SBRA - NASDAQ

Good day, everyone. My name is Mandeep, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Sabra Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I'd now like to turn the call over to Lukas Hartwich, SVP, 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 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, 2022, 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 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 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.

Thanks, Lukas, and good day, everyone. We start off with reimbursement. So, as everybody knows the final Medicare market basket was 4%, up from 3.7% the proposed rule. Importantly though, this is the second and last year of the parity adjustment. Without the parity adjustment, the increase would have been 6.4%, indicating that the formula is capturing increased operating costs, which bodes well for next year's market basket. On the Medicaid side of the business, we're seeing increases well above historical averages. You may recall probably for 10 years or more before the pandemic, Medicaid in the aggregate was averaging about a 0.5% increase a year. We're anticipating now that, in the aggregate to Sabra's portfolio, the increases for this year will be over 5%. We've gotten a number of the rates already in place, and some more kind of on the way. So over 5% we think is a good number, and I'd also remind everybody because of the lag time in the cost report process, as we look forward to next year's rates, we expect them to be even stronger. So some really nice tailwinds on the reimbursement side there. Moving on to operations. Our coverages continue to improve broadly, occupancies increasing in our skilled and in our AL portfolios. Labor is slowly getting better. All leading to margin improvement in our primary asset classes. None of this is happening quickly, but it is happening. As much as the coverage improved and what we reported, our trailing three EBITDARM coverage for skilled has improved three quarters in a row and now is at 1.68 excluding PRF, so actually quite a bit higher than even with a trailing 12 shows. On occupancy, occupancy continues to move up beyond the quarter and that along with the declining labor expenses have contributed to that coverage. We have significant upside with the transition of what were the 11 wholly-owned and live in AL and memory care buildings to Inspirit. The transition happen more quickly than we anticipated. It was very cooperative. It went really well, no frictional costs and that portfolio has underperformed the space for reasons that I think everybody is aware of. And I would remind everybody that prior to the pandemic that portfolio was in the mid-90s from an occupancy perspective. So at 76% or so occupancy today there's really pretty dramatic upside there. And given the size of our managed portfolio will have a disproportionate impact as we look at earnings going forward. While we do not provide guidance given the specificity, we're looking for relative to timing on the recovery of the managed portfolio on facility transitions. We now have enough visibility to provide a bridge back to earnings growth that we provided in the supplemental and in the investor deck that we released -- that we filed yesterday. And while there is no timeframe associated with that, it is a reasonable timeframe and serves as a blueprint that will help us as we get closer to 2024 and put out 2024 guidance. Our current acquisition pipeline has lightened as we've said, given our current cost of capital, we wouldn't expect to do much at this time. But that earnings upside demonstrates that there is an opportunity for us to get very active again as we move into 2024. That said, all the factors I've cited that are strengthening the portfolio and providing earnings growth as we look forward to 2024, we do believe just to emphasize the point that it will result in the cost of our equity improving. And with that, I will turn the call over to Talya.

