SBRA - NASDAQ

Good day, everyone. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Health Care REIT Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Lukas 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 10-K for the year ended December 31, 2024, 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 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 thanks, everybody, for joining us. I'll start by making some comments on our SHOP portfolio. So the growth of our SHOP portfolio has exceeded our expectations, and now stands at approximately 26% of our portfolio. As a result of that, we had set -- we had publicly set a target of increasing our SHOP from 20% to 30%, we're now setting a new target of setting our SHOP from where it is now at 26% to 40%. And as we get closer to that, we'll reach that target again. Cash NOI growth was a solid 15.9%, excluding the 16 ex-Holiday properties included in same store and with those in same-store was still a solid 13.3%. We believe the performance of the 21 facilities in transition had bottomed out in July. We saw a really nice improvement in August and even stronger improvement in September. So we look forward to that portfolio continuing to stabilize and to contribute to earnings growth going forward. We will exceed the high end of our investment targets. Originally, our investment target was $400 million to $500 million. We will exceed the $500 million. In addition to that, the pipeline continues to be robust, and we'll be working on deals diligently, obviously, through the end of the year, which will allow us to get 2026 off to a much stronger start and should bode well for volume next year. Our EBITDAR rent coverage in all asset classes increased as they have been in the past 2 quarters. SNF occupancy and skilled mix continues to increase. Our top 10 had its best showing yet. Our skilled exposure dropped below 50% for the first time. We're really focused on having a very well-balanced portfolio between skilled nursing and senior housing, with senior housing, obviously, being SHOP specifically, being a much stronger driver of earnings growth than the triple-net portfolio. The regulatory environment for skilled nursing remains stable. Leverage came in below 5x. And Talya and Darrin will both provide details on our SHOP performance. Talya?

Thank you, Rick. First, I want to say something, and that is this is my last earnings call at Sabra. So before I begin my remarks, I want to thank everyone for following and supporting Sabra for the past 15 years. As of the third quarter, Sabra's managed senior housing portfolio contributed nearly 26% of our total annualized cash NOI as recent acquisitions contributed to Sabra's expanded exposure to manage senior housing and reduce Sabra skilled nursing exposure below 50%. During the quarter, Sabra invested $237 million in managed senior housing, including $20 million for the acquisition of the operations of 4 leased senior housing properties. In addition, during the third quarter, Sabra was awarded an additional $124 million in managed senior housing investments, which closed after quarter end. Subsequent to quarter end, Sabra's pipeline of acquisitions remained strong, with an additional $121 million of awarded deals not including the acquisition of the operations of a leased senior housing community for an additional $14.5 million, all of which are expected to close later this year or in early 2026. Closed plus awarded deals in 2025 totaled more than $550 million. We continue to see high-quality properties coming to market, and while competition for assets is real, pricing has remained reasonable, allowing Sabra to continue to be competitive. The full impact of acquisitions from the first half of the year and the partial impact of third quarter closings resulted in continuing positive momentum in the portfolio. Cash NOI and cash NOI margin were up 18.6% and 90 basis points, respectively, on a sequential basis for the total managed portfolio, including non-stabilized communities and joint venture assets at share. Further, occupancy increased 60 basis points to 86.8% and RevPAR rose 4.3%, both sequentially in the total managed portfolio, excluding non-stabilized communities and those held for share, underscoring the quality of the properties in which Sabra has been investing. Development of new senior housing remains in a lull suggesting that the current supply-demand equation will continue for some time. Now I will turn over the call to my colleague, Darrin Smith, to discuss Sabra's same-store portfolio operating results.

