good day everyone my name is greg and i will be your conference operator today at this time i would like to welcome everyone to the 2025 sabra second quarter 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'd like to ask a question during this time simply press star followed by the number one on your telephone keypad once again star one and if you'd like to withdraw your question, simply press star one again. I would now like to turn the call over to Lucas Hartwich, EVP 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 2025 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 10k for the year ended december 31st 2024 as well as in our earnings press release included as exhibit 99.1 to the form 8k we furnished to the SEC yesterday. We undertake no obligation to update our forward-looking statements to 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 sabrahhealth.com. Our Form 10-Q, 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 Sabra Healthcare REIT.

Thanks, Lucas, and thanks everybody for joining us today. We appreciate it. I'll start first with the holiday transition. As many of you know, our relationship with holiday goes back to 2015. We had a number of really good years with holiday, then the pandemic hit. And during the pandemic, they were acquired by Atria. Still, from our perspective, managed really effectively, given how tough the circumstances were during the pandemic. Since the pandemic ended, however, we just haven't seen the same kind of uplift that we've seen in the rest of our shop portfolio. So that was really why we decided to make the change. We had been looking for new opportunities to expand our relationship the discovery and with Inspira, so this is perfect for that, and we have been developing a relationship with Sunshine. So it all worked out really well for us, and we look forward over time to improve performance from the portfolio. And of course, breaking up such a large portfolio, large for us, into smaller pieces is helpful as well. Moving on to reimbursement, we now know what most of our Medicaid rate increases are going to be on average. It'll be somewhere in the 3.5% range, but our top five skilled nursing tenants, which are about 50% of our skilled facilities, are averaging just above 5%. So another good year for us on Medicaid rate increases. The Medicare market best that I think, as everybody has seen, got finalized upward from 2.8 to 3.2, which is pretty unusual, but we're happy, of course, that that's happened. In terms of investments, I just want to reconcile a couple of numbers going back to the last call and to the NAE REIT conference. So on the last quarterly call, we talked about $200 million in awarded deals. So those are all either have been closed or in the process of closing. So that pipeline is closing as expected. Just some of it didn't close by the time we had this call. I also talked about at MayREIT that we were actively working on another $300 million in investments at that time. The total number that I've talked about, that we talked about in our earnings release of about $350 million in close, about to be closed or awarded deals, includes a chunk of the deals from that $300 million that we decided to fully proceed on. In addition to that, we have really hundreds of millions of dollars worth of deals that we're looking at on a weekly basis. So we feel really good about our target of $500 million in investments this year. We feel particularly good about our goal of getting shopped from 20% to 30% and expect that to be accomplished at least on a run rate basis sometime in 2026 it requires a billion dollars in investments so by the end of this year we'll be somewhere around halfway there we are finally starting to see some skilled opportunities that we feel worth the time for us to spend on and hopefully we'll be transacting on some skilled opportunities over the remainder of this year as well moving on to operations just another really strong quarter our triple net rent coverage was up significantly in all asset classes um new highs in skilled and senior housing triple net our occupancy and skilled mix in the skilled portfolio continues to increase our contract labor and our employment levels are now at pre-pandemic levels so all in all everything's really trending in the right direction. We love the investment activity that we have and look forward to finishing out the year and going into 26 on good growth momentum. And with that, I will turn it over to Talia.