Thank you, Rick. I will first address the results of our managed senior housing portfolio and then provide a brief update on our behavioral health investments. Our wholly-owned managed senior housing portfolio continues to recover with cash net operating income and margin as well as REVPOR trending up over the past five quarters. The headline numbers for the wholly-owned managed portfolio on a same-store basis excluding non-stabilized assets and government stimulus are as follows. Occupancy for the second quarter of 2023 was 79.9%, a 50 basis point decrease over the second quarter of 2022. Quarterly occupancy in our assisted living portfolio continue to increase improving 120 basis points over the prior quarter and 250 basis points over the second quarter of 2022. REVPOR in the second quarter of 2023 increased by 7% over the second quarter of 2022 driven by continued rate increases achieved in our larger portfolios, which have targeted 10% for anniversary increases. Strong rate growth persists among all of Sabra operators although realized increases were 5% to 7% in the quarter rather than the 9% to 10% we saw in the prior quarter. Excluding government stimulus funds, cash net operating income for the quarter was slightly off of the prior quarter, but 20.4% higher than in the second quarter of 2022 driven by continued margin recovery, particularly in our wholly-owned Enlivant portfolio, which benefited from strong operating leverage. That portfolio was transitioned to Inspirit Senior Living shortly after the start of the third quarter. Excluding three communities that were impacted by specific events such as leadership turnover and renovation, Sabra's same-store holiday communities posted year-over-year cash NOI growth of 17% in the second quarter of 2023 following 22% year-over-year cash NOI growth in the prior quarter. Excluding those three properties, Sabra's wholly-owned managed portfolio would have achieved nearly 31% year-over-year NOI growth this past quarter. Our net leased stabilized senior housing portfolio has seen a full recovery to pre-pandemic occupancy and improving EBITDARM coverage. Occupancy growth has outpaced our managed portfolio, largely because of net leased portfolio is mostly assisted living and memory care communities. In addition, we have transitioned a few lesser-performing leased-out communities to the managed portfolio, which allows us to participate in their financial recovery. Beginning this past June, the holiday portfolio has had two consecutive months of positive net occupancy growth with July being exceptionally strong and momentum carrying over into August. Sabra has implemented a renovation program across the holiday portfolio in line with what other owners are doing, while only two projects have been completed so far. We expect that these improvements, once completed will support accelerated occupancy growth, continued strong leasing results, and ongoing positive leasing spreads should boost operating results across the holiday portfolio. Comparing second quarter 2023 to second quarter of 2022, excluding government stimulus, our U.S. communities have outperformed our Canadian assets on cash NOI and margin REVPOR and expense growth. Although our Canadian communities have had significant growth in revenue and occupancy, the factors impacting expense growth in particular labor has lagged their recovery trends in the U.S., but are now moving in the right direction. We continue to invest in our behavioral health portfolio primarily through the conversion of existing owned properties. This is a granular process and takes time. At the end of the second quarter, Sabra's investment in behavioral health included 17 properties and two mortgages with a total investment of just over $800 million. And with that, I will turn the call over to Michael Costa, Sabra's Chief Financial Officer.

Thanks, Talya. For the second quarter of 2023, we recognized normalized FFO per share of $0.33 and normalized AFFO per share of $0.34. These results are consistent with the expected normalized FFO and normalized AFFO run rate of between $0.33 and $0.34 per share that we have shared over the last several quarters. Also, as of June 30, 2023, our annualized cash NOI was $458.5 million and our SNF exposure represented 55.7% of our annualized cash NOI, down 100 basis points from the first quarter and down 500 basis points from a year ago. Our portfolio is the most diversified it's ever been with our SNF concentration reaching its lowest point in our history. Additionally, our SNF concentration will decrease further as we realize the embedded upside opportunities in our portfolio. In both our supplement and in our investor presentation that we released yesterday, we have included a table which illustrates the upside opportunity in our portfolio from the recovery in our managed senior housing portfolio, as well as the stabilization of our previously disclosed property transitions and behavioral conversions. Once realized, this increased NOI will not only provide meaningful further future earnings growth, but also naturally diversify our portfolio further and de-lever our balance sheet. During a time where accretive external growth is challenging due to our elevated cost of capital, proactive management of our existing portfolio has been and will continue to be the best source of earnings growth. Now, turning to the balance sheet. Our net debt to adjusted EBITDA ratio was 5.61x as of June 30, 2023. As we have noted in the last several quarters, there had been some notable decreases in our earnings run rates namely the burning off of the Genesis excess rents, the transitioning of the portfolio formerly operated by North American to Ensign and Avamere, and the impact of transitioning facilities to new operators and new operating models. These items have created a drag on near-term earnings and likewise increased our net debt to adjusted EBITDA ratio. Accordingly, the increases we have seen in this ratio over the last few quarters were expected as a result of these factors and we expect leverage to continue increasing slightly over the next several quarters as the full impact of these changes make their way into our trailing 12 months EBITDA. Importantly, however, this leverage impact is short term in nature and the upside opportunities, I discussed earlier, will have a positive impact on our leverage, up to a half turn of improvement in leverage once realized. We remain committed to a long-term average leverage target of 5x, and because of the embedded upsides in our portfolio, together with the proceeds from any potential future disposition activity, we are confident that we can achieve that target over time without needing to access the capital markets. As of June 30, 2023, we are in compliance with all of our debt covenants and have ample liquidity of over $926 million consisting of unrestricted cash and cash equivalents of $27 million and available borrowings of $899 million under our revolving credit facilities. We have no material near-term debt maturities. Our next material debt maturity is in the second half of 2026 and our weighted average debt maturity is currently at six years. Excluding our revolving credit facility, which makes up just 4.1% of our total debt, we have no floating rate debt exposure and our cost of permanent debt is 3.94% as at June 30, 2023. Finally, on August 7, 2023, our Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on August 31, 2023, to common stockholders of record as of the close of business on August 17, 2023. The dividend represents a payout of 88% of our normalized AFFO per share. And with that, we'll open the lines for Q&A.

