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The 157-community, 6,996-unit Enlivant senior living portfolio in which Sabra Health Care REIT has a 49% stake through a joint venture with private equity firm TPG Real Estate will go up for sale by the end of the year, Sabra President, CEO and Chair Rick Matros said Tuesday during the Irvine, CA-based real estate investment trust’s third-quarter earnings call.

“The management team is completing their budget process,” he said. “That will be presented to the board. We’ll sign off on it, and sometime before year-end, the marketing process will be kicked off by the bankers.”

Occupancy in the portfolio is approximately 75% or 76%, Matros said.

Enlivant is one of the operators with the largest presence in Sabra’s portfolio, according to the REIT. Outside of the joint venture with TPG, Sabra’s portfolio of wholly owned managed communities includes an additional 11 Enlivant communities with a collective 631 units, according to supplemental information posted on Sabra’s website in conjunction with the earnings call.

Enlivant is the 13th largest operator and 16th largest owner of senior living communities in the United States, according to the 2022 ASHA 50 lists compiled by the American Seniors Housing Association, operating a total of 215 communities and owning 204 as of June 1. The company was No. 12 overall and No. 4 for assisted living on Argentum’s 2022 list of largest senior living companies.

Sabra announced in August 2021 that it planned to exit the joint venture with TPG, noting that the management team is highly regarded but that the Enlivant communities had “taken a hit during the pandemic.” A year ago, Matros said the deal would close in mid-2022. In May of this year, however, he said that TPG had held off on marketing the portfolio for sale, wanting to see how the portfolio was recovering.

“The portfolio has been recovering really nicely. Occupancy gains have been material since omicron,” Matros said at the time. “And so I think we’re getting close to the point where TPG is going to want to actively market the portfolio.”

Practically speaking, however, the CEO estimated in May that the Enlivant communities would remain in Sabra’s portfolio through 2022 and through the first quarter of 2023 “because you’ve got months of regulatory approval as you find a buyer.”

Tuesday, Matros said that “from the banker’s perspective and TPG’s perspective, with which we agree, at this point you need to go out with 2023 numbers that are believable in order to market the portfolio.”

Operating environment improving

The CEO called the past three years during the pandemic “brutal” and a “disaster.”

“This industry’s never gone through anything like this,” he said, predicting that “we’re still probably over a year away from recovery from an occupancy perspective and a little bit more so from a margin perspective.”

Although recovery is taking longer than the industry would like, Matros said, the worst of the pandemic is over.

“We’re not seeing COVID in and of itself impact the business,” he said. “The vaccinations have been highly effective, as have been the boosters. Most of the staff is vaxxed as well. So the business is holding up really well relative to current COVID cases — they’re pretty negligible.”

Overall, Matros said, the long-term care operating environment continues to improve. “It’s still tough, but occupancy is now improving as well as labor,” he said.

Continued rate increases in the assisted living communities in the REIT’s wholly owned managed senior housing portfolio have offset some of the margin pressure resulting from higher labor costs, Sabra Chief Investment Officer, Treasurer and Executive Vice President Talya Nevo-Hacohen said.

“We have seen tailwinds on occupancy and rate for a few quarters and are now seeing labor costs start to decline as agency is increasingly replaced with permanent staff, which will both lower and stabilize expenses,” she said.

Occupancy in the wholly owned managed senior housing portfolio for the third quarter, excluding nonstabilized properties, was 81.5%, driven by a 1.3 percentage point increase in the independent living communities compared with the second quarter. Compared with the same period in 2021, occupancy in the independent living communities was up 2.5 percentage points, and in the assisted living communities, it was up 2.7 percentage points.

Same-store revenue per occupied room was $6,306 in assisted living, a 50 basis point increase over the prior quarter and a 6.4% increase over the third quarter of 2021. In independent living, it was $2,705, a 1.8% increase over the prior quarter and a 5.5% increase over the third quarter of 2021.

“Same-store occupancy has continued to trend up since the omicrom variant surge in early 2022,” Nevo-Hacohen said.

Opportunity in small deals

When it comes to investments, Matros said, “we continue to see opportunity in relatively small senior housing deals and, secondarily, behavioral deals.”

During the third quarter, Sabra acquired two senior housing managed communities, including one through its proprietary development pipeline, for $71.7 million, with an estimated blended stabilized cash yield of 7.2%.

Read more coverage of this earnings call in McKnight’s Long-Term Care News and in the McKnight’s Business Daily.

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