Private equity firms are offering and sometimes paying unrealistic prices for senior housing properties—and that practice is creating opportunities for the senior housing buyers whose bids were originally too low.
That’s according to Sabra Health Care REIT (Nasdaq: SBRA) Chairman and CEO Rick Matros, who touched on the topic Thursday during a call with analysts and investors.
“We think there are going to be some really nice buying opportunities over the next few years for all of us, as those things don’t pan out the way they’re currently being underwritten by the private equity teams,” he explained.
The Irvine, California-based real estate investment trust (REIT) reported its first-quarter 2018 earnings earlier this week. For the three months ended March 31, Sabra had revenues of approximately $166.1 million, which beat analysts’ expectations by $5.1 million. The REIT’s first-quarter FFO of 63 cents beat analysts’ expectations by 3 cents.
Sabra anticipates remaining active in the senior housing space, as its acquisition pipeline currently stands at $400 million—and it’s almost completely made up of senior housing, Matros said.
It’s possible that Sabra will end up buying properties that the firm had thought were lost to other buyers.
“We’ve obviously seen a lot of the deals that have been underwritten by the private equity groups, and… the projections that they’re buying into just are unrealistic from our perspective,” Matros said. “We just don’t see them happening under any circumstances.”
This presents a natural opportunity for other buyers to swoop in, Talya Nevo-Hacohen, Sabra’s chief investment officer and treasurer, suggested during the Thursday earnings call.
“While bidders are being very aggressive, they are also very commonly overbidding to get into the mix and then re-trading,” Nevo-Hacohen said. “So on any given week, we get at least two, and closer to five, phone calls on deals that we have bid on… where the trade has fallen apart.”
All the while, sellers are having to reset their expectations, Nevo-Hacohen noted.
Written by Mary Kate Nelson