[Operator Instructions]. Your first question comes from the line of Juan Sanabria from BMO Capital Markets. Your line is open.

Hi, good morning. I was hoping you could talk a little bit about the SHOP portfolio and what you're seeing on AL versus IL, expectations for what cash flow should do now that with these transitions going on in Enlivant, should we expect further degradation from Enlivant with the transition or it's the next step up before rather than going down?

Yes, Enlivant as I said in my opening remarks, we don't expect any downside there at all. The transitions happened. It's been a month, everything is going really well there. So we expect only upside, Juan, it's just a matter of how quickly gets there. But that's why I put out the pre-pandemic occupancy as a benchmark in terms of what we're looking forward to over time.

Could you just comment on the relative performance of AL versus IL in that same-store pool?

Sure. So, it's Talya. So, we've talked about how in the past, I think for every quarter for quite a while, how they've performed differently. IL didn't go down as far, hasn't come up, hasn't bounced back as quickly. It's just the amplitude of the change has been different. I'd say, on the bulk, a lot of our IL in Canada has performed also sort of similar dampened amplitude in terms of how it went down in occupancy and therefore the rebound. And that's driven by the whole aspect of being needs-based. I think the other piece of the equation really goes to some of the opportunities for renovation to the extent that we haven't been able to get in and renovate holiday assets during the pandemic. We're in catch-up mode as are all altogether I think landlords and owners at this time, and that's a meaningful factor because those assets are not five years old. They are older and there is an opportunity there to really improve them.

And the only other thing I'd add, Juan, just to remind everybody, IL is a very different operating model. It's optional even though there has been some acuity creep, it's not needs-based. It doesn't have the same labor needs or issues that have affected the other asset classes through the pandemic and it started out pre-pandemic. I mean the margins at holiday in our portfolio were 40% or better. So it started out with much higher margins to begin with. So I really think that business, I know it's hard for folks, and we have a lot of things to pay attention to, but I really think that business is different enough that it really needs to be assessed kind of on its own and not always being compared to AL.

And just going forward, should we expect further transitions or do you think at this point and what you know now, we're kind of through that part of the equation either on the SHOP, or the triple-net side, I guess, for that matter?

It was pretty close-through. I mean other than the occasional ordinary course of business that probably known or even noticed.

Thank you.

Our next question comes from the line of Austin Wurschmidt from KeyBanc. Your line is open.

Great, thank you. First off, any known additional offsets to the $42 million of NOI upside that you highlighted this quarter and what are the remaining capital requirements to achieve that $42 million?

Yes, so in terms of offset, I mean nothing notable comes to mind on that. I mean, those are just going to naturally occur over a period of time as those facilities stabilize as the senior housing managed portfolio continues to recover as it has been, so nothing notable offsetting that to point out. In terms of additional capital, I mean the capital for those specific items on the conversion side, as we've talked on the past, there's capital that would need to be invested in those, but it's really small dollars in the grand scheme of things, far smaller than buying something in the market to renovate a wing or to put some dollars into a property. So again, nothing material that we foresee in terms of capital needs that would need to be in order to realize that.