Thank you, Talya. Sabra's same-store managed senior housing portfolio, including joint venture assets at share and excluding non-stabilized assets, continued its strong performance in the third quarter. The key numbers are: Revenue for the quarter grew 5.4% year-over-year with our Canadian communities growing 10.2% in the same period. Third quarter occupancy in our same-store portfolio was up 110 basis points to 86%. Notably, our domestic portfolio occupancy increased 90 basis points to 82.6%, while our Canadian portfolio was up 150 basis points to 93.1% over the same period and marking the sixth consecutive quarter where occupancy has been above 90%. RevPAR in the third quarter of 2025 increased 3.4% year-over-year, while in our Canadian portfolio, RevPAR grew 5.8% over the same period. While RevPAR and occupancy continue to grow, exPOR remained relatively flat, only increasing 30 basis points across the same-store portfolio. Cash NOI for the quarter grew 13.3% year-over-year in the same-store portfolio. Excluding the 16 properties in the same-store portfolio formally operated by Holiday, same-store cash NOI grew 15.9%. While in our Canadian communities, cash NOI for the quarter increased 20.2% on a year-over-year basis, demonstrating the impact of operating leverage that higher occupancy burnings. Industry tailwinds remain strong, senior housing communities continue to gain occupancy while operators balance rate and occupancy to maximize revenue. With cost structure stable and revenue increasing, cash NOI and margin continue to grow. Our net leased stabilized senior housing portfolio 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, Darrin. For the third quarter of 2025, we recognized normalized FFO per share of $0.36 and normalized AFFO per share of $0.38. Year-to-date through September 30, normalized FFO per share was $1.09 and normalized AFFO per share was $1.12, representing an increase of 5% and 4%, respectively, over the same period in 2024. In absolute dollars, normalized FFO and normalized AFFO totaled $88.6 million and $92.2 million this quarter, respectively. Cash rental income from our triple-net portfolio decreased $3.5 million from the second quarter, while cash NOI from our managed senior housing portfolio increased $4.7 million for a net sequential increase of $1.3 million. The decrease in cash rental income was primarily due to a $1.4 million decrease from transitioning 4 previously triple-net leased senior housing facilities to our managed senior housing portfolio during the quarter, a $1.2 million decrease related to facilities sold late in the second quarter and during the third quarter and a $600,000 decrease in percentage rents. As we noted in last quarter's call, percentage rents were elevated during the second quarter while the third quarter was closer to the historical trend. These decreases were partially offset by annual rent escalators on leases accounted for on a straight-line basis which improved normalized AFFO, but do not have an impact on normalized FFO. Cash NOI from our managed senior housing portfolio totaled $30.1 million for the quarter compared to $25.3 million last quarter. This $4.7 million increase was primarily the result of investment activity completed during the quarter, including $1.9 million from the aforementioned transition of 4 previously triple-net leased senior housing facilities. This transition also resulted in the write-off of $9.2 million of straight-line rent receivables and $1.2 million of lease termination expense, both of which have been backed out of normalized FFO and normalized AFFO. Interest and other income was $12.7 million for the quarter compared to $10.3 million last quarter. This increase was primarily due to a $2.8 million lease termination income recognized as a result of terminating the Genesis leases and has been backed out of normalized FFO and normalized AFFO. Cash interest expense was $26.7 million compared to $25.8 million last quarter. This increase is due to higher borrowings under our revolving credit facility to fund recent investment activity. Additionally, noncash interest expense increased by $500,000 from the previous quarter, primarily related to the repayment of our 2026 bonds and entering into our new 5-year term loan this quarter. Recurring cash G&A was $9.1 million this quarter compared to $9.4 million last quarter. As noted in our earnings release, we have updated our 2025 earnings guidance ranges. However, the implied midpoint for both normalized FFO and normalized AFFO remain unchanged at $1.46 and $1.50 per share, respectively. Consistent with previous quarters, our guidance only includes completed investment, disposition and capital market activities. We are also reaffirming the following assumptions included in our previously issued guidance. General and administrative expense is expected to be 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. Our updated guidance assumes that full year average same-store cash NOI growth for our managed senior housing portfolio is expected to be in the mid-teens. For context, this quarter, cash NOI for our same-store managed senior housing portfolio increased 13.3% year-over-year, and on a year-to-date basis is approximately 16%. Our updated guidance also assumes that cash interest expense is expected to be approximately $104 million. Lastly, our updated guidance assumes a weighted average share count of approximately 244.7 million and 245.7 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 debt to adjusted EBITDA ratio was 4.96x as of September 30, 2025, a decrease of 0.04x from June 30, 2025, and a decrease of 0.34x from September 30, 2024. As of September 30, 2025, the cost of our permanent debt was 3.94% and the weighted average remaining term on our debt was 4.4 years, with the next material maturity being in 2028. All metrics that were meaningfully improved through the opportunistic refinancing of our 2026 bonds with a 5-year term loan during the quarter. Additionally, we have no floating rate debt exposure in our permanent capital stack, with the only floating rate debt being borrowings under our revolving credit facility. We remain committed to maintaining a strong balance sheet, and this commitment, together with the anticipated future earnings growth of our portfolio were significant factors in Moody's upgrading our credit rating to Baa3 during the quarter. This quarter, we entered into a new $750 million ATM equity offering program, which gives us added capacity to thoughtfully and efficiently finance the numerous investment opportunities we are evaluating. During the quarter, we issued $58.5 million on a forward basis at an average price of $18.45 per share after commissions. And in total, we currently have $157.3 million outstanding under forward contracts at an average price of $18.14 per share after commissions. We also settled $165 million of outstanding forward contracts to fund this quarter's investment activity. We expect to use the proceeds from the outstanding forward contracts to close on the investments we have been awarded and do so on a leverage-neutral basis. As of September 30, 2025, we were in compliance with all of our debt covenants and have ample liquidity of approximately $1.1 billion, consisting of unrestricted cash and cash equivalents of $200.6 million, available borrowings under our revolving credit facility of $717.8 million and the $157.3 million outstanding under forward sales agreements under our ATM program. As of September 30, 2025, we also had $690.9 million available under our ATM program. Finally, on November 5, 2025, Sabra's Board of Directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid on November 28, 2025, to common stockholders of record as of the close of business on November 17, 2025. The dividend is adequately covered and represents a payout of 79% of our third quarter normalized AFFO per share. And with that, we'll open up the lines for Q&A.

