The negative impact of the COVID-19 pandemic and a downturn in the debt market has left a joint venture company operated by senior living provider Enlivant negotiating with its lenders on a finance restructuring.
In documents filed late last month with the US Securities & Exchange Commission, Sabra Health Care REIT shared the results of an independent audit of the JV with TPG Real Estate, citing Enlivant’s failures to meet financial covenants and a notice of default.
The audit report by Mayer Hoffman McCann PC found “substantial doubt” about the 157-community Enlivant senior living portfolio’s ability to continue as a going concern. The audit said that the COVID-19 pandemic had created significant cost increase and lost revenue, resulting in declining income and cash flow that led to default of its credit facility and mortgage notes debt agreements.
“The pandemic had a significant negative effect on the portfolio performance, as it did to many others, and the downturn in the debt market impacted the ability of potential buyers to execute,” Sabra President and CEO Rick Matros told McKnight’s.
According to the March 20 SEC filing, the joint venture’s board of directors under Enlivant voted Feb. 9 to defer the company’s principal and interest payments on its Fannie Mae and Freddie Mac loans.
Fannie Mae issued a letter March 3 demanding immediate payment in full of the entire unpaid principal balances of the loan. On the same day, Freddie Mac provided a notice of termination of its management agreements, resulting in an access and cooperation agreement between the company and the lender on March 8.
The joint venture also did not meet its covenants for 2022 under a KeyBank credit facility agreement, according to the filing. As of Feb. 11, the company no longer was current on those payments, and loans were declared in default. The company received a notice of default from KeyBank on March 15.
“As a result of the COVID-19 pandemic, the company has seen a significant increase in costs and lost revenue associated with operating the business, resulting in declining income and cash flow,” the filing reads.
The JV company indicated that market conditions were rebounding, including occupancy increases from a 67.6% low in March 2020 to 73.4% in December 2022. An average 9% price increase in October 2022 also was implemented, and monthly contract labor costs trended down from $1,861 in December 2020 to $390 in January.
Despite those improvements, the JV company reported a net loss of $64.4 million for 2022 and said that increases in financing costs meant that it will need additional liquidity to continue its operations over the next year.
“For more than a decade, Enlivant has delivered high-quality, compassionate care to residents across the country,” an Enlivant spokesperson told McKnight’s Senior Living. “We are committed to working with our lenders and owners to position the business in a way that best serves and protects the well-being of these individuals, their families and our employees.”
The joint venture involves 157 assisted living communities across 18 states operated by Enlivant. Under the agreement, Sabra owns 49%, and TPG owns 51%. Sabra’s intentions to exit the joint venture — announced in 2021 — were delayed by the pandemic. Sabra is working on moving 11 owned Enlivant communities outside of the joint venture to a new operator.
Enlivant was the 13th largest operator and 16th largest owner of senior living communities in the country, according to the 2022 ASHA 50 list compiled by the American Seniors Housing Association. The company was No. 12 overall and No. 4 for assisted living on Argentum’s 2022 list of largest senior living companies.