Thank you, Rick. Sabra's managed senior housing portfolio continues to grow, and at nearly 21% of our total annualized cash NOI, it is a meaningful contributor to our earnings growth. As Rick stated, Sabra has closed on $122 million of senior housing investments so far this year and has been awarded about $220 million more in senior housing investments, most of which are expected to close by the end of the year. Deal flow remains very strong, and Sabra's cost of capital allows us to bid competitively for senior housing properties. In the first quarter, we were pleased with the tailwinds that offset a typical seasonal cooling of demand. In the second quarter, we saw an uptick in positive momentum. Key operating statistics such as cash NOI and cash NOI margin are up 5.3% and 70 basis points respectively on a sequential basis for the total managed portfolio, including non-stabilized communities and joint venture assets at chair. With the opportunity to develop new inventory constrained by the high cost of capital, building materials, and labor, we do not see a near-term catalyst that will reverse the supply versus demand equation that exists right now. Today, we believe that acquiring while performing newer senior housing communities geared to the taste of the baby boomer generation will be additive to Sabra's portfolio for years to come. Now let me turn to the same store portfolio numbers. Sabra's same store managed senior housing portfolio, including joint venture assets that share and excluding non-stabilized assets continued its strong performance in the second quarter. The key numbers are revenue for the quarter grew 5.6% year over year. Second quarter occupancy in our same store portfolio was 86% compared to 84.6% in the second quarter of 2024. Notably, our domestic portfolio occupancy was 83.5%, gaining 190 basis points of occupancy over the same period. Rev4 in the second quarter of 2025 increased 3.9% year-over-year for the same period. Rev4 grew 6.8% this quarter on a year-over-year basis in our Canadian portfolio, where occupancy has been above 90% for over five quarters, demonstrating the pricing power that comes with elevated occupancy. Importantly, as REVPOR and occupancy continue to increase, EXPOR declined 70 basis points across the same store portfolio, driven by controlled costs and occupancy increases. Cash net operating income for the quarter grew 17.1% year over year in the same store portfolio. In our U.S. communities, cash NOI grew 17.6 percent on a year-over-year basis, while in our Canadian communities, cash NOI for the quarter increased 15.9 percent over the same period. The trends that we have been seeing for the past year continue. Senior housing communities continue to fill up, and operators are balancing rate and occupancy to maximize revenue. With cost structure stable and revenue increasing, cash, NOI, and margin are growing. Our net lease stabilized senior housing portfolio also continues to do well with sequentially improving rent coverage, a reflection of continued strong operating results. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Talia. For the second quarter of 2025, we recognized normalized FFO per share of $0.37 and normalized AFO per share of $0.38 compared to $0.35 and $0.37 respectively for the first quarter. The current quarter results represent a six percent improvement over the same period in 2024. Normalized FFO and normalized AFFO totaled $89.2 million and $91.6 million this quarter respectively, which reflects strong consequential growth from increased NOI in both our triple net and managed senior housing portfolios cash rental income from our triple net portfolio increased 2.3 million dollars from the first quarter this was a result of a 1.4 million dollar increase in percentage rents received with the remainder being primarily driven by contractual annual rent increases these percentage rents will vary from quarter to quarter and therefore this increased level percentage rents should not be assumed to be part of our earnings run rate During the quarter, we updated our estimates of collectability for certain leases within our triple net lease portfolio and moved the leases for two tenants, Avomer and National, from cash basis back to accrual, resulting in a net increase in normalized straight-line rental income of $454,000 for the quarter. Cash NLI from our managed senior housing portfolio totaled $25.3 million for the quarter compared to $24.1 million last quarter. This increase was driven by the strong sequential revenue and margin gains in our same-store portfolio. Interest in other income was $10.3 million for the quarter compared to $10.1 million last quarter. Cash interest expense was $25.8 million dollars compared to 25.4 million dollars last quarter recurring cash gna was 9.4 million dollars this quarter compared to 9.5 million dollars last quarter as noted in our earnings release we have updated our 2025 earnings guidance on a diluted per share basis as follows net