This difficult winter is sparing few owners and operators in terms of occupancy and labor expenses. So, Sabra Health Care REIT was not alone in its latest quarterly earnings report, and in fact, things could have been worse. First, Sabra entered into a definitive agreement to amend its master lease with Avamere, effective February 1. This reduced annual based rent by roughly 30% to $30.7 million, or an annual run rate reduction of $0.06 per diluted common share. As a condition to the amendment, Avamere has paid past due rent for December 2021 totaling $3.6 million and has agreed to pay January 2022 rent totaling $3.7 million by March 25, 2022. Sabra does have the opportunity to recapture the rent reduction as performance of the portfolio improves, but hopefully this is the last rent change they will have to make with Avamere.
Next, to occupancy, Sabra’s skilled nursing portfolio averaged 75.8% in December, down 20 basis points from November’s average. They admitted that “headwinds” continued into January but that preliminary data for February suggested that occupancy was starting to recover with gains in the first two weeks of the month. We will see in the next business update.
A couple of tenants actually reported strong monthly gains in occupancy, like Avamere’s 100-basis point increase to 71.8% in December and The McGuire Group’s 90-basis point increase to 84.5%. But others were not as lucky, with Signature Healthcare losing 80 basis points in census and Cadia losing 130 basis points.
Sabra’s coverage continued to decline in the fourth quarter. Based on the trailing-12 months, coverage for the skilled nursing/transitional care portfolio fell from 1.78x to 1.77x, not bad for a sector with such high staffing needs and costs. Coverage also rises to 1.86x in the fourth quarter when taking into account Sabra’s recently restructured lease with Avamere. But, that is far below the 2.09x coverage of Q4:20. Its seniors housing leased portfolio fell from 1.09x coverage in Q3 to 1.04x in Q4. Coverage for this group of properties was above 1.3x as recently as Q3:20. Finally, Sabra’s “Specialty Hospitals and Other” portfolio saw coverage drop from 3.86x to 3.83x, but both levels are higher than coverage in every quarter of 2020, so they are in decent shape. That may have influenced a couple of conversions to behavioral healthcare Sabra has planned for shuttered properties.
On average, REVPOR rose 3% sequentially across Sabra’s same-store assisted living portfolio to $6,247, driven primarily by annual rent increases implemented on October 1 in its Enlivant portfolio. Its independent living communities also saw an increase in REVPOR, albeit more modest, of 0.4% to $2,542. However, cash NOI declined across its seniors housing assets from $8,246 in Q3:21 to $7,374 in Q4:21, a 10.6% drop on top of an 11.5% drop in Q3.
CEO Rick Matros commented that with COVID cases dropping, after peaking in late-January in its portfolio, census should improve and, importantly, more staff will be available. That should be the case across the industry, so hopefully we will see impressive gains in occupancy and fewer staff retention issues in the spring and summer.
