Sabra Health Care REIT will not pursue a new joint venture with senior living operator Enlivant for now, the real estate investment trust’s CEO and chairman, Rick Matros, said Monday.
The REIT had announced in late 2017 that it would acquire a 49% equity interest in a $1.62 billion portfolio of 183 senior housing communities managed by Enlivant. Sabra’s investment in the transaction, which closed on Jan. 2, 2018, with 172 communities, was $352.7 million, according to a filing with the Securities and Exchange Commission.
At the time of the deal announcement, Sabra said the transaction put it on the path to 100% ownership of the properties, with the joint venture agreements containing an option for the REIT to acquire TPG Real Estate’s 51% majority interest over the next three years.
Monday on the REIT’s fourth-quarter and full-year 2019 earnings call, Matros pointed out that Sabra’s option to go down that path doesn’t expire until Dec. 31.
“We believe we’re in a good spot to give it more time as the Enlivant performance continues to strengthen,” he said. “We would anticipate exercising the option when we see occupancy gains that provide a clear path to accretion from any incremental investment. Until that occurs, we’re happy with our current level of investment in the portfolio and don’t feel compelled to make any changes.”
Sabra previously said that it had identified “several investors keenly interested in the opportunity” to co-invest with Sabra to jointly own 100% of the portfolio.
Monday, the REIT reported that the joint venture saw a net loss of $1.2 million and $1.8 million for the fourth quarter of 2019 and 2018, respectively, and same-store year-over-year cash net operating income growth of 1.4%. In 2019, the Enlivant joint venture’s cash NOI was 7% higher than in 2018, driven by top-line growth and expense control.
Sabra Executive Vice President, Chief Investment Officer and Treasurer Talya Nevo-Hacohen said the joint venture portfolio has shown “steady improvement.”
Average occupancy for the fourth quarter was 82.2%, which was 0.8% higher than the previous quarter and 0.1% higher on a stabilized same-store year-over-year basis. Revenue per occupied room was $4,418, which was 2.6% higher on a quarter-over-quarter basis and 4.1% higher on a stabilized same-store year-over-year basis.
“This is the highest RevPOR that we have seen since we made the investment,” she said.
Sabra’s portfolio of wholly owned managed communities includes an additional 11 Enlivant communities. In that portfolio, fourth-quarter occupancy was 89.5%, which was 0.7% higher than the previous quarter and lower on a year-over-year basis by 3.1%.
$1 billion pipeline is mainly senior housing
Going forward, Matros said, Sabra will focus on high-yield investments, especially in skilled nursing and behavioral health and addiction services, but that doesn’t mean the REIT isn’t interested in opportunities in senior housing.
Sabra is close to closing a $150 million senior housing deal, he said, and recently acquired five senior housing communities — including three from the REIT’s development pipeline — for $114.3 million.
The REIT’s acquisition pipeline is “just under $1 billion and still primarily senior housing,” the CEO said, adding, however, that skilled nursing deal volume is starting to increase. Sabra has “plenty of room to grow in its skilled nursing arena without becoming sort of ‘the skilled nursing REIT’ and still having balance in the portfolio,” he said.
For more news from this earnings call, see our sister publication, McKnight’s Long-Term Care News.