[Operator Instructions] Our first question comes from the line of Farrell Granath with Bank of America.

And first, I want to congratulate Talya. Thank you for everything you've done. And looking forward, I'm sure, to not having to be on these earnings calls again. But my first question is really around the guidance. So as you were saying, we saw strong core performance, especially in your SHOP portfolio as well as we've seen these increased acquisitions. And I'm just curious how the guidance was maintained, while we're also seeing these increasing core metrics?

Yes. I think the easiest answer to that, Farrell, is the fact that the vast majority of these investments that we're closing on this year are in the latter half of the year, so they're really going to have a pretty muted impact on 2025 performance, but we look forward to their contribution to 2026.

Okay. And I was wondering if you could also just give a little bit more color on the core SHOP portfolio and pretty much the metrics, excluding Holiday, specifically on the occupancy. If you can give any color on those transitioned assets and maybe the impacts that are causing the difference between the same-store NOI.

Yes, this is Darrin. So the same-store NOI is largely being driven down, as we had mentioned before, through Holiday. The Holiday same-store NOI is at 5.1%. All the other metrics are very positive.

Yes. And we also -- it was a pretty tough comp as well to a year ago, if you go back and look at it. So -- but from our perspective, one of the reasons we changed the guidance to reflect mid-teens versus low to mid-teens is because our confidence continues to grow in the stability and contribution of SHOP, but the comp was a big part of it.

The other thing I'll add to that, Farrell -- sorry, one other thing I'll add to that. Our same-store pool, the occupancy there was 86% for the quarter. The occupancy for those Holiday assets that are included in that same-store pool are probably closer to 80%. So you kind of do the math there on what the non-Holiday assets are, how they're performing.

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Knowing that the same-store pool is a significant chunk of the overall SHOP portfolio, but can you just share what total portfolio occupancy is? And then also how that compares to where occupancy stands on the recent SHOP acquisitions?

Yes. So we don't disclose that, Austin. I would say the majority of the assets that are not in the same-store aren't in same store because they haven't been around long enough to be in same store. That's a good chunk of that. And the occupancy in those non-same-store assets is going to be largely in line with our same-store pool is probably the easiest way to describe it.

Got it. And I guess, as you continue to lease up the senior housing managed assets, what type of pricing power do you think is achievable for the markets that you're targeting as this becomes a growing part of the overall company?

