Leaders with Sabra Health Care REIT (Nasdaq: SBRA) would prefer to exit their joint venture investment in senior living provider Enlivant rather than acquire the whole company.
“Although we haven’t made a final decision, in all likelihood, our preference is to exit,” Sabra CEO Rick Matros said Wednesday at Nareit’s REITweek 2021 Virtual Investor Conference.
Matros also said he anticipates that $10 billion from the remaining $24.5 billion in the federal Provider Relief Fund will be allocated to the senior housing and skilled nursing sector, based on information that he was privy to earlier this week.
And, despite the intention to exit the Enlivant portfolio, Sabra remains committed to senior housing as part of its asset mix, and Matros foresees occupancy returning to pre-pandemic levels toward the end of 2022.
More certainty on Enlivant
Chicago-based Enlivant operates about 230 senior living communities across the United States, and about 160 communities are held in a JV between Sabra and private equity firm TPG Capital. The REIT holds a 49% interest and TPG holds the remaining 51%.
Sabra had an option — now expired — to buy out TPG, and the REIT has been pushing out a decision regarding its future investment in the portfolio in light of pandemic-related disruptions that have eroded its performance.
Recently, as vaccination clinics were completed and communities started to reopen, Enlivant’s performance improved, with occupancy climbing several hundred basis points from its Covid-19 low, Matros noted.
While further improvement in performance is expected, he believes that there is potentially a long runway until Enlivant returns to pre-pandemic levels. That timeline could stretch to two years, Sabra CFO Harold Andrews said.
Matros and Andrews are eager to avoid the ongoing “noise” related to Enlivant during that process of recovery, and there are other factors that are motivating Sabra to seek an exit.
For one, the REIT’s executives think that they can find a buyer for the portfolio and realize “some nice proceeds” that could be utilized for future acquisitions, Matros said. An Enlivant sale would also de-lever Sabra’s balance sheet, freeing up the company to take on more debt for future investments while still meeting its leverage goal of 5x debt to EBITDA.
“The pandemic has changed everything and provides some different opportunities,” Matros said, referring to Sabra’s position on Enlivant.
But, Sabra is still bullish on senior housing in the longer-term. Senior living occupancy should return to pre-pandemic levels by late 2022, and Sabra will continue to seek acquisitions in the space, as part of its diversified portfolio that also includes skilled nursing and behavioral health, Matros said.
But, Sabra is aiming to provide shareholders with a greater sense of certainty going forward, following big moves that the REIT made over the last several years.
“We’re not going to do larger deals that require a lot of work,” Matros said. “… We’d actually rather stretch for something that has clear upside than to pick up something a lot less expensively that’s going to require a lot of work.”
Additional financial relief
Indications of further governmental financial support are also bolstering Matros’ confidence.
The senior living industry had to advocate long and hard to be included in federal Covid-19 relief distributions, and advocacy groups have continued to lobby for additional allocations from the remaining pot of funds.
That work appears to have resulted in a $10 billion allocation to skilled nursing and senior living from the Provider Relief Fund, Matros said, but the “timing and methodology” of the distribution are still uncertain.
In total, senior living providers had incurred about $22.5 billion in uncompensated financial losses related to Covid-19 as of March 2021, according to figures released last week by industry association Argentum.
In April, 84 Congressional lawmakers sent a letter to the Biden administration urging “targeted and equitable relief” for the sector.
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