Sabra Health Care REIT (Nasdaq: SBRA) during its second quarter earnings call reported a steady increase in occupancy since December of its top eight skilled nursing operators, which make up 71% of the company’s SNF rent.
The Irvine, Calif.-based real estate investment trust (REIT) noted an average occupancy gain of 601 basis points from the onset of the pandemic through late July for its lead SNF operators — its skilled mix census is 144 basis points higher in July compared to February 2020, CEO Rick Matros said Thursday.
Sabra has collected 99.8% of its forecasted rents from the start of the pandemic through July.
Funds from operations (FFO) was in line with analyst expectations at 39 cents per share, according to data released by BMO Capital Markets, but a decrease compared to 43 cents per share during the second quarter of 2020.
Of its 449 investments across 41 states and three Canadian provinces, more than half of its portfolio is skilled nursing and transitional care, followed by specialty hospitals at 11.6% and leased and managed senior housing at 10.6% and 8.5%, respectively.
Vaccination Rates and Mandates
Matros reported healthy percentages of vaccination success between residents and staff across all of its portfolios, north of 90% and 70%, respectively.
“Workforce [vaccination] isn’t where we would like it to be but it’s certainly much higher than the general population,” added Matros. “I will tell you that for those of our operators that did mandate vaccinations, they did lose employees. From their perspective it was completely worth it. It created a much more comfortable atmosphere in the facilities.”
Labor challenges, coupled with pandemic benefits due to run out in September, put stress on operators to find and keep not just nurses and therapists, but also dietary, housekeeping and laundry workers, Matros noted.
He expects labor challenges will have an effect on occupancy recovery, depending on what staffing levels are like when referrals come in.
“We all have operators that have had to close off [patient admissions], so everybody’s admitting, but for example if you’ve got seven [patient admissions] that you’d like to do in the next week-and-a-half, you may only be able to do five,” Matros said. “Occupancy growth is continuing to happen but here and there it could get impacted by some of the labor stress.”
Some operators have reverted to agencies to counteract labor shortages, Matros added, but expects staffing to improve as the company moves into the fourth financial quarter.
Vaccination mandates are hampered by states that have banned vaccine mandates as well, such as Texas.
“I find that distressing and a real head scratcher. It just puts operators in Texas in a more difficult position,” Matros said.
Only 10 of Sabra’s facilities at this time weren’t completely clear of COVID; one operator reopened its COVID unit to take the pressure off area hospitals.
Acquisitions and Divestitures
Sabra will continue to pursue smaller, safer deals with opportunities in skilled nursing and behavioral health. Larger deals require “restructuring” and “cleanup,” Matros said.
“We want to avoid noise, and we just want to move forward and do deals that are more predictable and understandable, and just focus on growing the company,” explained Matros, adding that the company has never been in a lower leverage position before and that this offers “optionality” at this point in the pandemic.
During the second quarter, Sabra acquired land for one skilled nursing and transitional care facility for $33.9 million in the aggregate — a facility is under construction with a $19.6 million budget. It’s expected to be completed mid-2022, according to Sabra’s earnings report.
Two skilled nursing facilities were sold for aggregate net sales proceeds of $5.9 million during the same quarter, the REIT reported.
Sabra also announced its intent to sell its 49% stake in Enlivant Joint Venture, a 159-senior housing portfolio with private equity firm TPG, operated by Chicago-based Enlivant. While primarily senior living, the operator has post-acute and memory care components, according to its website.
CFO Transition
Longtime Chief Financial Officer Harold Andrews Jr. will be retiring at the end of the year, Sabra announced this week, with Michael Costa — who has served as executive vice president of finance and chief accounting officer as of this year — being promoted to the role.
Costa held various positions overseeing Sabra’s accounting and finance functions since November 2010.
Michael Costa has served as Sabra’s Executive Vice President, Finance and Chief Accounting Officer since 2021. Previously, Mr. Costa held various leadership positions overseeing Sabra’s accounting and finance functions since Sabra’s inception in November 2010.
“Mike’s been with us since [Sabra’s] inception; in fact our whole team has been together since inception. So, this is a really smooth transition for us, keeps us culturally intact,” said Matros.
Andrews will stay at Sabra as a consultant for two years, Matros said.
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