Sabra Health Care REIT (Nasdaq: SBRA) is focused on continuing skilled nursing optimization through the end of the year, with another transition in the works and ongoing lease negotiations with its nursing home operating tenants. CEO Rick Matros projected that in a year, less than half of Sabra’s portfolio will be in skilled nursing.
During the California-based real estate investment trust’s (REIT) conference call to discuss third quarter earnings results, Matros said such optimization is building on discussions in July, related to the transfer of former operating partner Avamere’s facilities to new operators. Sabra worked with Avamere to transition 26 properties to new operators, 22 of were taken over by Cascadia Healthcare effective Oct. 1, executives said during the REIT’s 3Q earnings call on Tuesday. Four more Avamere properties will be transitioned to subsidiaries of the Ensign Group (Nasdaq: ENSG).
That SNF transition took annualized rent from $48 million to $53 million, Chief Investment Officer Darrin Smith said, and the full impact will be seen in 2027.
“The increase year over year will be slightly higher than that because we did the rent reset earlier in the year. The NOI generated from that lease will be a little bit higher than $5 million on a year-over-year basis,” said Smith.
And while other skilled nursing lease negotiations are still happening, Matros expects any changes to affect 2027 at some point. These leases are currently well over 2x.
“Operators involved are interested in negotiating an extension sooner or later,” said Matros. “That extension would carry with it an increase in rent … that’s really where the upside is.”
Between 2027 and 2031, Sabra has a “big chunk” of leases due to mature, he said, adding, “You should expect us to take advantage of that.”
Sabra has “cleansed” the portfolio of assets they didn’t want to retain on the skilled nursing side, Matros said. He doesn’t expect any material dispositions with its skilled operators, given the space has such a nice runway ahead of it. But the environment may change in the next couple of years.
Seniors housing is popular, but diversification is smart long-term
Sabra has closed on $750 million in investments to date, with the majority being seniors housing, and $100 million being skilled nursing. The REIT has $425 million awarded and expects more to come before the year is out.
Skilled nursing deals are off-market; Sabra isn’t seeing any uptick in traditional, triple-net skilled deals at the moment, Matros said. Deals are often with operators that have their own in-house capabilities and own the land.
“Economics in the current pipeline are similar to those completed in 2026. It’s a mix of stable assets and some value add or upside opportunities,” said Smith. “Unlevered internal rate of returns continue to range in the low double digits to mid-teens … those are the previously closed assets that had more SNF and private equity, some higher yielding investments.”
Right now, the predominant opportunities are in seniors housing, and that’s why 12 months out, Matros expects to be closer to 50% seniors housing and 40% skilled nursing.
“We’re happy to do more skilled nursing … we can do both. If the SHOP opportunities remain what they are, and there are more skilled nursing opportunities, we’re just going to do both,” said Matros. “We’re not sort of putting any parameters on how much SHOP we want to have, or how much skilled nursing we want to have. We want to have a well-balanced portfolio.”
Long term, Sabra doesn’t want to bet on one asset class only, especially considering the contributions the REIT is getting from its skilled nursing portfolio right now, Matros said.
Rent upside and outside factors
As for skilled nursing and senior housing triple net rent coverage, seniors housing will outweigh skilled for the first time as exposure drifts closer to 40%. One skilled operator will also be making a $10.2 million repayment of deferred rent, as part of a transition agreement, Smith said, since the operator was in a stronger financial position.
“We see no barriers that would prevent this momentum from continuing,” Matros said, while adding that it’s important to have diversity in the portfolio. “Our skilled portfolio offers more earnings growth than the 2.5% escalators that we have seen historically. Our focus on optimizing rents was evident in our July announcement, and we are currently assessing other opportunities.”
In its latest third quarter, Sabra reported net income of 11 cents per diluted share and funds from operations (FFO) of 40 cents per diluted share, up compared to 9 cents and 33 cents during 3Q 2025, respectively.
Earnings per share beat analyst expectations by 3 cents, increasing to 19 cents per diluted share. Sabra shares on Tuesday closed up 3.07%, or 61 cents, to $20.33.
Operational metrics and reimbursement
Smith said labor continues to grow below 3%, while occupancy increased to 86.9% for Sabra’s domestic portfolio, and its Canadian portfolio increased to 93.9% during 3Q; it’s unclear what asset classes these percentages include.
“It’s funny how everything changes now that people are thinking about occupancy in the 90s. All of a sudden, 80%, which is actually quite stabilized, is viewed as not stabilized,” Matros said of occupancy and asset risk. “If you’re at 80%, you’ve got a good operator there and a good asset. There’s not much risk there.”
Matros spoke briefly about the reimbursement landscape for nursing homes as well, and how midterms might affect policy in the year ahead. If Democrats win the Senate and House, the party’s 80-plus pace health care paper may turn into incentives, with the same issues bubbling up again including staffing policy and private equity investment oversight.
“That kind of stuff will bubble up again … we beat those things down in the past. We did it with bipartisan support,” said Matros. “Every state that we’re in has staffing mandates currently, and the staffing mandate that was originally recommended at the federal level was one that Sabra in the aggregate already met, so it’s just not a concern.”
Midterms boil down to “noise and headlines,” Matros said, rather than any actual impact on the day-to-day business.
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