Well, I think that's a really interesting question. Some of the statistics Darrin provided on our Canadian assets is very telling about pricing power. As those assets have been above 90% occupancy, the rate growth there, I think Darrin said, it was over 5% on a Q-over-Q basis. So I think you can extrapolate that over time, assuming there isn't a major development occurring in this country, which it doesn't look like it's going to be anytime soon, that we're going to -- our domestic portfolio will hit -- will get to that level of occupancy where pricing power becomes very relevant and very impactful in addition to operating leverage.

Can you share any sense what annual rent increases in the SHOP segment could look like heading into '26?

I think we're looking at mid...

Yes, mid-single digits.

Your next question comes from the line of John Kilichowski with Wolf Fargo.

My first one is on, Rick, you made some opening remarks about Holiday starting to improve this quarter. And I just wanted to hear more about the glide path of those assets and what are those operators accomplished so far? I think you noted that occupancy is a little bit lower there. Is there a possibility that they're additive to the overall growth of that portfolio?

Yes, they will be additive. I think the primary accomplishment to date with all 3 operators because they all assessed their piece of the Holiday portfolio the same way. And that is that they've rightsized and stabilized labor in the buildings because even in IL, there's been some acuity creep and the lack of stability in labor or the lack of appropriate staffing of labor prior to the transition did contribute to the -- just sort of meandering of occupancy and contributed to greater move-outs and move-ins because they simply couldn't take care of certain residents. So job one basically has been accomplished, which is stabilize all that, now remarketing themselves to the referral sources so they can demonstrate that they can, in fact, take residents who are a little bit higher acuity, which should result in not just a wider number of residents that can be admitted but better length of stay, which obviously contributes to occupancy as well. So there's always going to be some lag time between stabilizing your infrastructure and having the benefits of that stability result in a stronger top line, but that's fully our expectation.

Okay. And then my second one is just on underwriting. Obviously, there's a bit of concern about cap rates are getting a little bit tight relative to where your spot cost of capital is. But maybe if we think longer term about that unlevered IRR that you're achieving today on these, I don't know if you can give color there. And then also talking about what that implies as far as like a stabilized occupancy or a stabilized margin.

Sure. This is Darrin. So the investments that we have closed on and are evaluating have going in yields of between 7% and 8% and are expected to deliver a mid-single-digit annual earnings growth. As a result, we estimate levered -- or unlevered IRRs, excuse me, for the investments we've made are in the low double-digit range. As far as occupancy is concerned, it really depends on each individual micro markets, but we typically temper stabilized occupancy to be in the lower to mid-90% maximum.

Your next question comes from the line of Seth Bergey with Citi.

I guess my first one is just kind of on the pipeline. As you kind of increased your target for the SHOP exposure, how do you see kind of the mix of the pipeline of opportunities you're looking at skew between SHOP and skilled?

So this is Darrin again. So our current pipeline as it has been for the past several quarters, typically, we see 90% to 95% of that volume or opportunity set is within SHOP and only maybe 5% to 10% on SNF. So I would expect us to be heavily weighted towards SHOP moving forward.

We have a couple of smaller off-market SNF deals that we are working on that more likely to be in early 2026 event. And we do have some hope that we'll start seeing more SNF volume next year. We're not shying away from it. I mean we have our own standards relative to the quality we're looking for, but we are looking forward to being able to get more SNF deals done next year.

Great. And then I guess just a second one kind of on the loan book piece. You have the $300 million mortgage loan that matures next October. Can you just kind of give us an update on your thoughts around what happens as you kind of get closer to the maturity date there?

Yes. I think the only comments we'd make at this point is that the operations continue to get better. They have a great operating team in place. So that's really been great to see. And as far as what we're going to do on a go-forward basis as we get closer to the extension, we're having those conversations now.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just hoping you could talk a little bit, Rick, about your appetite or lack thereof around pursuing skilled nursing or RIDEA or opco investments as everybody looks for external growth opportunities in the space?

No appetite.

I like succinctness. Secondly, just hoping you could give us a little bit more color on the U.S. versus Canada split for SHOP. What's the current split on an NOI basis today? Is Canada market you'd like to grow in? And is there any kind of limitations or governors on RevPOR growth in Canada? I know some markets, Quebec may or may have some pricing restrictions or rent controls. So just curious on that.

