Sabra Zeroes in on Senior Housing With $1 Billion Investment Pipeline

Sabra Health Care REIT, Inc. (Nasdaq: SBRA), an ongoing investor in health care properties, is ramping up its efforts in the senior housing space, buoyed by significant growth of its investment pipeline.

That growth is in the order of more than doubling Sabra’s existing pipeline to about $1 billion in value compared to $350 to $400 million reported in recent quarters.

While deals under $100 million have been the REIT’s “bread and butter,” and will continue to be, decreasing costs of capital will allow Sabra to be “more competitive,” Sabra CEO and Chairman Rick Matros tells SHN.


“We will pursue larger deals that make sense,” he said. “Larger deals are more opportunistic for us because capital is not really an issue.”

Sabra’s new pipeline, though it won’t place the REIT in the ranks of Big Three competitors like Health Care REIT, which reported $2.2 billion in planned investments last quarter, will allow it to participate in larger investments because of the company’s “diversification and ability to pay as much as [its peers],” said Joshua Raskin, managing director at Barclays Capital.

“I think that Sabra will continue to focus on those $100 million deals,” Raskin said. “That said, they are significantly larger now and they have seen an improvement in their cost of capital relative to other healthcare REITs. I would be reticent to believe that they will purchase any assets over $500 million, but they are now certainly in a position to look.”


Of that $1 billion pipeline, the majority is dedicated to senior housing, at 65%-70%, Matros said during a recent quarterly earnings call with investors, adding that the REIT’s deal activity is “very strong right now.”

“If we included everything that we get passed on to us or shown to us, the pipeline would actually be a lot larger,” he said.

As of December 31, 2014, Sabra’s investment portfolio included 160 real estate properties held for investment and leased to operators/tenants under triple-net lease agreements. Those properties consist of 103 skilled nursing/transitional care facilities, 55 senior housing facilities, and two acute care hospitals, according to the company’s website.

“We will continue to tilt towards senior housing, but will continue to do [skilled nursing facility] deals, perhaps around one-third depending on the opportunities,” Matros told SHN. “We would be willing to do more now that SNF exposure is down to around 50%.”

Sabra’s $550 million acquisition of 21 Holiday Retirement Properties last year reduced some of the REIT’s exposure to skilled nursing/transitional care facilities and increased revenue attributable to private payors. The move is what reduced Sabra’s exposure to skilled nursing facilities to around 50%.

In the senior housing space, Matros said the company is seeking the same investments as previously, including independent living, assisted living and memory care communities. As noted, the company will also continue to acquire skilled nursing facilities, while actively reducing its exposure to Genesis, its largest tenant.

While the company isn’t releasing specifics about deals closed in the first quarter, Sabra did disclose that the REIT closed on $23 million of investments in the first quarter and will close an additional $160 million in senior housing deals in the near term.

“We will be ahead of where we’ve been in any year at the June/July mid-point,” he said.

Driving the pipeline’s growth are current market conditions, despite the “seller’s market” that now exists for certain property and portfolio types.

“The broker community has encouraged as many entities as possible to sell now,” he said. “That said, we are still finding interesting opportunities at reasonable valuations.”

Looking ahead, Matros said, “In addition to acquiring stabilized assets, we will continue to grow our already substantial development pipeline.”

Written by Cassandra Dowell

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