While Sabra Health Care REIT (Nasdaq: SBRA) is focused on growing its overall portfolio in 2022, it remains intent on getting its skilled nursing facility exposure – currently at 61.4% – down to below 60% of its overall portfolio.
“Our skilled exposure is down to almost 61% which is as low as it’s been in a really long time,” Sabra CEO Rick Matros said during the REIT’s Q4 2021 earnings call on Tuesday. “We’d like to see that below 60%. There seems to be this kind of [thinking] that as soon as you hit 60%, you’re a SNF REIT.”
Matros went on to say that Sabra won’t turn down skilled nursing deals either.
“Between all of the Genesis sales and Senior Care Center sales and the pandemic, we’ve had declining earnings these last several years and so our primary focus is getting back to growth,” he explained. “We’re not going to bypass doing skilled deals or do a number of them simply because we’re trying to get our skilled exposure under 60%. The pendulum always swings.”
The real estate investment trust finished the quarter with $135.7 million in total revenue, falling short of projections by $18.93 million, according to SeekingAlpha.
Most of the REIT’s revenue numbers were down from where they were a year ago.
Sabra total revenue for Q4 – $135.7 million – was down from its Q4 2020 revenue of $152 million.
The REIT’s normalized FFO per share of $0.39 exceeded the consensus estimate by $0.01, according to SeekingAlpha, and increased from $0.38 in Q3. It was also down from Q4 2020 when it was $0.42.
Skilled nursing occupancy sees decline but ‘rebound’ expected
Sabra’s seven largest skilled nursing tenants, representing 39% of annualized cash net operating income (NOI), saw occupancy decline in the fourth quarter as operators faced rising COVID-19 case counts and admission holds.
More than one quarter of Sabra’s operators have reached pre-COVID occupancy, Matros said, with as much as 41% of its tenant’s staff returning to work this month after being out due to omicron.
“Staff coming back in droves is having a direct impact on occupancy,” Matros explained. “The last two weeks our managed portfolio showed improved occupancy of 46 basis points and our top seven skilled operators have shown improved occupancy of 149 basis points in the last few weeks, which is as big a jump in that timeframe as we’ve seen since the pandemic started.”
He said that its skilled mix was up 360 basis points from the beginning of the year due to increased patient acuity and “skilling in place”, which helped mitigate some of omicron’s financial impacts.
Matros added that if Sabra’s tenants could get back to the rate of recovery that they saw from January 2021 through the fall, which was around 50 to 70 basis points a month – he’d be “really happy.”
Trailing three-month EBITDARM coverage excluding Provider Relief Funds (“PRF”) increased sequentially for Sabra’s skilled nursing and specialty hospital segments, attributed to improved operating performance. EBITDARM coverage for its skilled nursing and specialty hospital portfolios were 1.77x and 3.83x, respectively. However, pro forma for Avamere’s recently reduced rent, EBITDARM coverage for our skilled nursing portfolio was 1.86x
Sabra’s SNF EBITDARM coverage ranked low compared to some of the other large REITs in the health care space, while its senior housing EBITDARM coverage compared much more favorably.
Sabra’s acquisition pipeline currently stands at around $1.4 billion, according to Matros.
“While still primarily senior housing, we are starting to see more skilled nursing opportunities and opportunities in the behavioral addiction space. We’re also seeing more deal flow in Canada,” he said.
Sabra recently announced a joint-venture agreement with Sienna Senior Living (TSX: SIA), which included a 50% ownership stake in a portfolio of 11 senior living communities located in Ontario and Saskatchewan.
No additional restructurings anticipated after Avamere
From the beginning of the COVID-19 pandemic through January 2022, Sabra has collected 99.6% of its forecasted rents, which includes drawing on a letter of credit to fund $11.9 million of rent from Avamere, reported earlier this month.
Rent collections through the first three weeks of February are in line with what the REIT normally receives through this point of the month, according to SeekingAlpha.
Sabra amended its master lease with Avamere Family of Companies following a series of rent deferrals handed out to the Wilsonville, Ore-based senior care provider.
Avemere’s annual base rent on the current portfolio was reduced roughly 30% to $30.7 million on Feb. 1, which represented an annual run rate reduction of $0.06 per diluted common share.
Avamere has since paid past due rent for December 2021 totaling $3.6 million, and has agreed to pay January 2022 rent totaling $3.7 million by March 25.
Matros added that the negotiation with Avamere went “really well.”
“We look forward to the ability to recapture it, which we fully expect that we will see some upside there, we have no additional restructurings being contemplated,” he said. “There’s no ongoing discussions with any of the tenants about restructurings.”
Shifting focus from federal funding to better state reimbursement
Looking to the future, with federal government support largely dried up, Sabra appears optimistic the industry will continue to see better Medicaid reimbursement rates across the country s in 2022 for its tenants.
“After phase four [PRF], there’s not much left in the fund and we’re certainly not betting on getting new money so the focus is really going to be on the state and all the Medicaid assistance that we’ve gotten there,” Matros said.
Sabra found that over the course of COVID 80% of the states it operates in provided a temporary Medicaid add-on, Matros said, and the states have discretion as to whether to keep those in place or not.
“We’re optimistic that a number of states will keep that in place,” he added. “So from a lobbying perspective, the focus has really shifted from the feders to the individual states.”
Of the states Sabra operates in, Matros highlighted Texas as being “terrific” to operators, despite historically having one of “the worst” Medicaid systems in the country.
“I am happily surprised by the fact that by far the majority of the states have been really helpful and I think it bodes well for the future,” Matros said. “It doesn’t mean that we’re going to get big increases but certainly the tone and dialogue has changed.”
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