Sabra’s Enlivant Portfolio Hit Hard in Q4, REIT Expects Resolution to Current JV in 2021

Sabra Health Care REIT’s (Nasdaq: SBRA) partner in its Enlivant joint venture, private equity firm TPG, wants a resolution to the partnership before the end of the year.

But the Irvine, California-based health care real estate investment trust (REIT) is not going to rush into an agreement, CEO Rick Matros said Tuesday during Sabra’s Q4 2020 earnings call.

He stressed that Sabra still likes the portfolio, which consists of 158 assisted living communities, but Covid-19 disrupted emerging signs of sustained growth. While the REIT likes the portfolio and management team, the communities continue to struggle with pandemic-related operational and expense headwinds. Recovering from that will take time, and Sabra will not make a deal unless it benefits shareholders.

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“[A resolution] has to work for us economically,” he said. “We’re not going to do it, just to do it.”

For the quarter, Sabra reported normalized funds from operations (FFO) of 18 cents per share, on $152.05 million in revenue. The revenue was a 2.4% decrease over the previous year. FFO missed analysts’ consensus expectations.

The REIT also updated its Q1 2021 earnings guidance: net income ranging between 16 cents and 17 cents per share, and FFO ranging between 39 cents and 40 cents per share.

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Sabra’s total senior housing operating portfolio (SHOP) struggled in the fourth quarter. Same-store cash NOI for the REIT’s total blended SHOP assets decreased 22% over the previous year. Total occupancy, meanwhile, fell 8.6% year-over-year, to 80.2%.

But the Enlivant JV performance placed a particular drag on operations. Sabra acquired a 49% stake in Enlivant in 2017, representing 9.9% of the company’s concentrated net operating income. Sabra had an option to buy out TPG’s stake in Enlivant by Jan. 1, 2021; in Aug. 2019, the REIT’s leadership said they were looking to buy out TPG and bring in a new JV partner to hold a minority stake.

Last summer, the JV sold eight Enlivant communities in Washington and Oregon to an Arizona-based private investor making its initial foray into the senior living space. Matros told SHN at the time that the communities were underperforming, and that Enlivant saw no upside in continuing to operate the buildings.

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The JV portfolio’s performance was hit hard in the fourth quarter. Occupancy fell to 71.6%, a 10.6% decrease, year-over-year. Same-store cash net operating income (NOI) fell 50%, compared to Q4 2019. On a sequential basis, same-store cash NOI fell 21.7% over the third quarter of 2021, and occupancy decreased by 420 basis points.

Total occupancy across the Enlivant joint venture communities decreased by 12.2% from February 2020 through January 2021. And the pressures were only slightly offset by the receipt of $484,000 in government grants, Chief Investment Officer and Treasurer Talya Nevo-Hacohen said.

But signs of hope are emerging. Only 10 communities had a resident or staff member with a positive Covid-19 test in late February, compared with 35 at the end of January — a 70% decline. All communities in the JV portfolio have completed first vaccine clinics, and 50% had their second clinics.

Sabra’s data show that 94% of residents and 64% of staff received the vaccine to date. This dovetails with an uptick in move-ins from January to February, and a reduction in move-outs over the same period.

“This momentum, along with vaccine clinics driving a rapid reduction in infection, lays the groundwork for occupancy to rebuild,” Nevo-Hacohen said.

Chicago-based Enlivant is going through a leadership change, as CEO Jack Callison is departing to take the helm at McLean, Virginia-based Sunrise Senior Living. But Enlivant’s President and COO Dan Guill is stepping in as CEO, and Matros expressed confidence in him on Tuesday’s earnings call.

“Jack did a great job building a really deep batch,” he said. “We feel very, very strongly that Dan is going to do a great job as CEO. We don’t expect there to be any changes that are noticeable to anybody on the outside.”
Sabra stock ended trading Tuesday, down 1.33% to $18.20 per share.

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