Sabra continues diversification strategy with senior housing, behavioral health investments

Senior Woman At Registration Desk
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Senior Woman At Registration Desk
(Credit: Hinterhaus Productions/Getty Images)

Sabra Health Care REIT closed out the second quarter with senior housing and behavioral health investments, as well as sales of underperforming skilled nursing facilities, in its continued focus on the diversification plans announced last quarter.

The Irvine, CA-based real estate investment trust’s portfolio of managed senior living communities continued to see improvement in the quarter despite the effects of the omicron variant of COVID-19, which worsened ongoing labor challenges, according to Chief Investment Officer, Treasurer and Executive Vice President Talya Nevo-Hacohen.

“Our perspective is that we have moved from the pandemic phase of COVID-19 to endemic,” CEO, President and Chairman Rick Matros said during Thursday’s earnings call. “Occupancy is increasing, albeit still hampered by labor shortages. Hiring has improved, and agency utilization is coming down, but this will take time.”

Occupancy in the portfolio for the second quarter was 80.7%, driven by a 290-basis-point (2.9%) increase in assisted living occupancy and a 60-basis-point (0.6%) rise in independent living occupancy compared with the first quarter . Compared with the second quarter of 2021, assisted living occupancy increased 620 basis points (6.2%) and independent living increased 230 basis points (2.3%).

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Sabra senior living communities also successfully implemented rate increases — 6% to 8% for in-place residents, and 10% to 13% for new residents, executives said. Nevo-Hacohen said that strong leasing velocity continues across the portfolio, with gross move-outs normalizing and even dropping below pre-pandemic levels.

Investment activity

Sabra reported that its growing behavioral health portfolio represents a total investment of $730 million, according to the real estate investment trust. In total, nine properties in general have been converted or are in the process of being converted to addiction treatment centers, and Sabra is negotiating several additional conversion opportunities.

Landmark Recovery in Aurora, CO, which began accepting patients in July, is a converted 48-unit memory care community now used as an addiction treatment facility. As of June 30, Sabra had spent $3.4 million of the $3.5 milion capital commitment associated with the conversion.

Sabra closed on a 132-bed hotel in December and converted it into an addiction treatment facility, Recovery Centers of America in Greenville, SC. The REIT bought the hotel for $10.9 million and agreed to invest up to $22.5 million in renovations to convert it to an addiction treatment facility.

“We are pleased with the progress we are making as we expand our footprint in behavioral health, including the adaptive re-use of existing assets which create value in obsolete properties, fill a need for those services and create jobs in those communities,” Matros said.

During the second quarter, Sabra acquired 12 Canadian senior housing communities with a previously announced 50/50 joint venture with Sienna Senior Living for $147.4 million.

After the second quarter ended, the REIT closed on the acquisition of two additional managed senior housing communities for $71.1 million.

Year-to-date investment activity totals $264.9 million, the REIT reported.

Transitions

In the first quarter, Sabra undertook a comprehensive review of its properties to identify long-term holds and candidates for conversion, repositioning or sale.

During the second quarter, Sabra generated $40.2 million from the sale of eight skilled nursing facilities. After the quarter ended, the REIT completed the sale of two skilled nursing facilities and has six skilled nursing facilities under contract for sale, which, collectively, are expected to generate more than $210 million in gross proceeds. Sabra expects the sales to close by the end of the year.

Year to date, Sabra has transitioned, or is in the process of transitioning, 25 triple-net leased properties to existing operators — and one new operator — including The Ensign Group.

Nevo-Hacohen said that buyer appetite for skilled nursing facilities is active, that pricing is strong, and that Sabra sees recycling capital and assets as another path to diversifying and enhancing its portfolio.

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