Sabra CEO Rick Matros said Thursday that the real estate investment trust’s top three skilled nursing operators gained “traction” in the first quarter.
That includes Kentucky-based Signature Healthcare, which sold off 24 non-Sabra facilities, closed two others and significantly reduced its corporate footprint last year, Matros revealed during a quarterly earnings call.
As of Dec. 31, 2022, Sabra supplemental data showed the coverage ratio for the 45 buildings Signature operates for Sabra had dipped to 1.1 times, down from 1.4 times on Sept. 30, 2022. Coverage is typically used to show how easily a company could pay its debts; a higher ratio is a sign of financial stability, while a ratio below 1.0 means a company is financially strapped.
“Signature Health had a tough second half [of 2022],” Matros told investors on the earnings call. “They sold 24 facilities, closed two and right-sized their corporate infrastructure to accommodate a leaner company. And so that was quite distracting for them. However, their first quarter rebounded dramatically.”
Matros said he had reviewed previous quarterly reports for Signature dating back at least a year and a half and couldn’t find anything with better performance results.
While he declined to share more details about the deal except to say none of the buildings were connected to Sabra, Matros did tell McKnight’s the sell-off “got [Signature] out of some tough markets and did leave them stronger overall.”
Calls and emails to Signature Thursday afternoon seeking comment were not immediately returned.
Supplemental data is reported a quarter behind. The actual first quarter coverage rate for Signature won’t be available publicly until second-quarter results are released. But Matros added that “we feel really good about where Sig Health is on a current basis.”
Matros also reported strong first-quarter results from skilled operators Avamere and Ensign, the latter of which reported on its own earnings call last week that it is “ahead of schedule” on transitioning in as the new operator of former North American facilities.
“We’re continuing to see traction in operational recovery. Occupancy in our skilled nursing portfolio has now improved every month in the fourth quarter and continuing into and through January.”
Occupancy in the skilled nursing portfolio October through January increased 130 basis points, and skilled mix jumped up “dramatically” in the first quarter as well, Matros said.
And while labor costs are stabilizing, Matros said he isn’t necessarily eager ro get back into major skilled nursing investments yet. He characterized activity as “light” and remaining that way in the near term.
“Pricing uncertainty exists,” he explained.
Chief Investment Officer and Executive Vice President Talya Nevo-Hacohen echoed that concern.
“We’ve seen a reasonable flow of assets coming to us. A few of them are interesting to us, but we look at our cost of capital and we think about ways to invest and that leads us to focus more on preferred equity or higher yield or mezzanine debt, a greater opportunity in the longer term,” she said.
“Right now, what we are seeing remains to be underperforming assets that want full pricing. It is unclear what is full pricing today. I think that’s a bit of the challenge and why we are continuing to look at things because we are interested in price discovery.”
On the sales side, Sabra reported $190 million in first-quarter proceeds from the sale of seven skilled nursing facilities, including one leased to a tenant under a sales-type lease, and two senior housing communities.