Sabra Health Care REIT, Inc. (SBRA) stock intrinsic value fair value estimate & owner earnings analysis

Sabra Health Care REIT owns healthcare real estate. At December 31, 2025 that was 360 properties in the United States and Canada: 210 skilled nursing and transitional care facilities, 32 senior housing communities leased to operators, 87 senior housing communities run by third-party managers on Sabra's behalf (where Sabra takes the operating results directly), 16 behavioral health facilities, and 15 specialty hospitals and other. No tenant relationship was 10% or more of 2025 revenue, and 35.6% of revenue came directly or indirectly from skilled nursing facilities, which depend on Medicare and Medicaid payment rates. How we measured earnings. We start from cash generated by operations, remove the swings from working capital, subtract stock compensation as a real cost, and subtract only the maintenance portion of the capital spent on existing buildings (spending on additions to real estate, less an allowance for growth). Purchases of new properties are treated as growth investment, not a cost of staying in business. On that basis, owner earnings per diluted share were about $2.00 in 2018, $1.93 in 2019, $1.46 in 2020, $1.29 in 2021, $1.20 in 2022, $0.91 in 2023, $1.16 in 2024 and $1.27 in 2025. The decline since 2018 reflects property sales, the pandemic years, higher capital spending on buildings, and a share count that grew from about 179 million to about 244 million diluted shares. We use the median of 2021 to 2025, $1.20 per share, as the normal level. Earlier years reflect a differently shaped portfolio, and 2017 was distorted by the merger with Care Capital Properties. 2023 is kept in the window rather than excluded: it was low because additions to real estate reached $84.9 million, but capital spending is a recurring cost. Depreciation and amortization are non-cash and already reflected in cash flow; we treated the ongoing decay of buildings as a cost through the maintenance capital deduction rather than adjusting the earnings level. Growth reconciliation. Owner earnings per share grew about 9.7% in 2025 (from $1.16 to $1.27). Our base case assumes only 2% growth in year 1 from the $1.20 normal level, below that recent rate, because per-share growth has not been demonstrated over the longer record (the 2021 to 2025 figures are roughly flat) and because new equity issued to fund purchases dilutes existing shares. Base case, about $22.60 per share. Growth credited: 2% a year for five years, then 1% a year for five years, from contractual rent escalators. The 2025 annual report states that certain leases carry an annual escalator tied to the Consumer Price Index, never below zero and subject to minimum or maximum fixed percentages ranging from 1.0% to 5.0%. That is a structural feature in place now. After year 10 we assume the earnings simply continue, flat, since the owned properties keep producing rent or operating income and we already deduct the capital spending to maintain them. Left out: further acquisitions funded with new shares or debt (not a proven per-share gain), margin gains at the managed senior housing communities, and any recovery in skilled nursing economics. Resident fees and services did rise from $284.6 million in 2024 to $356.9 million in 2025, but $42.8 million of that came from 14 communities acquired after January 1, 2024, and $17.7 million from nine facilities moved to the managed structure, that is, from purchases and restructurings rather than from organic growth we can credit. The company's half-year results to June 30, 2026 (its 10-Q, accession 0001492298-26-000028) show operating cash flow of $184.2 million versus $161.2 million a year earlier, and $292.5 million spent on acquisitions in those six months, but the average diluted share count rose to 255.8 million from 240.7 million. We treated this as consistent with, not a reason to move, the level. The same filing reported a net loss of $25.2 million for the quarter ended June 30, 2026; we did not trace what caused it, and it did not change our cash-based figures. Bear case, about $13.50 per share. Earnings start from the 2023 low of $0.91 and shrink 1.5% a year for ten years, then stay flat. The risks are named in the filing: about $2.5 billion of debt at December 31, 2025 ($1.25 billion of senior notes, roughly $1.0 billion of term loans, $217.6 million drawn on the revolving credit facility and $44.0 million of secured debt), of which about $1.3 billion is variable rate; the revolving facility matures January 4, 2027 (with two six-month extension options); the notes due 2029 ($350 million at 3.90%) and 2031 ($800 million at 3.20%) carry coupons well below what the company paid on the $500 million 2026 notes it redeemed in July 2025 (5.125%), so refinancing would likely raise interest costs; skilled nursing operators depend on government payment rates; and real estate impairments of $7.3 million in 2025 and $18.5 million in 2024 show assets do get written down. Also, $335.6 million of mortgage loans to behavioral health and skilled nursing borrowers mature between November 2026 and June 2029. Bull case, about $27.70 per share. Earnings start at $1.30 (slightly above the 2025 actual, reflecting acquisitions already closed and paid for during 2025 and the first half of 2026 as they run for a full year) and grow 4% a year for five years, then 2% for five years, then stay flat. This rests on the rent escalators landing toward the higher end of the range and the managed senior housing communities continuing to grow resident revenue as they did in 2025. We did not include further new acquisitions. What the shares appear to be worth. Roughly $13.50 to $27.70 per share, with $22.60 as the central estimate. Owner earnings are measured after interest, so no debt is subtracted from these values; leverage is reflected in the bear case. The estimates are not increased for the company's cash balance. The margin-of-safety price is about $12.50, below the bear case, because the business is leveraged, is exposed to government payment rates through its skilled nursing tenants, and has not grown per-share earnings over the last several years. What would make this wrong. Lower: a large tenant failure or Medicaid rate cuts, or refinancing the 2029 and 2031 notes at much higher rates. Higher: if the acquisitions closed in 2025 and 2026 raise per-share earnings well above the level we assume without new share issuance, and if managed-community operating results keep improving.