And then just absent, I guess any big improvement in the senior housing managed. Realize you're not giving guidance, but it's $0.33 to $0.34 still be appropriate quarterly run rate, and then these other elements of when the $40 million -- some portion of the $42 million hits could be incremental upside from here?

Yeah. I mean the $0.33 to $0.34 run rate is still a good run rate to use, I would say for the next quarter and then we'll have to reassess it at that point once we see how performance is shaping up. In terms of the timing of getting to that upside, it's going to depend on again when you believe the senior housing space is going to return to pre-pandemic performance, that's really the largest driver of that number. We don't think it's three years away necessarily, but we don't think it's going to be by the end of this year, either.

That's fair. And then just last one for me. You guys did roughly $20 million disposition. I think you said $50 million through year-end. Is that still the right figure? And is that -- or some of that concentrated with some of the, call it, less core assets leased to Signature? And that's it from me.

That's not related to Signature. And in terms of what we expect to dispose of, yes, we have some more that we're looking at. Again, it's not going to be of the size of what we completed earlier this year or anything like that. And there's always going to be some sales in the normal course of business. But in terms of our larger dollar disposition activity, most of that is behind us.

Understood. Thank you.

Our next question comes from the line of Vikram Malhotra from Mizuho. Your line is open.

Thanks for taking the questions. So just clarifying on that -- on that your comments around the long-term goal, the $42 million. Some of your peers have outlined similar sort of pathways and given occupancy and margin targets I guess at the end of it all. Do you mind just giving us a flavor? I think, I know you referenced the 90 occupancy upside, but just specifically to get to that $42 million, what's the SHOP occupancy and the margin embedded in that?

Yes, so that's actually we've footnoted in that table there. So what we've highlighted is the occupancy and margin as it sits today and effectively what that assumes, that upside assumes it's just getting back to where it sat pre-COVID which was -- I'm trying to pull up the exact number. I think it was like 87% occupancy pre-COVID and 33% margin pre-COVID. It assumes nothing beyond that. And we do think given the demographics, there's definitely an opportunity to exceed those numbers in time. So again, we're just modeling out to get back to those pre-COVID levels and nothing above that.

And just to clarify your comment about not one year, and not three years. So let's just say two years. That is just -- is that assuming the current occupancy gain you've seen this year just continues? So it would seem like that, but just want to clarify, that's what you're assuming in terms of getting back to the pre-COVID metrics?

Yes, I think that's a fair assumption, Vikram.

Okay. And then just I wanted if…

And I also -- I wouldn't split the baby between more than three years either if we think.

Fair enough. We'll leave it at one to three. Just to clarify, so on the run rate, could you give us a little bit more color on the benefit you may be starting to see from all the transitions you did, I want to say a year ago or completed a couple of quarters ago, these 20 assets or so, 15 assets. How is that starting to impact the earnings run rate? And then based on the transitions you just did, what's the put here, what are the puts and takes to the run rate based on the prior transition and the one you just did?

So the transition, so in that table, we note the previously disclosed 25 properties that were transitioned. Those are the same 25 properties we talked about last year at this time. And if you recall, we were estimating somewhere around $10 million of upside in that table last year and now we're showing $5 million of upside. So, it's safe to assume that we already realized about $5 million of that upside in our current numbers and there's $5 million left to be attained there.

And sorry, just to clarify. So, $5 million will hit at some point in the next few quarters. But then, is there an offset to that or that's just additive to the run rate right now?

That is just additive to the run rate.

Thank you.

Your next question comes from the line of Tao Qiu from Berenberg. Your line is open.

Hey, good morning. Rick, or Talya, could you provide some color on Enlivant transition Inspirit? It sounds like it was down faster than expected. I think you also transition the 2.0 senior housing assets to the same operator and I think both are in SHOP now. How do the conversation came about and why did you picked that particular operator? And could you also talk about if there any meaningful changes to the management contract there?

