Sabra Health Care REIT’s plan to diversify its assets away from mostly skilled nursing is underway, with its growing behavioral health portfolio representing a total investment of approximately $730 million with a weighted average cash yield of over 8%. The REIT’s portfolio currently includes 272 skilled nursing/transitional care facilities, 55 leased seniors housing communities, 50 seniors housing communities operated by third-party property managers, 15 specialty hospitals/other facilities, and finally, 14 behavioral health facilities. So, Sabra is not morphing into a behavioral health giant, per se, but the sector represents 13% of its annualized cash NOI, and is still growing.
However, the goal is to capitalize on the growing demand and projected growth within the behavioral healthcare sector. According to Levin Pro HC, the breakout sector of July was behavioral health care, with 11 publicly announced deals, which tripled in activity compared to the previous month.
Part of Sabra’s strategy is taking advantage of its established skilled nursing facilities and planning on transitioning some into behavioral health locations. According to the company’s recent earnings release, its skilled nursing assets operated at 1.88x EBITDARM coverage (pro forma for Avamere lease amendment) and at 1.66x (pro forma for Avamere lease amendment and excluding Provider Relief Funds). The leased seniors housing assets reported 1.09x EBITDARM coverage while behavioral was at 1.83x. Specialty hospitals and other facilities had a 7.07x EBITDARM coverage.
The transformation of struggling SNF assets can allow the REIT to more quickly meet demand for substance use disorder treatment facilities. Back in March of 2021, according to Levin Pro LTC, the company acquired a seniors housing community in Florida and converted it into a 60-bed addiction treatment center. We will likely hear of more similar deals in the next year.
Sabra also announced in its second quarter earnings a $147.4 million acquisition of 12 Canadian seniors housing communities with its newly formed 50/50 joint venture with Sienna Senior Living. The acquisition came with an estimated stabilized cash yield of 6.5%. Subsequent to the quarter, Sabra also closed on the acquisition of two additional managed seniors housing communities for $71.7 million with a weighted average initial cash yield of 7.2%. In addition, Sabra generated $40.2 million of gross proceeds from the disposition of eight facilities during the quarter. And subsequent to June 30, 2022, the REIT completed the sale of two facilities and has six facilities under contract for sale, which, collectively, are anticipated to generate gross proceeds of over $210 million.
