Performance of a group of 11 former Enlivant senior living communities for which management was moved to Inspirit Senior Living on July 6 “has so far exceeded expectations,” with occupancy in September increasing more than 230 basis points compared with June, real estate investment trust Sabra Health Care REIT reported this week. Sabra owns the communities.
On a previous earrings call, Sabra Chair, President and CEO Rick Matros had said that the portfolio’s occupancy had been in the mid-90s before the pandemic, so the 76% occupancy it had in June held “pretty dramatic upside.”
Tuesday during the Irvine, CA-based REIT’s third-quarter earnings call, he said that some of Inspirit’s success has been due to “just basic blocking and tackling.”
“With Enlivant, you had a company that was being sold,” Matros said. “We were losing people and management, basically every week, and so the portfolio was just floundering. So bringing in an operator, one that happens to be very good and we knew,” was one reason for success, he added.
Enlivant had been the center of financial issues in recent years.
Effective May 1, Sabra withdrew and resigned its membership in a joint venture through which it owned with TPG Real Estate 157 senior living communities operated by Enlivant across 18 states (the 11 communities moved to Inspirit were not part of the joint venture). Sabra initially had announced in August 2021 that it planned to exit the JV, leading to a financial restructuring of the Enlivant portfolio, which Sabra said had “taken a hit during the pandemic.”
An audit report issued this spring found “substantial doubt” about the ability of the JV’s Enlivant portfolio to continue as a going concern. The audit said that the COVID-19 pandemic had created significant cost increases and lost revenue, resulting in declining income and cash flow that led to a default on its credit facility and mortgage note debt agreements.
Tuesday, Matros said that a second reason for Inspirit’s good performance related to the 11 communities is that Inspirit is “laser-focused, and they are supporting the business and putting the initiatives in that are necessary to grow occupancy. It’s really kind of as simple as that.”
The CEO also said that “there is still plenty of room for occupancy to grow” in the portfolio, and that the material growth displayed to date in the 11 Inspirit communities, as well as in the North American communities for which management was moved to The Ensign Group, are “validating our decision to move those portfolios to those particular operators.”
Pandemic recovery continues
In a press release issued Monday and on the earnings call on Tuesday, Sabra said that, overall, its same-store senior housing managed portfolio performed well as it continues to recover from the pandemic.
The portfolio saw a 170-basis-point increase in quarterly occupancy, to 81.9%, from the second quarter. On the call, Chief Investment Officer, Treasurer and Executive Vice President Talya Nevo-Hacohen said that it was the highest occupancy level the portfolio has seen in the past five quarters.
Year-over-year, third-quarter revenue grew by 6.5% compared with the same quarter in 2022, driven primarily by higher revenue per occupied room.
“Healthy top-line growth combined with roughly flat operating expenses resulted in a 28.2% year-over-year increase in quarterly cash NOI [net operating income] for this portfolio,” the REIT reported.
“We believe our business is moving further and further away from the pandemic-induced bottom,” Matros said in a statement, commenting on the quarter. “While we expect labor issues to persist, we do see continued improvement.”
Overall, the senior housing managed portfolio “showed strong improvement in all critical metrics” during the quarter, he said, and despite labor challenges, occupancy and rent coverage in the REIT’s skilled and senior housing triple net leased portfolios “remain on an upward trajectory.”
Within the senior housing managed portfolio, Holiday by Atria properties have “continued to have positive net occupancy growth, a trend that began this past June, with 220 basis points of occupancy gains and 7.9% cash net operating income growth on a sequential basis quarter-over-quarter,” Nevo-Hacohen said. “Inquiry volume, as well as conversion to move-in rates, have increased meaningfully. In addition, move-outs have declined to their lowest level in a year. After trending up since the third quarter of 2022, move-out levels appear to have peaked in the first quarter of this year and have since trended down, with acuity and death continuing to drive more than half of the move-outs.”
By asset class, as of Sept. 30, senior housing–managed properties accounted for 16.1 % of Sabra’s portfolio, and senior housing–leased properties accounted for 10.3%, according to a presentation posted online in conjunction with the earnings release. Skilled nursing/transitional care properties accounted for 54.3% of the portfolio.
On the call, Matros pointed out that the concentration of skilled nursing properties in the REIT’s overall portfolio “continues to drop and is now at its lowest point since inception, enhancing the diversity of our portfolio.”
By relationship concentration, as of Sept. 30, Signature Healthcare properties represented 9.3% of the portfolio; The Ensign Group, 8.3%; Avamere Family of Companies, 7.8%; and Holiday by Atria, 5.6%.
‘Go where the opportunity is’
During the third quarter, Sabra generated $80 million of gross proceeds from the disposition of two senior housing communities and 13 skilled nursing facilities. Net proceeds were used to reduce the outstanding balance on the company’s revolving credit facility.
Moving forward, Matros said on the earnings call, Sabra finds both senior living and skilled nursing to be appealing targets for acquisitions and is “going to go where the opportunity is.”
“We think there is a nice run ahead in skilled nursing, if you look at the demographic combined with the declining supply, which, as we’ve talked about, has accelerated during the pandemic,” he said. “And in senior housing, new supply just isn’t going to be an issue. And so occupancy in both those asset classes are going to continue to rise.”
The REIT’s board declared a quarterly cash dividend of $0.30 per share of common stock on Monday. The dividend will be paid Nov. 30 to common stockholders of record as of the close of business on Nov. 17.
For more coverage of the earnings release, see the McKnight’s Business Daily.
