Quarterly occupancy in Sabra Health Care REIT’s portfolio of wholly owned managed senior living communities in the fourth quarter of 2023 reached its highest level since the second quarter of 2020, just one sign of good post-pandemic news that the Tustin, CA-based real estate investment trust reported Wednesday.
“Occupancy was 81.2%, a year-over-year increase of 130 basis points, the highest occupancy for this portfolio over the past five quarters,” Talya Nevo-Hacohen, the REIT’s chief investment officer, treasurer and executive vice president, said on a fourth-quarter 2023 earnings call.
Continued gains in occupancy and revenue per occupied room, as well as moderating expenses, are responsible for the year-over-year positive momentum in revenue and cash net operating income in the portfolio, she said.
RevPOR in the fourth quarter increased by 4% over the fourth quarter of 2022, average asking rents and renewal increases range from 5% to 7%, as anticipated, and cash NOI for the quarter grew 12.2% over the fourth quarter of 2022, Nevo-Hacohen said. “More recently, in January 2024, this portfolio’s cash NOI posted an increase of more than 25% compared to January 2023,” she added.
The use of agency staffing in senior living is back down to “normal” levels, Nevo-Hacohen said. The senior living operators that manage properties owned by Sabra also are seeing more net hires due to improved retention, “and overall just a stronger ability to hire, retain and compensate permanent employees,” she said.
Strong gains by almost every operator
Sabra’s same-store wholly owned portfolio has 28 independent living communities and 23 assisted living memory care communities, and the performance of the portfolio is “attributable to strong gains made by nearly every one of the operators managing these communities,” Nevo-Hacohen said.
“While the foundation was set by our Inspirit portfolio, which was transitioned from Enlivant in mid-2023, nearly every operator was able to drive RevPOR while managing exPOR,” or expenses per occupied room, she said. “The Inspirit portfolio, about half of our same-store assisted living portfolio, experienced cash NOI growth of 14.5% sequentially and 21% year-over-year. We continue to see operational, financial and cultural improvement in these communities since the transition.”
Consistent top line growth via occupancy and RevPOR, along with declining exPOR, “signals that the break-even point is being moved over so that we are now starting to get the benefit of operating leverage,” Nevo-Hacohen said.
Sabra President and CEO Rick Matros said the REIT was “pleased to report continuing stability and organic growth in our portfolio” of senior living, skilled nursing and other property types. The company expects senior living occupancy to surpass pre-pandemic levels soon, due to “demographics combined with the negligible new supply for the foreseeable future,” he said.
Senior living market is ‘very active’
Matros said the REIT’s goal is to be a net acquirer in all of the property types in its portfolio.
“Our skilled exposure is at the lowest point it’s been in our history and will continue to drop, so we’re not going to bypass doing skilled deals,” he said. “We’re actively looking for skilled deals and because we’re dropping so low on our skilled exposure, we’re really able to do more skilled deals and still have a much more diversified REIT than we’ve ever had before.”
As of Dec. 31, according to a company presentation, managed and leased senior living properties account for 26.4% of the REIT’s portfolio, based on annualized cash NOI. Skilled nursing represents 54.1%; behavioral health, 14.6%; and speciality hospitals, 4.1%.
Nevo-Hacohen described the senior living market as “very active.”
“Since the start of 2024, everyone is re-engaged with a different perspective on pricing, because there was a bid-ask spread that really made everything come to a halt,” she said. “But now it feels like there are a lot of assets on the market. There are groups that have to refinance or sell because of their situation with their lender. And so we’re seeing a lot of fairly new [and] newer assets on the market on the senior housing front.”
By contrast, she said, skilled nursing facility deals are happening off market, with not many quality properties being marketed by brokerage firms. “It’s been incumbent upon us to insert ourselves into those relationships more actively in order to capture opportunities on skilled nursing, and they’re competitive as they are in senior housing,” Nevo-Hacohen said.
2024 may be first year of earnings growth since pandemic started
“Everything is really about earnings growth this year,” Matros said.
Chief Financial Officer, Secretary and Executive Vice President Michael Costa noted that the REIT was introducing full-year earnings guidance for the first time since the start of the pandemic.
“Throughout the pandemic, Sabra and many of our peers did not issue full-year guidance because the uncertain operating landscape in the industry made it difficult to project expected financial performance with a high level of conviction,” he said. “As the industry enters 2024 with a much improved operational environment, and as Sabra specifically enters 2024 with the majority of our portfolio transitions and repositioning behind us, we have a much clearer line of sight into the expected performance of our portfolio for the coming year.”
The REIT expects to realize year-over-year growth in funds from operations of approximately 5% and growth in adjusted funds from operations of approximately 6%, which Costa said would make 2024 the first year of earnings growth for Sabra since the start of the pandemic.
Earnings guidance for the year:
- Net Income: $0.53 to $0.57
- FFO: $1.33 to $1.37
- Normalized FFO: $1.34 to $1.38
- AFFO: $1.38 to $1.42
- Normalized AFFO: $1.39 to $1.43
For additional coverage of the earnings call, please see sister media brand McKnight’s Long-Term Care News.