I'll take the part about appetite. So we would like to grow in Canada. We've had good success with the portfolio investments we've made there. I think the biggest -- and Canada faces even a longer time frame for getting new supply added to their existing inventory and they have the same demographic issues we do, but without the labor -- same labor pressures. So there's a really good setup there. The challenge for us is pricing, and that is assets trade for, call it, 6 handle cap rates, and that's just not -- doesn't work for us right now. We continue to stay close to that market and obviously have enough exposure to see what's going on. I'll let Darrin respond to the rate and as such.

Yes. As far as the rate is concerned, it does determine which province you're located in, with Quebec having the most punitive or tempered sort of rate opportunity. That being said, there tend not to be any sort of rate restrictions with respect to care, so it's a balance.

And what's the split between the U.S. and Canada presently in the SHOP portfolio?

Of the 70 total same-store assets, Canada is 25.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald.

So I have a question about the fact that everybody is sort of doing the same thing, which is expanding into SHOP. And it reminds me of, I don't know, 2015-2016 time frame when operators were all pushing the REITs to move from a net lease model to a SHOP model. I remember thinking what do they know that we don't. And then next thing you know, we're oversupplied and the REITs are underwater, it's not underwater, but struggling with SHOP. So I mean when you use that history of sort of everyone moved to SHOP, now everyone is buying SHOP and everyone is going in SHOP, do you have any concerns about this sort of mass wave of movement that everyone is doing it and maybe we should be thinking about this a little bit more closely because it does feel a little herd like to me. And I wonder if that enters any concern in your mind about pursuing this like everybody else is doing.

Yes. So I totally get your point. I think the dynamics are dramatically different right now. I mean you've got the demographics that everybody has been waiting for, for 3 decades are really kicking in. We've got several years, if not longer runway before new supply has any impact whatsoever. When you look at the breadth of opportunities out there, for those of us who have been on the SNF side of the REIT business as well, it's almost like it was before the pandemic where there were just so many different SNF opportunities out there. They were enough for all of us to get sort of our fair share. And I think that's the case now. And then the other thing, obviously, is a complete change in interest rates in the debt market from when the PEs got high on crack because of really 0 interest for so long and just leverage everything up. And of course, that all imploded on them once the pandemic hit. And even with interest rates coming down, it's not going back to what it was. And as PEs start to circle around and get more interested in maybe getting back into the space, they still need a spread and they're not going to be able to impact cap rates the way they did back then. So that's my answer, Rich.

Well, I mean -- go ahead, Talya.

I want to add one other thing, and that is we've been doing SHOP for a long time, like basically almost a decade, if not actually a decade. So that's one. We're not newbies to this. That's one. So we didn't follow everybody. But I think the important thing to note is we continue to be really selective of what we're buying. We're very intentionally buying recent vintage assets. All those assets that those PEs develop that then they took forever to lease up and it ruined their IRRs, we're taking advantage of that. And it's been an opportunity to buy new assets that are geared to the future and those residents like me in a few years. And I think that's really important for people to understand. There's plenty of senior housing you can buy, that's value add at that 20-plus years old, there -- that may forever be in value-add mode. We're not buying those.

Okay. By the way, Talya, good luck to you. I will miss your perfect pronunciation of every word that comes out of your mouth. I don't know if anybody else has noticed that about your delivery, but I have.

Thank you.

My second question is what's the shelf life of this growth spurt? Like what -- do we have 5 years ahead of us? As soon we have a SNF of new supply coming at us, obviously, maybe that changes that dynamic. But assuming that holds off for the time being, is this a 5-year sort of story, 2 years? What do you think knowing what's out there today?

Yes, this is Darrin. I think at the very least, it's going to be 2 years. I think there's -- I've seen numbers around $20 billion of senior housing mortgage debt that's coming due over the next 2 years, which should provide a lot of opportunity there. I think it's at least 2 years.

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

So first, may you speak about the managed seniors pipeline/deal flows, specifically what you were seeing between IL and AL?

Yes, sure. So we see a combination of both, but it's definitely much more weighted towards AL memory care than IL.

Okay. And second one for me is, are there any new observations with private capital entering or exiting either the skilled nursing or the SHOP acquisition market? And do you think Sabra and its public REIT peers are taking market share currently?

