Sabra sheds some SNF assets but remains ‘bullish’ in the long run

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Sabra Healthcare’s skilled nursing share has fallen to its lowest level in five years, but the real estate investment trust has no intention of letting its skilled segment become a minority player, CEO Rick Matros said Thursday. during a call for results.

During the second quarter of 2022, Sabra sold several underperforming SNFs as an alternative to capital markets borrowing, while it operated two others to convert them into drug treatment centers.

But after entering what it sees as the rampant era of COVID-19, seeing a long-awaited shift in state reimbursements, and anticipating major population growth, Sabra remains committed to safely maintaining the qualified facilities in its mix.

“We are very optimistic about the qualified environment and even if we diversify, more than half of the portfolio will still be made up of qualified nurses. Whatever positive trends we see in this space over the next few years will benefit us,” Matros said. “Before the merger [with Care Capital Partners in 2017]when we were in the 50s, as opposed to over 60% qualified nurses, the investment community viewed us as a more diversified REIT and we were trading at a better multiple.

“That’s really one of the drivers here: diversifying risk and spreading it across more asset classes that we like. But at this point, we certainly don’t have a long-term goal of, say, getting proficiency from 60th percentile exposure to half of that,” he added.

At the end of June, Sabra owned 406 properties, including 272 skilled nursing or transitional care facilities, 105 rented or managed seniors’ residences, 15 specialty hospitals and 14 behavioral health facilities.

In the second quarter, Sabra generated $40.2 million in gross proceeds from the disposal of eight facilities, with two additional sales and six contracts expected to bring in an additional $210 million by the end of the year, it said. the company in a press release.

During Thursday’s call, Sabra’s chief investment officer, Talya Nevo-Hacohen, said the REIT was leveraging buyers’ appetite for skilled nursing — and high prices — to fund new avenues of growth. This is especially true in behavioral health, where the company is investing $47.5 million to transform two SNFs and a memory care center.

“We are committed to supporting the delivery of behavioral health services by creating and funding the places where they happen,” Nevo-Hacohen said. “In doing so, we are creating value in our portfolio by generating higher returns and sustainable income streams, while continuing to diversify our portfolio.”

Four SNFs that cost the REIT $11.7 million last quarter are also being evaluated for sale as part of the repositioning effort. Chief Financial Officer Michael Costa classified the facilities for sale as underperforming, with most on a cash basis and paying well under their contract rents.

Year-to-date, Sabra has also transferred or plans to transfer 25 triple net leased assets to existing and new operators. This effort will expand the REITs relationship with Ensign Group from three to nine properties.

“We wouldn’t transfer them to new operators if the current operators were doing the work that we thought was doable in those facilities,” Costa said. “We think these are good assets in good markets, but we think a better trader could do a better job there and increase profits.”

State support and rising demographics

Nevo-Hacohen said payer volatility factored into the decision to reduce exposure to NFCs and build behavioral health assets, where services are often covered by commercial insurers.

But Matros said he was pleased with the response of many states to the financial vulnerability of nursing homes revealed by the pandemic.

“The tone [is] change in many states when it comes to Medicaid underfunding,” he said. He noted that FMAP extensions and year-over-year increases in regular Medicaid rates were large enough to provide a 60% increase in Sabra’s SNF portfolio.

He expects growing access issues to continue to pressure state lawmakers to fix long-term care while their budgets are in good shape.

“The decline [in access] really accelerating. Our belief is anything that will create a better environment as we have these discussions with States, beyond 2023…. The pandemic has demonstrated to states that what all the carriers have said is true, and that is that in most states Medicaid has been underfunded.

Matros also said higher reimbursement rates should help providers deal with labor challenges, which he called an ongoing “drudgery.” More staff will be needed to capture the expected higher demand as well as the aging demographics of the United States.

“The combination in the qualified space of rate increases plus demographics adding more occupancy is going to help a lot,” he said. “Operators aren’t just going to hang on to that money and let it all go to the bottom line. They’re going to put it into the workforce.

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