that, too, is that skilled mix stat that we put out is based on revenue. And for this quarter, you have 6 months' worth of the Medicare increase that went into effect last October. So that's benefiting as well, in addition to all the points that Rick laid out.

[Operator]

Your next question comes from the line of Vikram Malhotra from Mizuho Securities.

[Vikram Malhotra, analyst]

I just wanted to maybe get some clarifications on the 100 basis point spread you mentioned would imply your cost of capital is 7%. I'm just wondering just -- do you take an inverse of AFFO? Or do you use some other methodology to calculate cost of capital? And can you give us some context on how that 100 bps compares to what you've achieved historically on deals?

[Michael Costa, executive]

So in terms of how we come up with that over 100 basis point number that I quoted, it's a combination of looking at what's the AFFO expectation baked in consensus, baked in our guidance, and a couple of different estimates there. It factors in the dispositions that we announced as well and the cost, if you will, related to those, and then the cost of our credit facility.

And when we do that, again, we're doing it on a leverage-neutral basis, and we're looking at it vis-a-vis the market expectation for our earnings and what those investments incrementally or, I guess, on a stand-alone basis produce on a per share basis, and it's very accretive on that measure.

[Vikram Malhotra, analyst]

And then just -- so 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.

[Michael Costa, executive]

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.

[Vikram Malhotra, analyst]

Got it. And then just maybe a high-level question for you or for Rick. I think 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, next 3 to 5 years, 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 multiyear period. I'm just wondering, is there anything that would change that higher or lower going forward?

[Michael Costa, executive]

I think once our managed portfolio fully stabilizes and it becomes more predictable in terms of its growth prospects, that AFFO per share growth, and absent any additional investments, of course, because that will contribute to it, absent any additional investments, I think that 5% is probably not an unreasonable expectation for a steady-state portfolio.

But keep in mind, none of us are -- neither Sabra nor our peers are steady-state portfolios. 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 5% because things are going to change that. But I think that's an okay assumption on a steady-state portfolio.

[Rick Matros, executive]

The other point that I'd make is, remember, we're in a 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 -- and we're -- 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 we're pretty optimistic about it without putting sort of a fine point on what exactly the number may be.

[Operator]

And your next question comes from the line of John Kilichowski from Wells Fargo.

[William John Kilichowski, analyst]

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-own structure? I know recently, there hasn't been much of a strategy, but curious if those deals are starting to get more attractive here.

[Talya Nevo-Hacohen, executive]

The only -- the purchase option we currently have is the one that we just closed that was -- that you mentioned. We're not in the business of making those. That was an off-market situation that is with an operator that -- 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 a location, from the state of the -- from that situation as well and the operator themselves. Cap rate is hard to say because we -- it will be upwards of 9%, I expect, based on the lease structure that we anticipate having.

[Rick Matros, executive]

And the other point I'd 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 it is 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, it's 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.

[William John Kilichowski, analyst]

Got it. And then maybe jump into G&A here. I think originally in 4Q, you gave a guide that cash G&A was going to be near $37 million for the year. Based off the stock-based 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 G&A. So I'm curious what is causing the acceleration there.

[Michael Costa, executive]

So this quarter, we had a true-up of performance-based compensation expense. And that ties in with the fact that we increased guidance, right? We expect the year to shape up better than we had originally estimated, and that resulted in an increase there. So that increased, so that's why I was focusing, if you noticed in my prepared remarks, on the first half of the year. We trued up 2 quarters worth, if you will, of that expense in the second quarter. But the first half of the year run rate is a good run rate to look at for the back end of the year.

[Operator]

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

[Richard Anderson, analyst]

On the ATM, you have this forward component in the high 14s and you mentioned the stock is 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 what -- how fast you have to settle these forward contracts and move on to a better stock price to raise equity?

[Michael Costa, executive]

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 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 -- and ultimately deploy that into something we really like. I just don't want to be in a position to find something and can't transact on it because we picked a bad day in the market.

