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Increasing occupancy and declining labor expenses are leading to promising operating trends for Sabra Health Care REIT, according to CEO, President and Chair Rick Matros.

Tuesday during a second-quarter earnings call, Matros said the Irvine, CA-based real estate investment trust is encouraged by “slow and steady” portfolio improvements.

“Sabra’s portfolio continues to strengthen as occupancy gains and easing labor pressures drive improved rent coverages,” Matros said in a statement, adding that although operators are not yet where they want to be, there are “encouraging operating trends” that underpin a sense of optimism.

“Our progress this year gives us increased confidence that we are moving past the pandemic, and have greater clarity on future earnings growth,” he said.

Occupancy recovering

Sabra’s managed senior housing portfolio has continued its recovery over the past five quarters, with occupancy for the second quarter reaching 79.9%, according to Chief Investment Officer, Treasurer and Executive Vice President Talya Nevo-Hacohen. 

Quarterly occupancy in Sabra’s assisted living properties continued to increase, improving 120 basis points over the prior quarter and 250 basis point over the second quarter of 2022. Nevo-Hacohen said that operators continued to increase rates, although those rate increases fell between 5% and 7% in the second quarter compared with increases of 9% to 10% in the first quarter.

Sabra’s stabilized senior housing portfolio has fully recovered to pre-pandemic occupancy, outpacing occupancy growth in the managed portfolio. As of June 30, average occupancy in the senior housing leased portfolio was 88%.

The Holiday by Atria independent living portfolio experienced two consecutive months of positive net occupancy growth during the second quarter.

In July, after the quarter ended, Nevo-Hacohen said, Holiday occupancy was “exceptionally strong,” and that result is carrying over into August. That growth, she said, is being helped by the restarting of a renovation program that was stopped during the COVID-19 pandemic.

Also in July, Sabra transitioned 11 wholly owned managed senior housing properties formerly managed by Enlivant to Inspirit Senior Living, an existing Sabra operator. Matros said the transition happened more quickly than anticipated. Prior to the pandemic, he said, the Enlivant portfolio had occupancy in the mid-90s, so its current 76% occupancy holds “pretty dramatic upside,” he said.

Senior living plays increasing role

Overall, the REIT’s portfolio is the most diverse it ever has been, with its concentration of skilled nursing at its lowest level in company history, according to Chief Financial Officer, Secretary and Executive Vice President Michael Costa. The portfolio’s skilled nursing concentration will decrease further, he added.

The upside opportunity in the overall portfolio comes from recovery in Sabra’s managed senior housing portfolio as well as stabilization of property transitions and conversion of some properties to behavioral health, Costa said.

Matros said that the REIT’s acquisition pipeline currently is “light” and said he doesn’t expect much action at the time. But an opportunity exists for the REIT to get “very active” again in 2024, he added.