income 77 cents to 79 cents ffo a dollar and 52 cents to a dollar and 54 cents Normalized FFO, $1.45 to $1.47. AFFO, $1.47 to $1.49. And normalized FFO of $1.49 to $1.51. This updated guidance increases our midpoint of normalized FFO and normalized FFO to $1.46 and $1.50, respectively. This represents an increase in our normalized FFO midpoint of one and a half pennies and an increase to our normalized ASFO midpoint of half a penny. At this updated midpoint, we expect both normalized ASFO per share and normalized ASFO per share to increase approximately 5% and 4% respectively over 2024. It is important to note that our guidance only includes completed investment, disposition, and capital markets activity. We are also reaffirming the following assumptions included in our previously issued guidance. General and administrative expense of approximately $50 million, which includes $11 million of stock-based compensation expense. Ignoring the impact of acquisitions and dispositions, cash NOI growth for our triple net portfolio is expected to be low single digit, in line with contractual escalators. Additionally, our guidance assumes no additional tenants are placed on cash basis or moved to accrual basis for revenue recognition. Cash NOI growth for our same-store managed senior housing portfolios is expected to be in the low to mid-teens. Our updated guidance also assumes that cash interest expense is approximately $102 million, and that the weighted average share count is approximately $241.5 million and $242.5 million for normalized FFO and normalized AFFO, respectively, which is in line with this quarter's weighted average share count after adjusting for the timing of ATM issuances during the quarter. Now, briefly turning to the balance sheet. Our net set to adjusted EBITDA ratio was five times as of June 30th, 2025, a decrease of 0.19 times from March 31st, 2025, and a decrease of 0.45 times from June 30th, 2024. As we have previously stated, the growth in our managed senior housing portfolio would provide us a pathway to get to our long-term average target leverage of five times without having to access the equity market to delever our balance sheet, and this is precisely what has happened. And now that we've achieved that, we will evaluate our long-term average leverage target as earnings continue to improve. We have been proactively using the forward feature under our ATM to raise equity when our share price presents an attractive opportunity to lock in an accretive cost of capital to fund the deal flow we see in our pipeline. During the quarter, we issued $186.6 million on a forward basis at an average price of $17.86 per share after commissions. And in total, we currently have $266.5 million outstanding under forward contracts at an average price of $17.69 per share after commissions. During the quarter, we settle $29.9 million of outstanding forward contracts to help fund investment activity during and immediately after the quarter. We expect to use the proceeds from the outstanding forward contracts to close on the investments we've been awarded and do so on a leveraged neutral basis. Subsequent to quarter end, we enter into a new five-year $500 million term loan and use those proceeds to repay our 500 million dollar 5 and 1 8 percent unsecured bonds that were set to mature in 2026. the interest rate on this term loan is floating at SOFR plus 120 basis points and we can currently enter into interest rate swaps that fix SOFR at 3.44 percent effectively fixing the rate on this loan at 4.64 percent for the full term the term loan also contains an accordion feature that can increase the total available borrowings to 1 billion dollars subject to terms and conditions pro forma for this financing our weighted average maturity on our debt increases from four years to nearly five years and our weighted average interest rate decreases 10 basis points from 4.14 percent to 4.04 percent the successful financing not only address an upcoming maturity at a lower rate but the effective rate is meaningfully lower than we would have achieved had we used the unsecured bond market as of june 30th 2025 we're in compliance with all of our debt covenants and have ample liquidity of approximately 1.2 billion dollars consisting of under unrestricted cash and cash equivalents of 95.2 million dollars available borrowings under a revolving credit facility of 837 million dollars and the 266.5 million dollars outstanding under forward sales agreements under our atm program as of june 30th we also had 109.3 million dollars available under the ATM program. Finally, on August 4, 2025, Sober's board director declared a quarterly cash dividend of 30 cents per share of common stock. The dividend will be paid on August 29, 2025 to common stockholders of record as of the close of business on August 15, 2025. The dividend is adequately covered and represents a payout of 79% of our second quarter normalized ASFO per share. And with that, we'll open up the lines for Q&A.

