Sabra Healthcare REIT (Nasdaq: SRBA) now sees “significant upside” in the 11 communities that were previously part of its Enlivant joint-venture after transitioning the properties to a new operator earlier this year.
Sabra transferred management of 11 assisted living and memory care communities to McLean, Virginia-based senior living operator Inspirit Senior Living. With historic occupancy at a much higher clip before the pandemic, management believes the portfolio has much more room to grow with regard to margins. Therefore, it should have a “disproportionate impact” on future earnings results given the size of the Sabra managed portfolio, according to CEO Rick Matros.
“The transition happened more quickly than we anticipated,” Matros said on Tuesday’s second quarter earnings call. “It was really cooperative and there were no frictional costs.”
Prior to the pandemic, the 10-property portfolio was in the mid-90th percentile on occupancy, but the Covid-19 pandemic decimated that, with occupancy today at around 76% today, Matros said.
“There’s really pretty dramatic upside there,” he said.
Other operators who have taken on properties from the Enlivant portfolio include Navion Senior Solutions, Discovery Senior Living
Sabra previously owned a 49% stake in the Enlivant JV with TPG prior to the default notice and subsequent fallout.
Matros said on Tuesday that the managed portfolio transitions offer enough visibility to “provide a bridge back to earnings growth” for the company in the future.
“While there’s no time frame associated with that, it is a reasonable timeframe and serves as a blueprint that will help us as we get closer to 2024 and issue 2024 guidance,” Matros said.
Matros added that the company “doesn’t expect any downside” from Sabra’s exit from the Enlivant JV and the following transitions. The transitions of the communities to Inspirit happened last month, Matros added.
“Everything’s going really well there so we expect only upside, it’s just a matter of how quick it gets there,” Matros said.
Even with Sabra’s pipeline for new acquisition and development remaining “lightened” given capital costs, Matros said there was an opportunity to remain active “as we move into 2024.”
“We do believe just to emphasize the point that it will result in the cost of our equity improving,” Matros said.
Occupancy in the quarter was 79.9% for the company’s wholly-owned portfolio, a 50-basis point decrease over the second quarter of last year. Assisted Living occupancy increased 120 basis points over the prior quarter and 250 basis points since the second quarter of last year.
Sabra stock sat at $12.88 on Tuesday, down $0.010 (0.078%) today at market close.
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