Sabra Health Care REIT is focused on revenue growth and acquisitions for 2024, though it’s unclear how much of the buying activity will come on the skilled nursing side, company leaders said on a fourth-quarter 2023 earnings call Wednesday.
The real estate investment trust issued earnings guidance averaging 5% to 6%, depending on specific metrics, for the year ahead. It was Sabra’s first time issuing annual guidance since prior to the pandemic. Sabra ended 2023 with 413 investments spread across healthcare, with about 54% of that in the skilled nursing or transitional care space, according to its updated website.
President and CEO Rick Matros Wednesday cited “continuing stability and/or organic growth” across the portfolio. But he also highlighted particular strength in the REIT’s skilled portfolio given reimbursement improvements that were at least comparable to the rent increases senior living operators have charged residents in recent months.
“Our revenue per-patient-day growing at the rate that it’s been growing in the skilled portfolio has put us in the position where, in the aggregate, our portfolio’s margins are pretty much where they were at pre-pandemic,” Matros said. “The really good news there is we’re not even at pre-pandemic occupancy. So we see really, really terrific opportunity ahead of us in terms of margins improving over where they were.”
Increasing demand in the senior healthcare market, coupled with decline in skilled nursing beds will likely continue to drive Sabra’s census higher, Matros added. He also predicted the Medicare reimbursement rate would grow by more than 4% for fiscal 2025, given 2024’s 4.1% increase, which factored in the final clawback of unintentional Patient Driven Payment Model increases. The Centers for Medicare & Medicaid Services “still has a lot of inflation to capture,” he added.
More stability in the market could lead to more acquisition opportunities on the skilled side, Matros added, as owner-operators who have been barely hanging on find themselves in a better position to sell.
“As the industry enters 2024 with a much-improved operational environment and as Sabra specifically enters 2024 with the majority of our portfolio transitions and repositionings behind us, we have a much clearer line of sight into the expected performance of our portfolio,” said Chief Financial Officer Michael Costa.
But the annual growth guidance did not factor in any possible dispositions or specific purchases in the pipeline. Instead, it offered a conservative take on possibilities.
“It’s still impossible to predict how much or how quickly things are going to improve,” Matros added.
Leaders back Ignite, HMG
Matros and colleagues praised two skilled nursing operators in particular, leaving open the door to further growth with them. Among those was Ignite Medical Resorts, which last year started operating two additional Sabra facilities in Indiana formerly operated by Symphony Care Network.
The company first worked with Ignite on a three-building deal in Oklahoma in January 2020, and later tacked on an assisted living facility to that package. But as ignite has grown to 21 locations, it also has developed relationships with at least one other REIT, Sabra Chief Investment Officer Talya Nevo-Hacohen said.
“We’ve looked at several other deals now … and we continue to look for opportunities with them,” Nevo-Hacohen said. “They like to balance it all out and look for the best terms they can get. They like to negotiate but we have tremendous respect for their capability as operators and are endeavoring to do more with them.”
The most recent deal, she told investors, did not involve Sabra taking on any mortgage debt for the 8-year-old Indiana buildings. Instead, it was based on Ignite’s operations and a “very conservative look forward on what they can do with these buildings.”
Questioned later about the strength of one of Sabra’s top 10 operators, Healthmark Group, or HMG, Matros defended the lower coverage compared to other operators that rebounded more quickly. HMG operates 10 skilled nursing facilities, one assisted living and three independent living communities with Sabra, according to a 2023 year-end listing.
“They had really been benefiting from PRF (federal Provider Relief Funding), and that’s dropped off completely, so that’s been a big factor,” Matros said, expressing confidence in their overall progress. “They’re a really good operator in a really tough environment in Texas, so we don’t have any concerns about them going forward. We think things will level out for them, and then start improving again.”
For additional coverage of this earnings call, see sister publication McKnight’s Senior Living.