Thank you. And at this time, I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad once again the star one and we will pause just a moment to compile the q a roster all right looks like our first question comes from the line of john kilichowski with wells fargo john your line is open thank you uh good afternoon uh maybe my first one rick in the opening remarks i thought your color was really helpful on the investment guide.

At NAIRED, you spoke to the $200 million and the $300 million, and then now we're back into a $350 million number. It sounds like you're still confident that you can get to about $500 million for the year, which I think is even more positive than you are at NAIRED. Am I thinking about that correctly?

It'll be somewhere in the $400 to $500 range. It'll just depend on timing. My guess is there'll be some deals that make close like on January 1, maybe tax reasons or whatever else, but it'll be close.

Okay. That's helpful. And then I think, do you think that the rest of that number would be comprised of skilled nursing deals? And what's kind of keeping those from entering the pipeline so far? Like how close are you on pricing?

Well, pricing isn't an issue at all. It's actually just finding deals that we think are good deals, you know, quality assets in the right markets a lot of the stuff that we looked at uh just isn't good and i think that if you look at if you look at our triple net portfolio whether you look at the skilled portfolio or the senior housing portfolio between the merger from a number of years ago when all the cleanup that we did subsequent as a as a function of that and the pandemic both selling assets and transitioning assets. We've got a really great core of operators now as evidenced by our coverage. Our coverage is stronger than most out there. And so, you know, we're really being particular about, you know, the quality of the assets that we're bringing into the portfolio. So I think it's fair to say that the majority of it will probably still be shopped, but we are definitely focused on working on the skilled side and trying to get some deals done there. But I still think it would be weighted a little bit more towards shop and skill. But we certainly want to do more skilled.

Okay, very helpful. And then maybe last one.

Yeah, the other thing I should just note is we're still not interested in building a loan book, which is how some of these deals are getting done. And we're not interested in doing sort of complex JV kind of structures or meds debt or anything like that. We're just not interested in doing that. We just want to do straightforward, kind of simple to understand traditional deals.

And just one other comment I want to make, and I know you had another piece, and I misstated in the opening remarks, the 5% on the Medicaid rate increase is for the top five states that were in, not the top five operators. got it okay very helpful and then the last part for me was just on the the same store shop noi that number continues to run at the high end or even maybe slightly above that sort of low to mid teens number that you've given i think you're at 17 percent you know one age today what's keeping you from maybe taking that guide up i know michael spoke last quarter about comps were maybe slightly tougher in the latter half of the year i'm curious if you're still seeing that quarter to date or maybe there's room for upside there we're hoping that there'll be upside we just we felt we could

move guidance a little bit and still be in a position where we hope we can beat it so we're just being sort of moderate in our approach got it thank you yeah all right thanks thank you john and our next question comes from the line of feral granite with bank of america Farrell, your line is open.

Thank you. Good afternoon. My question is about same-store shop occupancy. I was wondering if you could add a little bit more color subsequently. There wasn't much movement, if there was anything specific going on, just given the 2Q tends to be a little bit stronger in occupancy growth.

Yeah, I think, hi, it's Talia. I think you have to realize that despite transitioning the holiday portfolio on April 1, so the very beginning of Q2, 16 of the 21 holiday assets remained in same store sales. We decided to do that. That had an impact, as you can imagine, just because the usual noise you have in transition. So if you pulled that out, the number would have looked more exciting to you.

Okay. Thank you. And then also on the comments of skilled opportunities starting to come up and looking to transact more, I was curious if you could add in a little bit more color. What's driving that more of the opportunity opening up? Was it the OBVBA? And also, are you hearing anything in terms of concern on health systems? And is that driving any of the conversation?

I don't think that we're seeing a significant change in the volume of skilled nursing coming to market. I think we have seen for a while now, the last few years, a significant move of transactions into the private market by owner-operators with capital backing them up outside of the REAP space. So we are seeing assets come to market in the SNF space. We're not seeing a lot, but we are seeing some. I think the only thing that has shaped the volume of deals we've seen has been true both on skilled and senior housing over the last few years is the recovery in fundamental operations. Just thinking about owners, whether or not they had financing in place, the fact is operations have recovered significantly both in skilled and in senior housing, and that allows for much more robust pricing, even if cap rates have moved up somewhat from pre-pandemic, but the operational recovery has been very effective in raising absolute prices.

Okay, and just to confirm, when you're saying that is the influence of kind of moving past the reconciliation bill, has that lifted any potential weight or concern while you've been having your conversations, or was that not always even a part of the conversation? no that's that's a non-issue okay thank you thanks barrel and our next question comes from the line of nick ulico with scotia bank nick your line is open hi this is elmer chang on with nick uh first question is just on on the shop uh portfolio again how do you expect uh component

drivers to trend in the back half of the year since, as mentioned, NOI growth guidance implies some slowdown. Given just previous comments and your remarks about employment levels returning to pre-pandemic levels and maybe some potential impact from the holiday transition assets.

I hate to try to predict the future, but right now it all looks very positive. If you follow the NIC statistics, there's essentially no new inventory coming in the system. And we're seeing very few development deals. Actually, for a while, we started seeing some. We see none right now. And we see virtually none in the pipeline, in the markets where we have been investing and where we have assets. So with that is the fundamental context. The demand is increasing. just because the number of people who are aging and ready to move in is rising. Our focus is on the care segment with most of our assets being assisted living and memory care with some IL. And I think the fundamental demand in the secondary markets and more in the middle market price point is very well positioned and therefore likely to increase.

