The big news in Sabra Health Care REIT’s first quarter report was that effective May 1, they are completely out of the 49% joint venture with the Enlivant portfolio that encompasses 154 assisted living communities. The J/V had been in default on the portfolio’s debt, and since there was no recourse to Sabra, it was time to cut the cord.
Sabra’s investment had been written down to zero a while ago, so there was no financial impact with the decision. The J/V agreement contained a provision that allowed either partner to walk after a certain period of time. While we understood the original rationale to make this investment to diversify from its skilled nursing portfolio, the price paid was too high and the assets were the wrong quality of assets. The pandemic made a tough situation worse. Lesson learned.
Sabra still has an additional 11 wholly-communities that are currently operated by Enlivant that will be transitioned to new operators. As far as the 154 J/V communities are concerned, the lenders will be tasked with finding new operators. We are sure they are thrilled with the prospect. Management stated that between the lingering impact of the pandemic and the current state of the debt markets, selling the J/V communities was not an option.
We are glad this saga is behind them, as it probably took up too much time and too many questions from investors. Management is now looking ahead and likes what they see. Excluding Provider Relief Funds, their skilled nursing/transitional care portfolio had a 1.55x EBITDARM coverage, up from 1.48x in the previous quarter. The seniors housing leased portfolio had a 1.14x coverage, the behavioral health portfolio 1.71x and the specialty hospital portfolio 6.4x.
On the occupancy front, the skilled portfolio increased by 190 basis points year over year to 73.7% and the seniors housing leased portfolio jumped by 790 basis points to 86.4%. For all leased portfolios, the statistics are one quarter in arrears, so the numbers are for the four quarters ended December 31.
Sabra’s largest tenant, Signature Healthcare, saw its coverage plunge from 1.40x in the quarter ended September 30, 2022, to 1.11x in the following quarter. After shedding properties and focusing on a smaller portfolio, occupancy is now up 300 basis points sequentially, and they had a 5% decline in sequential labor costs. We suspect Sabra is breathing a sigh of relief. And who is the best performing SNF tenant in the portfolio? The Ensign Group, with a 1.72x EBITDAR coverage for the 12 months ended December 31, 2022. No surprise there.
The REIT is still buying, and in the first quarter it closed on the acquisition of one seniors housing managed community with 151 units for $48 million, or close to $378,000 per unit and an 8% yield. They also acquired a 70-unit leased senior living community for $3.25 million, also with an 8% yield. Sabra also acquired an 85% interest in a 290-unit Canadian seniors housing community for $18.939 million, or $65,410 per unit. Also an 8% yield. On the sales side, they generated $190 million in gross proceeds from the sale of seven SNFs and two senior living communities.
Management stated that they expect 2023 to be a quiet year.
