Sabra Health Care REIT is still working through some portfolio issues, like every other REIT, and it will take until at least next year to wind through them. But from an occupancy perspective, at least with its largest segments, things are looking up. And the transition of 20 additional skilled nursing facilities to The Ensign Group is now complete, bringing the total operated by Ensign to 31 buildings representing 8.5% of annualized NOI.
This is important because not only is Ensign one of the strongest SNF operators in the country, but its EBITDARM coverage with Sabra is 1.69x. Also not too shabby from a financial perspective is Avamere Family of Companies, which now leases 29 SNFs from Sabra representing 7.4% of the REIT’s NOI. Avamere’s EBITDARM coverage is 1.73x. We suspect both will be higher by the end of 2023.
On the skilled nursing front with Sabra, occupancy has increased by 210 basis points year over year to 73.5%, and 60 basis points sequentially. The skilled mix declined substantially, but we do not know if that has to do with a 15-facility drop in its portfolio.
The seniors housing side performed even better. Same-community assisted living posted a 590-basis point census increase year over year, while sequentially it jumped by 240 basis points to 80.6%. We have not seen that kind of sequential increase in a while. Same-community independent living occupancy increased by just 90 basis points to 82.2%, but sequentially it fell by 50 basis points. Hmmm. Same-community cash NOI increased by 50% year over year to $12.0 million, and the cash margin jumped by 680 basis points to 26.9%. This is more important than census, even though census should be driving margin and cash flow.
Sabra’s shares now yield a high 9.6%, with the shares trading near their 12-month low. The REIT did cut its dividend at the beginning of the pandemic, as did several REITs, but it does not look like they will repeat that, despite the high yield. With a good balance sheet and some momentum with its operators, we believe the yield will decline during the year.