Sure. So we have known the CEO of Inspirit since we bought those two leased assets because he was basically head of that company that operated those. He ended up going out on his own. And when the existing tenant decided they wanted to exit the business, and actually put their other assets up for sale -- their owned assets up for sale, we decided to transition as well. And since we knew Dave and we knew his knowledge base of those assets and ran them for years, it made complete sense. The Enlivant assets we looked at several operators. We focused on Inspirit because this fit incredibly well with our geography and we had a very good sense of their level of focus and ability to execute within that geography. So we went with them and so that's how that came to be. It's kind of fortuitous they happened sequentially in that way. In terms of management agreement, the terms are not materially different than what we have in place, or slightly different from what we have with Enlivant but not anything material.

Got it. Thanks for the details. My follow-up is on rate expectations. I think Rick, I heard, you're talking about next year's rate being stronger. Just to clarify, is that on Medicare or Medicaid? And could you also talk about the SHOP REVPOR expectation, I think Enlivant and is coming up in October, just curious in terms of the rate-setting expectations there? Thank you.

Yes, I was talking about Medicare and Medicaid. That's why I gave the example this year's rate market basket for Medicare and last year's was suppressed because of the parity adjustment from a couple of years ago. So that goes away next year and that was actually a pretty big hit. It's the difference between a 4% market basket this year and a 6.4% market basket this year. Medicare is a little bit more current on capturing inflation than a lot of the State Medicaid systems. So we would anticipate next year's rate being quite strong as well, both because it will be capturing inflation and then the fact that we won't have a parity adjustment. On Medicaid, there's just always a lag in the cost reports systems and so by the time we get to next year's rates, bill fully capture in most every state 2022 which was the highest point of inflation that we've had. Obviously, it's come down since 2022. There is one of the reasons that the rates are so strong for this year is there are a number of states that decided to sort of override the formula because the formula wasn't reflecting more current inflation and so some of those states received better rates. We saw that in Ohio, we saw that in Washington, and Oregon, we saw that in Kentucky. We saw in a number of places. So, I think and that's always been one of the takeaways from what happened during COVID is sort of a newfound awareness on the part of a lot of states that Medicaid has been underfunded. So that's why we anticipate rates being even stronger next year than they are this year. It's all -- it's formulaic. And then your questions on SHOP REVPOR.

So I think I told you we're -- that achieved results have or slightly lower this quarter than before. I think specifically on the Enlivant portfolio, I believe we were focused on the expectation is that the October increases will happen. I don't have a sense yet of what that rate increase is going to be, but I would expect them to be 5% or higher. So, there is still on the higher side of things, given the inflationary environment but not -- probably not as high as some of the 10% increases we had seen several months ago. We'll keep you posted.

Fair. Thank you.

Our next question comes from the line of Michael Griffin from Citi. Your line is open.

Great, thanks. Just on the sales this quarter, could you quantify maybe a cap rate perspective or valuation kind of where assets are trading in the market these days?

Yes, in terms of those sales, the cap rate on those and I guess defying cap rate. I mean if we look at the yield comparing the rent that we were getting on those assets, comparing that to the proceeds you receive, it's in that high single-digit range that we've been talking about the last several quarters are pretty consistent with that.

Great. Sorry. And then just kind of thoughts about the minimum staffing requirement. I'm curious if any conversations you've had with industry participants. I think it's no secret how this might end up shaking out. But any thoughts you have on minimum staffing and expectations for the back half of the year?

Yes. So pretty much the same as you've heard from our peers during this earning season, and that is the implementation has been delayed again, and our expectation -- well, a couple of things. One, the fact that this keeps getting delayed we view as a positive because CMS is really listening to all the concerns the industry has and the need to give the industry time to recover more. And just the plain fact that if required everyone is required. But if people don't exist, they don't exist to be hired. So I think that this is going to be phased in over some period of time and the phase in won't start for quite some period of time, so that's about as much as I think I know at this point. So certainly, nothing that would reflect the concerns we have when this first came up.

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

Thanks.

