Sabra Continues Genesis Exit, Joins Others in PDPM Support

Sabra Health Care REIT, Inc. (Nasdaq: SBRA) joined the chorus of voices praising the new skilled nursing payment model from the Centers for Medicare & Medicaid Services (CMS) on its second-quarter earnings conference call Thursday.

“CMS issued their final rule affirming the Oct. 1 2.4% market basket increase and the implementation of PDPM in October of 2019,” Chairman and CEO Rick Matros said on the call. “The final rule was consistent with the proposed rule; both obviously are good news for the skilled nursing space.”

Matros also joined the leaders of Omega Healthcare Investors (NYSE: OHI) and CareTrust REIT (Nasdaq: CTRE) in predicting the decline of mom-and-pop skilled nursing facilities as their owners decide against adapting to the new Patient-Driven Payment Model (PDPM), adding that their exit could lead to opportunities for bigger players.


“I think with all the changes in the reimbursement model, we’re going to start to see the smaller traditional long-term care providers determine it’s in their best interest to get out of the business,” he said on the call. “That will provide some opportunities for our operating partners to grow, and for us to grow with them.”

The Irvine, Calif.-based real estate investment trust (REIT) reported net income attributable to common stockholders of $193.58 million, or $1.08 per share, in the second quarter, compared with net income of $17.96 million, or $0.27 per share, in the year-ago period.

Sabra has 352 skilled nursing/transitional care properties, out of 487 real estate properties held for investment.


Senior Care Centers exit in the works, Genesis exit ongoing

Sabra remains focused on selling its Senior Care Centers portfolio, which consists of 38 skilled nursing properties, and the REIT still expects to sell the portfolio this year despite shifting focus to a different buyer, Matros said. He cited the operator’s management issues as a factor impacting the business, including the fact that Senior Care Centers only hired a CEO five weeks ago.

“While we certainly hope he’ll get things turned around, we’re just not willing to wait it out at this point,” Matros said. “There are just too many advantages to us to move the Senior Care portfolio out: As we’ve talked about, reducing our exposure in Texas, and getting our skilled exposure along with the Genesis sales to a point where it’ll be lower than it was before the CCP merger.”

Matros also noted that other Sabra operators with an exposure in Texas have been “holding their own,” and that, combined with the state being a difficult environment for nursing homes, factored into the commitment to selling Senior Care.

“We don’t know what’s going to happen there,” he said, noting the fact that a lobbying effort to reform Medicaid there comes after a different attempt was unsuccessful. “There continues to be new building going on in Texas, so maybe if we had 10% exposure there to the state and not 17% or 18% or whatever it is, we’d feel a little bit differently, but it’s just a lot of exposure to one state that’s got some challenges.”

Sabra’s sale of facilities operated by Genesis Healthcare (NYSE: GEN) also continued, with the sale of 27 facilities leased to Genesis in the second quarter for gross sales proceeds of $235.9 million. Of 19 remaining Genesis facilities, five are under contract for sale — with expected total gross sales proceeds of $40.4 million — and 14 are under letters of intent, with expected total gross sales proceeds of $75.8 million. All except one of those sales is expected to close by the end of this year.

Occupancy uptick

Sabra also reported an increase in skilled nursing occupancy for two consecutive quarters. Though incremental, rising to 81.8% in the second quarter, the fact that it rose for two quarters in a row — bucking the trend of ongoing declines — “is obviously a good thing,” Matros said.

While Matros reiterated skepticism about a favorable demographic wave in the coming years, he added that he expected improvements in occupancy starting some time next year.

“Obviously labor’s been an issue, but labor’s always been an issue,” he said. “It’s exacerbated by the fact that you don’t have a business that’s at 90% occupancy, it’s dropped down to the low 80s. There’s sort of nowhere to hide when your occupancy is that low. So as occupancy starts to improve next year, then that will make it easier to manage labor expenses, just because you’ll have more of that revenue to work with.”

Written by Maggie Flynn

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