Assisted living, addiction treatment focus of diversification strategy for Sabra in 2022

Assisted living figures prominently into the 2022 plans for Sabra Health Care REIT as the company seeks to diversify its portfolio and reduce its exposure to skilled nursing, CEO, President and Chair Rick Matros said Thursday during the Irvine, CA-based real estate investment trust’s first – quarterly earnings call.

“Our strategy for this year is pretty simple. We’re focused on diversifying the portfolio with smaller deals in our existing asset classes, primarily in behavioral addiction treatment and assisted living,” he said. “That, combined with SNF asset sales, will leave us, we believe by the end of the year, having skilled nursing exposure either close to or at all-time lows.”

Senior housing currently accounts for 20% of Sabra’s annualized cash net operating income, and skilled nursing represents 61.7%, according to a May 4 presentation released in conjunction with the earnings call.

In senior housing, Matros said, “We see a window of several years of occupancy growth before the supply dynamics that hampered growth pre-pandemic begin to have an impact.”

But the REIT also plans to convert some of its existing senior housing properties and skilled nursing facilities into addiction treatment centers, Chief Investment Officer, Treasurer and Executive Vice President Talya Nevo-Hacohen said.

Executives reviewed the Sabra portfolio to identify candidate properties for sale or conversion to alternate uses, she said. “For those properties identified for conversion, we have found that the residential format of skilled nursing and senior housing sets up well for inpatient behavioral health assets, specifically addiction treatment,” Nevo-Hacohen added.

Sabra first invested in stand-alone addiction treatment facilities in 2019, she said, and the REIT’s investment in behavioral health now totals approximately $730 million and represents 13.4% of annualized cash net operating income.

“We currently have four more owned skilled nursing and senior housing properties that are under letter of intent with an operator and will be modified for use as addiction treatment facilities,” she said. The conversion of the four properties and another one acquired at the end of 2021 will increase the REIT’s behavioral health investment by about $75 million, she said.

But in keeping with its strategy, during the first quarter of 2022, Sabra acquired a managed senior housing community from its proprietary development pipeline for $26 million.

First quarter results ‘healthy’

In Sabra’s same-store senior housing managed portfolio, on average, revenue per occupied room grew 5.6% over the prior year across the assisted living communities, driven by annual rent increases.

Assisted living RevPOR in the senior housing managed portfolio was $6,279 in the first quarter, compared with $6,244 in the fourth quarter of 2021 and $5,947 in the first quarter of 2021.

“Headwinds related to the omicron variant abated as the first quarter progressed, which drove a healthy sequential increase in occupancy across our needs-based assisted living portfolio,” the company said in a business update.

RevPOR in Sabra’s independent living portfolio was “modestly higher year-over-year,” at 1.1%, as rate increases have been more prevalent in higher-needs settings as operators attempt to offset rising labor costs, the REIT said. Independent living RevPOR in the senior housing managed portfolio was $2,578 in the first quarter, compared with $2,540 in the fourth quarter of 2021 and $2,550 in the first quarter of 2021.

Average occupancy in Sabra’s senior housing managed portfolio in the first quarter was 75.2% for assisted living, up 1.9% from the 73.3% average occupancy seen in the fourth quarter of 2021 and up from the 68.8% seen in the first quarter of 2021.

Average occupancy in Sabra’s senior housing managed portfolio in the first quarter was 80.4% in independent living, down 0.3% from the 80.7% seen in the fourth quarter of 2021 but up from the 79% seen in the first quarter of 2021.

Resident fees and services were $38,696 in the first quarter, up 2.3% from the previous quarter. Cash net operating income related to the portfolio was $8,183 in the first quarter, up 11.1% from the previous quarter.

On an annualized cost net operating income basis, as of March 31, senior housing managed represented 8.2% of Sabra’s portfolio, and senior housing leased represented 12.2%, according to a May 4 presentation released in conjunction with the earnings call.

The REIT has collected 99.5% of forecasted rents from the beginning of the COVID-19 pandemic through April 2022.

Sabra’s joint venture with Enlivant also showed the same trends of increasing occupancy, RevPOR and improving cash net operating income as seen in the senior housing managed portfolio, Nevo-Hacohen said.

Occupancy in the first quarter was 74.2%, a 1.6% increase over the prior quarter and a 6.2% increase over the first quarter of 2021. Additionally, spot occupancy at the end of April was 75.7%, a 150-basis-point increase since the end of the first quarter, she reported.

RevPOR for the quarter was $4,733, a 6% increase over the first quarter of 2021. Cash net operating income for the quarter increased 16% over the first quarter of 2021, not counting any government stimulus funds.

“The first quarter was really a low point for them and really driven by omicron in January and a good chunk of February,” Matros said, adding that Enlivant is “well past that” now. He called the joint venture portfolio’s gains in post-quarter spot occupancy “tremendous.”

Sabra announced in August that it planned to exit the joint venture with private equity firm TPG Real Estate through which Sabra has a 49% stake in a portfolio of 158 Enlivant senior living communities. In late 2021, Matros said the deal would close in mid-2022. Thursday, however, he said that TPG had held off on marketing the portfolio for sale, wanting to see how the portfolio was recovering.

“The portfolio has been recovering really nicely. Occupancy gains have been material since omicron,” Matros said. “And so I think we’re getting close to the point where TPG is going to want to actively market the portfolio.”

Practically speaking, however, the CEO estimated that the Enlivant communities will remain in Sabra’s portfolio through 2022 and through the first quarter of 2023 “because you’ve got months of regulatory approval as you find a buyer.”

See additional coverage of the earnings call in McKnight’s Long-Term Care News.

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