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

Yes, hey, guys. Appreciate the time. I appreciate you guys are just staying more disciplined on the external growth side. But if -- when you get to a point where you want to resume at, where are you seeing the most kind of attractive opportunities? Is it behavioral, SNF, Senior Housing, something else? Just curious.

Boy, it's a little tough to answer that. I think for us right now acquiring things at a reasonable -- acquiring assets at a reasonable price was sustained earnings potential is the most critical piece. Frankly in the senior housing space that is hard to find, unless you're willing to buy something that's going to yield a three or four today may require capital and maybe over time we'll get you into more of an I -- which is really more of an IRR play. So, there's not a lot that fits in the box that we really like right now. We are seeing a bit in the skilled space that could make sense for us. We occasionally see opportunities in senior housing, but we're being extremely picky.

I think as we get further into this year and certainly next year, we'll see kind of a more normal flow of assets coming into the pipeline. Sellers that have been holding off as the recovery continues both in senior housing and skilled, I think we'll be more amenable to putting their assets up for sale. So it's still sort of not a normal kind of flow that we've historically seen, but I think that should get there, and then we'll have more opportunities to take a look at and hopefully our cost of equity be better at that point as well.

I want to add one other thing. Right now the assets we're seeing marketed are far less interest than the assets we're seeing on an off-market basis. And I think that's not that different from other weeks with whom you've spoken.

Okay. Yes, I do appreciate the color. Mike, just wanted to follow-up on your leverage comment. I appreciate it is ticking higher, because of those as things worked through. To get back down to 5x, it sounds like you didn't need equity I guess. What's the timeframe that like I guess how should we think about like the peak and then that drift back down to 5x?

Yes, so that timeframe is going to be driven by how quickly we see that upside materialize. As we've said, the trends continue up -- continue to be upward. So as we continue to realize some of that upside, that's going to incrementally help our leverage out to get to that full realization. Again, it's not going to be this year, but we don't think it's going to be three years either and taken Rick's comments from earlier, we think it's going to be closer to maybe by the end of next year where we'll see that upside realized and that's going to impact our leverage in a very positive way. And then to the extent there are any future sales that we do in the normal course of business, that's just going to be additive to that.

Okay. Appreciate that. Thanks, guys.

Your next question comes from the line of Steven Valiquette from Barclays. Your line is open.

Great. Thanks for taking the question. I guess just to follow-up on the earlier discussion on the IL performance. You guys mentioned that you've been flagging a little slower recovery in IL for a little while now and your owned managed portfolio. It seems like this is the first quarter in some time where suddenly several REITs and operators in the overall industry are talking about some unexpected level of softness in IL. I guess, I'm just curious from your own perspective, should we -- should investors just conclude this just maybe -- just a bit more price sensitivity among IL and residents, because it's less needs base that you mentioned or is there anything else you can point to, just from your perspective that would really exacerbate the overall IL industry softness in 2Q specifically? Thanks.

Yes, I don't think that there's anything specific. I think we've got certain things in our portfolio some renovations that had been delayed because of the pandemic that are happening now that has impacted occupancy, but that's all going to bode well for the future. Our holiday portfolio is a little bit different than some of the others because it's about one-third of the assets in it are assets that Holiday had acquired and are not sort of the blueprint holiday assets. So there is some different markets. So we actually feel good about the portfolio, but the fact that it isn't need spaced. We think certainly has had the biggest impact. We can talk some of the specific things like move-outs from pent-up demand a couple of years going all that kind of stuff, but I think just the fact that it's not needs-based is the primary driver. Pricing is pretty reasonable for the most part, it's nothing like AL pricing with all the various levels of care and all that. So I just think people want to stay homozygous, they can stay home.

Okay, got it. Okay. I appreciate the extra color. Thanks.

Your next question comes from the line of John Pawlowski from Green Street. Your line is open.

Thanks. Talya, I have a follow-up question on new transaction market commentary. On the SNF side, what yields do you think you could sell and buy out today if a substantial volume of properties traded hands?

