By Tim Regan
Sabra Health Care REIT’s (Nasdaq: SBRA) strategy for growth in 2022 is “simple,” according to CEO Rick Matros. The company plans to diversify its portfolio by paring down its skilled nursing exposure while growing in other product types, such as assisted living.
“We’re focused on diversifying the portfolio with smaller deals in our existing asset classes, primarily in behavioral addiction treatment and assisted living,” Matros said during the company’s first-quarter 2022 earnings call Thursday. “That, combined with SNF asset sales, will leave us … by the end of the year [with] having skilled nursing exposure, either close to or at our all-time lows.”
The Irvine, California-based real estate investment trust (REIT) this year is seeing fewer acquisition opportunities for skilled nursing properties, while the strength and appetite of the private market for deals is fueling “more asset sales than anticipated,” he said. Additionally, proposed Medicare funding cuts are expected to eat into the company’s skilled nursing rent coverage by 0.02 times.
Matros said he anticipates the company’s dispositions in 2022 to be in the range of more than $100 million to as much as $300 million.
At the same time, Sabra’s senior living portfolio is showing signs of improvement. Headwinds related to Omicron abated in the first quarter, helping to drive a “healthy sequential increase” in occupancy across the company’s needs-based assisted living portfolio.
As of March 31 Sabra’s investment portfolio spanned 416 real estate properties, including 279 skilled nursing and transitional care facilities; 109 senior housing communities that are either managed by third-party operators or leased. The company also has 13 behavioral health facilities and 15 specialty hospitals and other facilities.
Sabra’s same-store senior housing assisted living occupancy rose to 75.2% in the first quarter of 2022, representing a gain of 1.9% over occupancy in the fourth quarter of 2021. Independent living occupancy dropped to 80.4% in the first quarter of 2022, representing a decline of .3% over the previous quarter.
Revenue per occupied room (REVPOR) for assisted living units was $6,279 in the first quarter of 2022, a 5.6% increase over the same quarter in the previous year. For independent living, REVPOR registered at $2,578, a 1.1% increase over 1Q21.
That growth in rates and occupancy drove the segment’s net operating income (NOI) 11% higher compared with the previous quarter, representing 18% year-over-year growth.
Looking ahead, Matros is taking a positive view of senior housing occupancy trends, and he sees “a window of several years of occupancy growth before the supply dynamics that hampered growth pre-pandemic began to have an impact.”
On the acquisition side, Sabra is bullish on senior housing and is seeking out deals. But the current cost of capital is complicating deals, and there are many different companies vying for the same group of assets. Cap rates have also compressed.
That said, the company does have some senior housing expansion underway. In February, Sabra acquired Extendicare’s senior living portfolio as part of a joint venture with Markham, Ontario-based Sienna Senior Living (TSX: SIA), and Matros has said the REIT sees more growth opportunities in Canada.
But the company is also going to be cautious with deploying capital, given that “capital for us is a scarce resource,” said Chief Investment Officer Talya Nevo-Hacohe.