Okay, thank you. And then second question on a holiday transition portfolio. You mentioned that you transitioned into trusted operators and you've been building a relationship with Sunshine for some time, but how are you getting comfortable with maybe diversifying the tenant base a little bit? and then could you provide additional color on what that bidding process entails for operators looking to take on transition assets?

Well, I'm not sure what you mean by the benefit of the transition and breaking it up. I think having less concentration in one operator is always helpful so and to be able to do that when you've already got a pre-existing relationship in this case with two of the three operators and the bulk of the facilities so i'm not really i think i'm not understanding your question um and in terms of the in terms of the bidding process whenever we look to transition we usually identify those operators that we think would be the right fit and we ask them to submit the put we give them the information they need they submit proposals just like with any other process, and you go from there.

Okay, yeah, thanks for that.

All right, thanks, Elmer. And our next question comes from the line of Seth Berge with Citi. Seth, please go ahead. Seth, are you there?

You might be muted.

Going once, going twice. All right, we will move on. And our next question comes from the line of Austin Werchmidt with KeyBank. KeyBank Capital Markets, excuse me, Austin. And Austin, your line is open.

Great. Thank you. Rick, appreciate the details on the transitions. I guess I'm just curious kind of how long you've been evaluating transitioning these assets and when kind of you made that final decision to move forward because it does sound like there was a little bit of a process in selecting operators, you know, for these buildings.

But you might recall that there was a change in leadership at Holiday, and we thought that we should give the new team time. And look, they may be doing a great job with other things, so I don't want to sort of be negative about anyone. But post the transition, despite all the positive interactions with the new team, we just weren't getting the results that we expected to get and that we were seeing in the rest of our shop portfolio. So it was really as simple as that. And so, you know, last year we started having serious discussions about moving the portfolio. and by the end of the year, we have pretty much identified a list of potential operators that could take over different pieces of that portfolio and targeted, put the process in place and then targeted the transition date. So that was all before the end of last year.

That's helpful. And then for the five assets that you excluded from the same store pool, I mean, how impactful has the transition been? Were these already the most underperforming assets? And are you planning on investing any additional capital into those specific assets?

Yeah, some of those assets that are excluded weren't in our same store pool leading up to the transition. So not a major change there. And it shows, given how little the overall pool changed sequentially. And we have been putting capital into those assets, that entire portfolio, quite frankly, over the last couple of years. I'd have to look to see if those five assets specifically were part of that program. I'd have to imagine they were given, you know, we need to see that performance turn around.

Got it. And then with the holiday assets transition in April, I guess, can you share kind of how, I mean, the occupancy trended through the quarter and maybe what the momentum looks like into July, just to help us understand the fact that, you know, NOI is tracking ahead, but there is this implied deceleration with presumably, you know, occupancy being a big piece of that. So just give us a sense of what that momentum looks like headed into the back half of the year.

Sure. I'll kind of give you the directions we're seeing over the course of the second quarter, just to give you a sense, and these are just the holiday transition assets. So we saw tours, as you can imagine, decline initially, but they have definitely picked up since after June. Move-ins actually picked up starting in May. So they, well, I don't have a measurement for before, April, but they basically picked up. And move outs are declining multiple months now. So the momentum is the right momentum. Tours up, move ins up, move outs down. And that kind of put that together and you get higher occupancy. So we're anticipating that the noise of the transition is basically in the rearview mirror, and we should be seeing improvement in occupancy and how that flows through the rest of the P&L.

Great. Thanks for the time.

Thank you, Austin. And our next question comes from the line of Vikram Malhotra with Mizuho Securities. Vikram, please go ahead.

Asnoon, thanks for seeing the questions. I guess just going back to the external growth of the pipeline, kind of what you laid out, I guess, Rick, implies a pretty big acceleration in the back half. And I'm wondering, you know, kind of how, you know, timing wise is more backend weighted and how sustainable is this space into 26, given your, you know, your goal of kind of hitting 30% of shop. Thanks.

Well, I don't think that we need, I don't think the momentum is overly weighted towards the latter half because we have about 350 million right now of that four to five that we're either closed or closing or awarded. So I think it's pretty spread. It's spread out pretty nicely over the next, over these next couple of quarters.

