Sabra expects skilled care occupancy rebound in 2019, though mom and pops may face some struggles

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While occupancy of its skilled nursing properties might not be quite up to snuff, a CEO of one of the field's top operators says we may be reaching bottom, with a much brighter 2019 on tap.

Sabra Health Care chairman and CEO Rick Matros, during a call to announce his company's quarterly earnings, also noted that skilled mix has improved. The Irvine, CA, company's occupancy at its skilled nursing facilities has ticked upward two quarters in a row, to 81.8% at the end of June, and said he believes the future is bright for SNF operators. 

“We don't see any trends with our operators that cause us concern, and we've been very consistent, I think, all along over these past few quarters, talking about the fact that, from our perspective, that we may not be at bottom, but we're close to bottom,” Matros said, echoing comments made by Genesis Healthcare CEO George Hager on Wednesday.

Deals are hard to be found, as he believes many are holding onto the “good assets” in their portfolios.

“I think everyone in this space is seeing the light at the end of the tunnel and want to hold onto these assets to get some upside,” Matros said.

Those that are on the market have been “pretty unattractive, even from a turnaround perspective, and we dismiss them out of hand.” Sabra had 352 skilled nursing/transitional care facilities as of June 30. The company sold 27 facilities leased to Genesis for proceed of $235.9 million.

Elaborating further, he said it will likely be a “2019 event,” possibly a few quarters into next year, when SNFs start to see a turnaround. The 2.4% market basket raise should also provide some relief before then, Matros said.

“The improvement is going to primarily be in occupancy,” he predicted. “Obviously labor's been an issue, but labor has always been an issue, and it's exacerbated by the fact that you don't have a business that's at 90% occupancy. It's dropped down to the low 80s, and there's nowhere to hide when your occupancy is that low.”

Matros noted that the second wave of positivity for the SNF field likely won't come until 2020. The Patient Driven Payment Model hits in October 2019. He predicted that the shift to PDPM may prove tougher on the smaller mom and pop “Medicaid shops,” who may choose to hang things up, rather than endure the changes that come with the new model.

“You're talking about changing how you do business, the mix of business, how you bill, you've got to make software changes,” he said.

Overall, Sabra reported net income of $193.58 million in the second quarter of 2018, compared to $17.96 million the same period last year. Along with the $235 million sale of facilities during that time period, Sabra also redeemed 5.75 million outstanding shares of preferred stock, for a total aggregate payment of $146.3 million.