[Richard Anderson, analyst]

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

[Michael Costa, executive]

Yes. 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 50-plus percent premiums to NAV and their dividend yield's like 2%. If we're in that place, maybe something we consider. I just think given where our stock trades today, it probably isn't the best trade-off for us. But I'd love to be in that position, Rich.

[Richard Anderson, analyst]

Okay. Michael, you mentioned some nonrecurring events in the second quarter, and I think you did a good job sort of getting us on a run rate for the rest of the year. But you also mentioned cash-based tenants paid you. You collected it in the second quarter. So because it's cash based, 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?

[Michael Costa, executive]

Yes. 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 million was the increase in the cash triple-net rent, and that was because of timing. I think the best way to think about it, Rich, is $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 -- 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.

[Richard Anderson, analyst]

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?

[Rick Matros, executive]

Well, you'll recall that I said it was over with before the Chevron ruling.

[Richard Anderson, analyst]

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? And again, I'm thinking about the G&A line.

[Rick Matros, executive]

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 the systems are in place, would be pretty incremental at that point.

[Operator]

Your next question comes from the line of Michael Stroyeck from Green Street Advisors, LLC.

[Michael Stroyeck, analyst]

I appreciate the comments surrounding the behavioral health occupancy and coverage. But maybe one on NOI since that saw a sizable decline during the quarter despite no real change in property or bed count, but forward NOI is essentially unchanged from last quarter. So I guess just what's driving the delta there? Just so we can better understand the cadence and volatility of NOI in that business.

[Michael Costa, executive]

Yes. I think if you look over the last couple of quarters, the -- even though the property count in that segment has been the same, the NOI jumps around quarter-to-quarter. So I don't think this quarter is necessarily an anomaly. There's various reasons for that. There's 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.

[Rick Matros, executive]

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 lumpiness 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 lumpiness is something that's a lot more normal than it is in some of the other business lines.

[Michael Stroyeck, analyst]

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 REVPOR 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 else equal, but that just doesn't seem to be the case.

[Talya Nevo-Hacohen, executive]

Customer willingness to pay 10% year-over-year increases. I think Senior Housing operators are doing a -- are really trying to manage occupancy growth versus REVPOR growth. And at some point, it's -- you're going to -- 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 we -- our expectations are -- 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 and make -- 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 they're moving to higher-acuity facilities, i.e., Skilled Nursing and such. That's -- you want to maximize length of stay. And so that's the balancing act.

[Operator]

Your next question comes from the line of Alec Feygin from Baird Equity Research.

[Alec Feygin, analyst]

First one for me is how much does Sabra have left for disposition candidates, where the property is not generating stabilized NOI?

[Michael Costa, executive]

I don't know. I mean $50-ish million maybe. Something like that?

[Rick Matros, executive]

$50-plus million, something there.

[Talya Nevo-Hacohen, executive]

Of asset value.

[Rick Matros, executive]

Right. Of asset value.

[Alec Feygin, analyst]

And #2 is what drove the impairment in the Behavioral Health segment this quarter?

[Michael Costa, executive]

Yes. So subsequent to quarter end, as we announced, we 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. They were shuttered facilities. Our initial plans were to convert those properties and make them in behavioral. Based on the market, based on those locations, we decided it wasn't going to work out in that fashion. So we are selling those buildings. That's effectively what led to it. So it wasn't like it was open or operating facilities that were sold. These were shuttered buildings that we're looking to convert.

[Alec Feygin, analyst]

Okay. That's helpful color. And thirdly is related to the Avamere portfolio and the options Sabra has on it, is the company capturing any upside now or expect to over the next 12 months?

[Michael Costa, executive]

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

[Alec Feygin, analyst]

Yes.

[Michael Costa, executive]

Yes. So that option kicks in, I think, beginning early next year. And there's like a 3-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 of years ago. So when we get into next year in that 3-year window, we're going to evaluate where the earnings 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 several years back.

[Operator]

[Operator Instructions] There are no further questions at this time. I'll turn the call back over to Rick Matros.

[Rick Matros, executive]

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

[Operator]

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