And Tali, do you want to talk about going into next year and the volume that we're seeing is unabated um and we continue to bid um based on what we believe is fair as appropriate pricing um for sabra given cost of capital and we are finding ourselves in the second round and touring uh on any every asset that we're interested in frankly um and you've heard us talk about the profile of those assets all of which um are which are you know newer builds senior housing um uh strong markets and um opportunity for growth um so so not bond uh type return for the most part uh so it so far looks good i can tell you the team's out on two tours touring different two different properties this week so the momentum continues. So, I mean, you can do the timing. I think what we've talked about is being awarded is well in process in terms of documentation and a process to close. So it's not as back-ended as it sounds.

Okay. And I just want to clarify two quick things. So one, I think you mentioned the transition assets in the pool. Like I think you had mentioned if we stripped them out, there would have been different occupancy or different NOI growth. Do you mind just clarifying, like, if you didn't have the transition assets, what the growth would be? And then just the other clarification essentially was that on the, you know, just the overall acquisition, you talked about the pipeline. I'm just wondering if some of that's sitting in Canada as well.

I'll take the second part of that. So in Canada, we continue to look. Frankly, I'd love to do some more deals in Canada, but the challenge is that debt rates are about 200 basis points lower than they are here, which means the cap rates are also 150-ish to 200 basis points lower. So So you've seen from some of our peers, they're doing deals that call it a 6% going in yield or a 5.5% going in yield in Canada. And that pricing is just too rich for us, no matter how much we might like to buy the asset.

Yeah, and then on your first question, look, we didn't disclose that. um I guess one thing I would say is that if we didn't have those transition assets in our you know same store numbers the numbers will be better that's along the lines of what I said before about occupancy as well right thank you all right thank you Bikram and our next question comes from the line of Alec Fagan with Baird Alec your line is open yeah and thank you for taking my question And just to circle back on the holiday transition, can you articulate maybe some of the NOI upside that you've already captured and will continue to capture throughout this year next?

Look, I think we're not going to get specific about that because it really requires a crystal ball. I think listening to one of our peers' calls, they're seeing nice improvement in the transition they went through a year later. So we fully expect it to improve, but to specify how much it's going to improve and what that time frame is, there's no way we can be right about that answer. So it's too much specificity you're looking for with a crystal ball.

Okay, fair. No crystal balls, so that's totally fair. Second for me, on the actual pipeline, maybe just speak on the mix of assets, whether they're IL, AL, campus, and is it new operators or existing operators? Just maybe some more details there.

Are you talking about deals that we're seeing in the market or that we're revaluating or ones that are um that we're in the pipeline that 220 million okay um so those um some of them are deal transactions with groups we know and have and our trusted um operators um some are groups with whom we have been working to establish a relationship and so it's an opportunity for us to do something And most of the, they are all institutional quality assets being sold typically for vintage issues by institutional owners.

All right. Well, thank you.

All right. Thank you, Alec. And our next question comes from the line of Omotayo Okusanya with Deutsche Bank. Omotayo, your line is open. Yes.

Good afternoon, everyone. Just a couple of really quick words. Community care, the rent coverage there kind of declined slightly. Just kind of curious, should you give us an update on how they're doing and if there's anything we should be paying attention to there?

Yeah, nothing that we're really concerned about. They've had some challenges in one of their states, as a lot of operators are, and so they're focused on divesting a few facilities and uh and that that's basically all there is to it so um they'll be fine when that occurs 1.77 times coverage is not something we're complaining about either right right but in terms of right but they but they you know they've been working on these these facilities and um it's just not happening the way they would like it to and we we we've been in that market with others besides them and it's it's a tough market that that that these particular facilities are in so we have no you know they're a good size company they're very strong they're a good operator we love working with them and so we're very confident that once they divest a few of these things they'll be good but again as talia said even with the reduction there's no concerns are these your assets that they're going to be divesting yes okay gotcha that's helpful.

And then second of all, again, just with all the questions around debt ceiling and fiscal deficits and stuff like that, do you see any risk where we're kind of not ending up in a sequestration situation a year or two from now? And what impact did that have on Medicare? here?

