Sabra Health Care REIT Inc (SBRA) 2023 Q2 法說會逐字稿

Good day, everyone. My name is Juandeep, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sabra Second Quarter 2023 Earnings Call. (Operator Instructions)

I would 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.

Let me start off with reimbursement. So as everybody knows, the final Medicare market basket was 4%, up from 3.7% of 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 1.5% increase a year. We're anticipating now that in the aggregate, for 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 would also remind everybody, because of the lag time and 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. Occupancy's increasing in our skilled and 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 in what we reported, our trailing 3 EBITDA coverage for skilled has improved 3 quarters in a row and now is at 1.68, excluding PRFs. So actually quite a bit higher than even what the trailing 12 shows.

Our occupancy -- occupancy continues to move up beyond the quarter, and that, along with the declining labor expenses, has contributed to that coverage. We have significant upside with the transition of what were the 11 wholly-owned Enlivant AL and memory care buildings to Inspirit. The transition happened 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 it's 76% or so occupancy today. There's really pretty dramatic upside there. And given the size of our managed portfolio, it 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 and 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 were released -- that were filed yesterday. And while there's no time frame associated with that, it is a reasonable time frame and serves as a blueprint that will help us as we get closer to 2024 and put out 2024 guidance.

Our current acquisition pipeline is light, and 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's 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 investment.

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 5 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 continued 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 Sabra's 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 3 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 3 properties, Sabra's wholly-owned managed portfolio would have achieved nearly 31% year-over-year NOI growth this past quarter.

Our net lease stabilized senior housing portfolio has seen a full recovery to pre-pandemic occupancy and improving EBITDAR coverage. Occupancy growth has outpaced our managed portfolio, largely because the net lease portfolio is mostly assisted living and memory care communities. In addition, we have transitioned a few lesser performing leaseback communities to the managed portfolio, which allows us to participate in their financial recovery.

Beginning this past June, the Holiday portfolio has had 2 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 2 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 the 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 2 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 has 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 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 delever 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 the last several quarters, there have been some notable decreases in our earnings run rate, namely the burning off of the Genesis excess rent, the transitioning of the portfolio formerly operated by North America 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-month 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 0.5 turn of improvement in leverage once realized. We remain committed to a long-term average leverage target of 5x. And because of the embedded upside 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 facility. 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 6 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 of 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 up the lines for Q&A.

(Operator Instructions) Your first question comes from the line of Juan Sanabria from BMO Capital Markets.

Just 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 the transitions going on in at Enlivant, should we expect further degradation from Enlivant with the transition? Or is 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 transition's happened. It's been a month. Everything's going really well there. So we expect only upside, Juan. It's just a matter of how quick it 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.

Can 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. It 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 -- our IL in Canada has performed also with 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 the other, I think, landlords and owners at this time. And that's a meaningful factor because those assets are not 5 years old. They're older. And there's an opportunity there to really improve them.

Yes, 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's 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. 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. Everybody has 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, from what you know now where we're kind of through that part of the equation either on the SHOP or the triple net side, I guess, for that matter?

I think we're pretty close through. I mean, other than the occasional ordinary course of business stuff that probably no one will even notice.

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

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 offsets, 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, the capital for those specific items, on the conversion side, as we've talked about in 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, I realize you're not giving guidance. But is $0.33 to $0.34 still the appropriate quarterly run rate? And then these other elements of when the -- some portion of the $42 million hits, could be incremental upside from here?

Yes. 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 that 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 3 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 of dispositions. I think you had said $50 million through year-end. Is that still the right figure? And is that -- is some of that concentrated with some of the, call it, less core assets leased to Signature? And that's it for 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.

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

So just clarifying on that, your comments around the long-term goal, that's the $42 million. Some of your peers have outlined similar sort of pathways and have 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 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 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 is 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 1 -- not 1 year and not 3 years. So let's just say 2 years. Is that just -- is that assuming the current occupancy gain you've seen this year just continues? 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 to.

I wouldn't split the baby between 1 and 3 years either.

Fair enough. We'll leave it at 1 to 3. 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, those 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 for 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 we 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's just additive to the run rate.

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

Rick or Talya, could you provide some color on the Enlivant transition to Inspirit? It sounds like it was done faster than expected. I think you also transitioned to 2 triple net senior housing assets to the same operator, and I think both are in SHOP now. How did the conversation came about, and why did you pick that particular operator? And could you also talk about if there are any meaningful changes to the management contract there?

Sure. So, we have known the CEO of Inspirit since we bought those 2 leased assets because he was basically the 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 -- their owned assets up for sale, we decided to transition as well. And since we knew Dave and we knew he was -- his knowledge base of those assets since he 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 was kind of fortuitous they happened sequentially in that way.

In terms of management agreement, the terms are not materially different than what we had in place. They're slightly different from what we had with Enlivant, but not anything material.

Got it. My follow-up is on rate expectations. I think, Rick, I heard you 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 is coming up in October. Just curious in terms of the rate setting expectations there.