It's like a multipart quote here. So I would say that a -- we'd be buyers probably at a 9.5% plus. So anything -- so if it's 9% or below, we'd be a seller. What can I say? I think people are I think you've heard other REITs talk about buying at 9% plus yield, so that's in line with where we are seeing some opportunities and where we're focused on making sure that everything is accretive if we're going to do anything. And then, yes, I think buyers buying from us. I think Mike mentioned earlier, they are often buying real estate and operations, which is it can vary different equation from the one that we have. So they could easily be buying a nominal 12% yield or even less, which for us looks like anywhere could be a 5% or 7% or even, maybe even an 8% yield on the real estate only.

Yes. And the only other thing I'd add is pre-pandemic we saw a much eight-handle deals on skilled when it was really high-quality stuff or larger portfolios where there was sort of a premium that went along with larger portfolio. But I think given the pandemic and how many operators are kind of put out of business and really separated operators in terms of how good that they -- how good they were and what worked pre-pandemic doesn't really necessarily work now. So I think our thinking is that, really it's nine handle as Talya said or higher, it's hard to -- it's hard to rationalize at this point where the industry is and there are still improvement to be had to start doing acquisitions with an eight handle on the skilled space.

All right.

Okay, appreciate it.

But we'll sell it that way, right? And we have been. But that's different.

Yes, appreciate the comments. Last one for me. I'm just trying to wrap my arms around a kind of the CapEx profile of the senior housing managed portfolio over the next three years to five years in the post-COVID environment. So could you give us any color on what you think are reasonable annual run rate of CapEx per door or CapEx as percentage of NOI, however you want to frame it? But what's the reasonable annual spend level for your senior housing managed portfolio over next three years to five years?

Yes, other than some of the catch-up I mentioned on a small number of the holiday properties, we don't see as being different than what it's historically been. So if we can spend some time with you offline, if you want to capture some of those older numbers, but we don't see anything dramatic changing there, not with our portfolio.

Right. Renovations, just to give you a sense, those renovations are really sort of an update of the fit and finishes and the furniture, so chandeliers, lighting, paint, things like furniture, as I said because as units -- apartments turnover, they get refreshed and renovated every time. So, that's not the core piece of it, it's really the common spaces.

Okay, thank you.

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

Hi. Thanks for the time on the follow-up. Just a couple of questions. I guess just on SHOP in general, are you seeing any creator price competition, whether it's because of distress or other factors across any of the businesses, AL, IL, either discounting or rent concessions and such?

I haven't heard any operator talk about that actually.

Okay. And then just -- okay and then just one quick follow-up. If I look at the supplemental the same-store SHOP disclosure, it looks like the IL and AL REVPOR those changed in the low 6% range. I'm not sure. Yes, like is there any sort of mix or other issues to think about as to why the total grew 7% versus the pieces each grew 6%?

It's just the mix.

Okay. I'll follow up offline. Thank you.

[Operator Instructions]. We do have a question from the line of Alex [indiscernible] [00:43:45] from Baird. Your line is open.

Hey, good morning. Thank you for taking my question. I'm kind of curious on the $17.9 million paid in additional considerations related to the two Senior Housing managed communities, what were the performance metrics achieved, and how many more contingent consideration costs do you expect for the rest of this year and/or in 2024?

Yes, in terms of future contingent consideration, we don't have any outstanding at this time. In terms of that actual payment, yes, that was related to a few properties we took down from our development pipeline several quarters ago and because of the performance, the outperformance of those facilities subsequent to our purchase, there was an earn-out arrangement in there, which was what drove the additional payments. So it's actually a good thing, right? Those portfolios have outperformed our expectations and resulted in us making the incremental investment there.

Thank you for the color. Good luck in the second half.

Thank you.

Thank you.

Thank you.

There are no further questions at this time. I turn the call back over to Rick Matros.

Thanks, everybody for your time today. We appreciate it. As always, we're available for any follow-up. Look forward to talking to you and look forward to seeing you at some of the conferences after Labor Day. Take care.