I don't think so, but, you know, that stuff's really hard to tell, but, you know, I think that we've done, our lobbying groups have done a really fantastic job for us, and with all these Medicaid cuts in the bill, you know, we were carved out. We understand it may put pressure on state governments, but we were carved out. The upward revision in the Medicare market basket was a good sign. There's no kinds of dialogue with CMS that is causing us any concerns as we look out over the next year plus. So, you know, I think we're in a really good place. And the other thing, Tayo, I think to remember is the whole space is in a different place now relative to the continued decline in supply and the continued increase in occupancy. So the space also can afford, there's a lot more cushion now. You look at our rent coverage, right? There's so much more cushion that this space has that it hasn't had before. And as occupancy continues to increase, we've already passed that inflection point with the operating leverage. So that pull through for every additional patient just gets stronger and stronger. So, you know, it feels really, really good right now, even when we look out to the next couple of years, because I would anticipate as inflation's come down, just like we saw this year's Medicaid rate increases lower than last year's Medicaid rate increases, those will moderate more over the next couple of years. And the market basket for Medicare will moderate as well. But that moderation comes at a time when the industry is finally very, very healthy again.

Thank you.

Thank you, Tayo. And just a reminder again, one final reminder, if you'd like to ask a question, it is star one on your telephone keypad. Once again, star one. All right. Our next question comes from the line of Michael Stroyak with Green Street. Michael, your line is open. Thanks, and good morning.

Maybe on the labor side, what sort of wage increases are you seeing your operators pass along to employees today? And is there any difference in wage growth between your SNF and senior housing portfolios?

No, it's all somewhere, give or take, 4%-ish. And it's been that way now for, We're probably going into year three with those kind of wage increases. Just to refresh it for everybody, it was 2022 where there were huge, huge adjustments in the wage basis for employees across the board in both spaces. And then in 23, it really moderated down to sort of mid-single digit, which demonstrated that what our operators did in 22 is effective, and it's held steady since then. And the fact that we've been able to get to pre-pandemic employment levels and temporary agency levels at that level of wage increases, I think kind of proves the point that it's all worked.

Yeah, that makes sense. I guess, are there any states or markets where you are seeing a particularly tight labor market, either on the field nursing or senior housing side?

I can't pinpoint one really off the top of my head. I mean, everything's better. There are differences in degrees as to how much better, but we're not, we're not, there's sort of not undue suffering going on in any particular market.

Got it. Thanks for the time.

Yep, thank you.

Thanks, Michael. And it looks like our final question today comes from the line of Seth Bergey at Citi. Seth, your line is open.

Hi, thanks for taking my question. I think in talking about, you know, kind of the opportunities that you've been awarded, some of them are with new operators, some of them are with existing. Can you talk a little bit about, you know, your selection criteria for new operators?

Well, one, we spend a lot of time with them prior to even looking at a deal with them. So we get to know them. We get to understand how they operate, the kind of markets they picked, and most importantly, what do their outcomes look like from a quality perspective? So it's really all those things. It's pretty traditional stuff, really. But the other characteristic I would say is we have a lot of really good operators that aren't interested in growing that much. You know, they're happy with their portfolios. So part of what we've been looking for with new operators is our operators that want to actively grow so that we have a higher number of operators within our existing portfolio that we can depend on to grow with and not just always look for new operators.

And then just, you know, I think on the last call, you mentioned kind of as the outlook for shop has improved that there's actually been a smaller smaller pool of buyers i'm just kind of curious you know as you look out there for investment opportunities kind of how the buyer pool has changed if at all um the buyer pool has changed very little over the last call it year certainly six months um uh you have primarily the REITs and you have private capital in the market as well, the private equity funds, there are plenty that have stepped away from the sector, and there are some that are coming in, but I'd say they're coming in in a small way and not trying to do something big right away. And there are some that like Harrison Street that's been consistently in the space and they remain consistently in the space.

Great. Thank you.

All right. Thank you so much, Seth. And that does conclude our Q&A session today. I will now turn the call back over to Rick Matros. Rick.

Thank you. And thank you all for joining us today. As always, we're available for more dialogue and we'll look forward to talking with you and enjoy the rest of the summer. Take care.

Thanks, Rick. This concludes today's conference call. You may now disconnect.