On the SNF side, I think you're still seeing very active private capital involved using HUD debt for leverage and REITs having to be clever in how they deploy capital into the SNF world. On senior housing, we are starting to see private equity come in. They are not disrupting pricing, at least not yet because of the factors that Rick outlined, but we are seeing names come in, they're not coming in with doing huge deals, but they -- or take privates yet or other methods that they use to go in and make a big splash in the past. We're seeing them at the asset level, onesie-twosies start. I think they're tiptoeing coming back in. I think there's some institutional memory, although it's usually brief.

Your next question comes from the line of Michael Stroyeck with Green Street.

So you've now had 3 consecutive quarters of, call it, 1% to low 2% SHOP expense growth. Do you see this as a sustainable pace in the near term?

This is Darrin. Yes, we don't see anything that should disrupt that trend from continuing.

And the operating leverage as occupancy continues to grow just contributes to that.

Right. Okay. Is any of that low expense growth due to maybe weakness in occupancy within the Holiday portfolio or maybe that's actually been a headwind given some of your comments on labor rightsizing, just curious how the Holiday portfolio is impacting that?

Yes, it was more a headwind than anything. And we've talked about this now for several quarters now, Talya's always pointed this out. On an exPOR basis, we've actually seen flat to declining exPOR on our portfolio because of the operating leverage. Given where the occupancy is on this total portfolio, there's not a lot of incremental expense you need in order to increase occupancy.

[Operator Instructions] Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Talya, end of the road, we'll definitely miss you and all your advice, and I wish you all the very best. Congrats on the credit upgrade guys. Just kind of curious as you kind of think about the cost of debt the implications of the upgrade, does it kind of -- you're going to issue debt -- of unsecured debt going forward? Do you think you're kind of 25% -- or 25 bps in? Or does it have any impact on your pricing grid?

Yes, it's a good question, Tayo. I think the short answer is it doesn't have a material impact on our pricing today by having all 3 credit rating agencies rate us investment grade, probably a couple of basis points to be very honest with you. It doesn't impact our pricing grid on our credit facility anything like that. I think what it does for us more than anything. One, it validates our story, which is huge and something we've been pounding the table, with Moody's on for 15 years and finally, that worked. But then importantly, is now that we have all 3 of those rating agencies onboard, we're not exposed to perhaps one of them going rogue one day and changing their rating methodology hypothetically, right, and that would impact our credit rating. If we only had 2 at that level and then one did that, then we'd be in a different situation from a pricing perspective. So now it just gives us more breathing room, more comfort over being able to continue being an investment-grade issuer going forward.

Got you. That's helpful. And then could you just talk a little bit about the behavioral portfolio at this point and kind of long-term plans around that?

Sure. So you'll see that continue to shrink as a percent of our portfolio. When we first started investing in it, it was really still during the pandemic, and it was just another pathway to growth. And it was before both the senior housing and skilled spaces really started recovering way more quickly than anticipated from the pandemic, and it became clear that the best use of our capital allocation was in senior housing and skilled nursing to the extent that we could find opportunities. And we noted all along from the beginning of those investments that we thought it was an interesting space. It had some different dynamics and unit economics from both skilled and senior housing that we liked, particularly the fact that the breakeven point on profitability was sort of in the 50% to 60% range. We like that. We see it as a growing space. But all that said, we also noted that it was very young. There were -- the operators that have been proven were few and far between. And so the opportunities were always going to be incremental. And so that's kind of how we sort of got into it and why the growth is really was so slow initially, and we just haven't grown in that. But again, since, call it, the latter part of '23, when it became so apparent what the runway was going to be for senior housing and skilled, that really is the best use of our capital. So it will shrink naturally, as I said, as a percent of our exposure. If we have opportunities to divest some of those assets, we'll explore that. And that's kind of it. Does that answer your question, Tayo?

Perfectly.

At this time, we have no further questions. I will now turn the call over to Rick Matros for closing remarks.

Thank you all for joining us today. We appreciate the support. As always, we're available for follow-up and look forward to talking with all of you again. And for those of you that we don't talk to before year-end, hope you all have great holidays and be safe. Thank you.