Sabra Health Care REIT plans to exit a joint venture with private equity firm TPG Real Estate through which it has a 49% stake in a portfolio of 158 Enlivant senior living communities, the Irvine, CA-based company announced late Wednesday.
“Our decision to exit the Enlivant Joint Venture was not an easy one. We admire the Enlivant management team and, in fact, look forward to continuing to work with them on the wholly owned assets as well as grow with them as opportunities present themselves,” Sabra President and CEO Rick Matros said in a statement. The portfolio is “recovering nicely” from the pandemic, he added.
The announcement was not a complete shock. In June at Nareit’s REITweek 2021 Investor Conference, Matros said that although the REIT had yet to reach a decision about the joint venture, “In all likelihood, our preference is going to be to exit the portfolio. The pandemic changed everything.”
In February, Matros said that the portfolio had “taken a hit during the pandemic.” Noting that recovery would take time, he said of the potential continuation of the joint venture then, “[I]t just has to work for us economically. We’re not going to do it just to do it.”
Wednesday, Sabra said it was unable to reach mutually agreeable terms with TPG for Sabra to acquire TPG’s 51% interest in the joint venture.
“As a result, along with the negative impact the COVID-19 pandemic has had on its financial performance, we re-evaluated our plans with respect to the Enlivant Joint Venture and determined that we would no longer seek to acquire TPG’s majority interest and that we expect to sell our 49% equity interest in the Enlivant Joint Venture should TPG secure a buyer for the portfolio sometime in the future,” the REIT said.
The joint venture portfolio, which includes 158 senior living communities with a total of 7,056 units, declined in value by approximately $164.1 million in the second quarter, Sabra said, adding, “[W]e do not expect to hold the investment for an adequate period of time to recover this estimated decline in value.”
Due to the unpredictability over when occupancy will return to pre-pandemic levels, the REIT said, “We believe it is not prudent to allocate our capital into an investment with this level of uncertainty.”
Sabra said it would use proceeds from the sale of its interest in the joint venture “to grow earnings per share through future acquisitions while managing our balance sheet to optimize our capital structure for future growth and stability.”
Sabra first announced in September 2017 its intention to buy a 49% equity interest in Enlivant from TPG. At the time, the REIT said the deal would put it on the path to 100% ownership of the properties, with the joint venture agreements containing an option for the REIT to acquire TPG’s 51% majority interest over the next three years. In mid-2019, Sabra began looking for potential partners to co-invest and jointly own 100% of the portfolio. By February 2020, however, the REIT announced that it was putting off a decision on whether to pursue a new joint venture.
Outside of the joint venture with TPG, Sabra’s portfolio of wholly owned managed communities includes an additional 11 Enlivant communities.
In other news, REIT said Wednesday that average occupancy for its portfolio of leased senior living communities “bottomed out” during the first half of February and has increased 505 basis points (5.05%) through mid-July. Average occupancy for its portfolio of managed senior living communities bottomed out during the first half of March and has increased 113 basis points (1.13%) through mid-July.
The senior living companies with the largest presence in Sabra’s portfolio are Holiday Retirement and Enlivant.
Also, Sabra announced that Executive Vice President, Chief Financial Officer and Secretary Harold Andrews has decided to retire effective Dec. 31. Michael Costa, Sabra’s executive vice president – finance and chief accounting officer, is expected to assume the role of CFO effective Jan. 1.
