Sabra Health Care REIT will make a decision about its joint venture with TPG Real Estate, through which it has a 49% stake in a portfolio of dozens of Enlivant senior living communities, later this year, Sabra Chairman, President and CEO Rick Matros said Tuesday during the Irvine, CA-based real estate investment trust’s fourth-quarter and full-year 2020 earnings call.
“TPG has let us know that they’d like to resolve it this year, so we’ll be working with TPG and be making a decision on whether we retain or buy their 51% out, or we exit the portfolio,” Matros said. He predicted that the REIT will make a decision “in the next several months.” Whatever decision is made, closing the deal will take approximately 180 days due to regulatory approvals, he estimated.
“We really like the portfolio, we like the assets, the team is great, but it’s taken a hit during the pandemic,” Matros said. “It’s going to take time to recover, and so it just has to work for us economically. We’re not going to do it just to do it.”
Sabra first announced the joint venture with TPG in September 2017, investing $352.7 million, according to a filing with the Securities and Exchange Commission. The deal closed in January 2018, and the REIT had an option to acquire TPG’s 51% majority interest over the following three years. In February 2020, however, Matros said that Sabra was “happy with our current level of investment in the portfolio and don’t feel compelled to make any changes” until Enlivant’s financial performance improved. The portfolio includes 159 communities.
‘Challenging’ fourth quarter
Enlivant had a “challenging” fourth quarter, Sabra Executive Vice President, Chief Investment Officer and Treasurer Talya Nevo-Hacohen said. In the joint venture portfolio, she said, average occupancy in the quarter was 76.1%, down 4.2% from the previous quarter and down 10.6% year-over-year. In January, occupancy was 68.9%, down 1.4% from December.
Almost all of the joint venture communities were affected by the pandemic, but encouraging signs now include a decrease in COVID cases, progressing vaccination of residents and staff members, increasing move-ins and decreasing move-outs, Nevo-Hacohen said. By late February, only 10 communities had a resident or staff member with a positive COVID test, a 70% decline since January; all communities have had their first vaccine clinic, and 50% have had a second one; and January saw an increase in move-ins compared with December, she said.
“Data so far shows that 94% of residents and 64% of staff received the vaccine, a significantly higher rate than industry average,” Nevo-Hacohen noted.
Sabra’s separate portfolio of 11 wholly owned Enlivant communities “had similar themes in its performance” as the joint venture portfolio as far as fourth-quarter operating results, she said.
Vaccine is ‘linchpin’
“Adoption of the vaccine is the linchpin to getting the senior housing industry on the road to recovery,” Matros said.
In many locations, vaccination in skilled nursing facilities occurred before it did in assisted living communities, and “[i]f skilled nursing is a reasonable precedent,” Nevo-Hacohen said, “we have visibility on stemming occupancy losses. COVID cases should decline within a month following the vaccine clinics.”
Fewer cases will mean fewer resident move-outs and extended lengths of stay, she said, adding that a high vaccination rate among staff members will help reduce costs related to labor and personal protective equipment.
“Rebuilding occupancy will take more time. It requires converting leads to leases and convincing potential residents of the value that senior housing brings to their life,” Nevo-Hacohen said. But as vaccinations increase, she added, restrictions should lessen, “which will allow residents to gradually resume the lifestyle that brought them to independent or assisted living in the first place.”
With new residents, Nevo-Hacohen said, “Operators will now have evidence to show that living in their community is not only enjoyable, but also safer, whether it is in the face of a pandemic or a natural disaster.”
In-person tours also will return, Matros said. He predicted that occupancy may bottom out in March, start picking up in April and return to pre-COVID levels in many senior living communities in mid-2022.
“We think the safety factor for senior housing is going to be a big deciding factor in terms of admissions coming back in at a pace that we’d like to see,” he said.
Independent living sees challenges, too
Independent living operators such as Holiday Retirement, which operates 22 communities for Sabra, were not eligible for Coronavirus Aid, Relief, and Economic Security (CARES) Act Provider Relief Fund monies as assisted living and skilled nursing operators were, nor were they prioritized for COVID-19 vaccination, Nevo-Hacohen noted.
But that doesn’t mean that independent living communities haven’t been affected by the pandemic.
“Over the last year, all 22 properties that Holiday manages for Sabra have had a resident, staff member or private home health aide test positive for COVID-19,” Nevo-Hacohen said. As of mid-February, however, 17 communities have recovered and are in various stages of loosening restrictions for dining, visitation and beauty salons, she said.
“In order to continue to keep its residents safe, Holiday has needed to be creative in organizing and negotiating vaccination strategies,” Nevo-Hacohen said. “Holiday currently has 13 of our communities with confirmed vaccination partners. Five of those communities already have held five initial clinics for residents and associates, with 78% and 37% vaccinated, respectively.”
Occupancy in the Holiday portfolio was 80.8% in the fourth quarter, down 1.7% from the previous quarter and down 7% year-over-year, Nevo-Hacohen said. In January, occupancy was 79.8% compared with 80.7% in December 2020, she added.
But in the fourth quarter, Holiday saw a rebound in sales activity, with leads, move-ins and move-outs tracking between 95% and 99% of the fourth quarter of 2019, Nevo-Hacohen said. “We are now seeing the gap between move-outs and move-ins narrow significantly on the heels of vaccine distribution, reflecting the same trend that we spoke about at Enlivant,” she added.
Matros said the REIT’s acquisition pipeline stands at $1.5 billion, “primarily senior housing” properties but also behavioral health, addiction-related and skilled nursing properties.
Nevo-Hacohen said that the pandemic has delayed lease-ups in some new senior living communities, “and so there’s an opportunity to acquire newer assets that have some upside to them.”