Yes, so 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 years ago. So that goes away next year. That was actually a pretty big hit. It's a 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 report systems. And so by the time we get to next year's rates, they'll 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 it 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. So it's formulaic. And then you had questions on SHOP REVPOR.

So I think I told you we're -- that achieved results have -- or are slightly lower this quarter than before. I think specifically on the Enlivant portfolio I believe you 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 they're 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.

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

Just on the SNF sales this quarter, could you quantify maybe a cap rate perspective or a 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 define 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 we received, it's in that high-single digit range that we've been talking about the last several quarters, so pretty consistent with that.

Great. Sorry. And then just going to thoughts about the minimum staffing requirement. I'm curious of any conversations you've had with industry participants. I think it's no secret how this might end up shaking up. 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 earnings season, and that is implementation's been delayed again. And our expect-- 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 you can require whatever you want to require, 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 like that would reflect the concerns we had when this first came up.

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

Guys, appreciate the time. I appreciate you guys are just staying more disciplined on the external growth side. But when you get to a point where you want to resume it, 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 -- acquiring assets at a reasonable price with 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 3 or a 4 today, may require capital and maybe over time will get you into more of a -- which is really more of an IRR play. So there's not a lot that fits in the box that we'd 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'll be 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 will 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 the -- our cost of equity will 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 REITs that -- with whom we've spoken.

Okay. Appreciate the color. Mike, just wanted to follow up on your leverage comment. I appreciate it's ticking higher just kind of those -- as things work through. To get back down to 5x, it sounds like you don't need equity. I guess, what's the time frame that -- I guess, how should we think about like the peak and then that drift back down to 5x?

Yes. So that time frame is maybe driven by how quickly we see that upside materialize. As we've said, the trends 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 3 years either. And taking Rick's comment from earlier, we think it's going to be closer to maybe by the end of next year where we'll see that upside realize, 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.

Appreciate that.

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

I guess just a 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 in your own managed portfolio. This 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 there's just maybe a bit more price sensitivity among IL and residents because it's less needs based as you mentioned? Or is there anything else you can point to just from your own perspective that would really exacerbate the overall IL industry softness in 2Q specifically?

Yes. I don't think that there is anything specific. I think we've got certain things in our portfolio, some renovations that have been delayed because of the pandemic that are happening now that have impacted occupancy some, 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 about 1/3 of the assets in it are assets that Holiday had acquired and are not sort of the blueprint Holiday assets, so there are some different markets. So we actually feel good about the portfolio. But the fact that it isn't needs-based we think certainly has had the biggest impact. And we can talk about some of the specific things like move-outs from pent-up demand a couple years ago and all that kind of stuff, but I think just the fact that it's not needs based is a primary driver. Pricing's 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 home as long as they can stay home.

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

I have a follow-up question on your transaction market commentary. On the SNF side, what yield do you think you can sell and buy at today if a substantial volume of properties traded hands?

Substantial volume. Okay. This is like a multipart quiz here. So I would say that we'd be buyers probably at a 9.5-plus. So anything -- so if it's 9 or below, we'd be a seller. So what can I say? I think people are -- I think you've heard other REITs talk about buying at 9-plus yields. So that's in line with what -- where we are seeing some opportunities, and 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're often buying real estate and operations, which is a very 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 between a -- could be a 5% or a 7% or maybe even an 8% yield on the real estate only.

The only other thing I'd add is pre-pandemic, we saw a bunch 8-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 a larger portfolio. But I think given the pandemic and how many operators have kind of put out of business and really separated operators in terms of 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 9-handle, as Talya said, or higher. It's hard to rationalize at this point where the industry is. And there's still improvement to be had to start doing acquisitions with an 8-handle on the skilled space We'll sell it that way. Right. And we have been, but that's different.

I appreciate the comments. Last one for me. I'm just trying to wrap my arms around kind of the CapEx profile of the senior housing managed portfolio for the next 3 to 5 years in the post-COVID environment. Could you give us any color on what you think a reasonable annual run rate of CapEx per door or CapEx as a percentage of NOI, however you want to frame it, but what's a reasonable annual spend level for your senior housing managed portfolio over the next 3 to 5 years?

Other than some of the catch-up I mentioned on a small number of the Holiday properties, we don't see it being different than what it's historically been. So 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 within our portfolio anyway.

Right. The renos are -- 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 turn over, they get refreshed and renovated every --. So that's not the core piece of it. It's really the common spaces.

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

Just a couple of questions. I guess just on SHOP in general, are you seeing any greater price competition, whether it's because of distressed 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 both changed in the low 6% range. I'm not sure if -- but 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.

(Operator Instructions) We do have a question from the line of [Alex Fagan] from Baird.

I'm kind of curious on the $17.9 million paid in additional considerations related to the 2 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 earnout arrangement in there, which was what drove that additional payment. So it's actually a good thing, right? Those portfolios have outperformed our expectations and resulted in us making an incremental investment there.

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. We look forward to talking to you and look forward to seeing you at some of the conferences after Labor Day. Take care.

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