Rick Matros
Rick Matros

Sabra Health Care REIT Chairman and CEO Rick Matros led an upbeat third-quarter earnings conference call Wednesday, declaring his nursing home-heavy company well positioned to enter 2020 with its strongest balance sheet since its inception in 2010.

He noted “a lot of tailwinds” in play, including a successful 10-year note offering, profitable quarterly results and a $600 million acquisition fund that is actively looking for skilled nursing targets, among others. In addition, a new joint venture partner is expected by the end of the year.

Analysts noted that third-quarter earnings per share came in at $0.12, a nickel below estimates, while quarterly revenue ($149.83 million) fell between estimates ranging from just over $149 million to nearly $152 million. 

Matros acknowledged disappointing performance from the Avamere Family of Companies, attributing some struggles to a recent software conversion. But he otherwise expressed confidence that the provider would rebound. He also pointed to several strategic moves that had strengthened the company’s balance sheet.

“We look forward to hitting our target leverage of 5.50x net debt-to-adjusted EBITDA or better by year end,” he said. 

The firm is well positioned to aggressively pursue acquisitions, he added.

“We might not do billion dollar portfolio deals, but we will do deals,” Matros said. “We could absolutely entertain doing that,” he added, referring to purchases worth “hundreds of millions of dollars.

“If it pushes our skilled exposure up more than we’d like … we’ll always be able to balance,” he explained. “I expect us to take advantage of the opportunities out there on the skilled side.”

He said that all of the REIT’s nursing home operations successfully endured the Oct. 1 transition to Medicare’s Patient Driven Payment Model, and that leaders are “feeling pretty good about the opportunities.”

“While it is still too early to accurately gauge the benefits, our tenants’ perspective remains universally positive,” he said in a statement. He added during the conference call that providers’ growing familiarity withICD-10 coding decisions will improve business, and that the REIT’s providers will continue to grow percentages of group and concurrent therapy slowly, “so surveyors don’t jump on it.”

He stuck by earlier predictions that it would take about six months to learn the full impact of PDPM on operators. But he also forecasted “a really tough Thanksgiving” for some operators — ”small mom-and-pop and less sophisticated” providers — that hadn’t prepared sufficiently.

“They’ll start feeling the pain pretty quickly,” Matros said, noting that nurse and ICD-10 coding training needed to be in place from the start to avoid billing at rates too low. Some operators likely thought that a new system would mean they would automatically be making more money as of Oct. 1 “and it doesn’t work that way.”

Financial results reported included a 5.2% average resident rate increase in both an existing joint venture portfolio and the company’s separate holdings.

On Wednesday, the board of directors formally declared a quarterly cash dividend of $0.45 per share of common stock, and the company reaffirmed its 2019 earnings guidance. More on Sabra’s third-quarter numbers can be found here.