Sabra Officially to Exit Enlivant JV, Reports $164 Million Impairment Charge

Sabra Health Care REIT (Nasdaq: SBRA) will exit its joint venture with private equity firm TPG in 159 senior housing communities operated by Enlivant, bringing a nearly two-year saga close to its endgame.

The Irvine, California-based health care REIT announced its intentions on Wednesday, ahead of its Q2 2021 earnings call.

However, CEO Rick Matros already had signaled that this would be the likely course of action, both during a presentation at a Nareit conference and in an SHN+ TALKS appearance.

The company had an option to buy out TPG’s stake by January 1, 2021, but leadership long stressed that it would do so only if a buyout would be financially beneficial for both parties and Sabra would only do so at a price that would give it flexibility to grow the portfolio’s business.

Covid-19 was a contributing factor in Sabra’s decision. Same-store net operating income (NOI) in the first quarter of 2021 declined 64.2% over the previous year, and occupancy fell 13.5%, year over year, ending the quarter at 68%.

The occupancy decline and corresponding revenue dropoff, along with increased operating costs incurred by the JV portfolio during the pandemic, increased net debt to EBITDA to 20x as of June 30, 2021. Sabra also calculated an “impairment charge” of $164.1 million in the second quarter, and does not expect to hold on to the portfolio for a sufficient length of time to recoup the decrease in value.

“The significant incremental equity required to reduce the Enlivant Joint Venture’s debt to a level consistent with our leverage targets would result in considerable dilution for the foreseeable future,” Sabra said in a press release.

Furthermore, TPG requested changes to the management fee structure which would have reduced future financial performance across the portfolio, and further add to dilution.

“The timeframe for recovery of occupancy to pre-pandemic levels is uncertain but is not likely to occur in the near-term. We believe it is not prudent to allocate our capital into an investment with this level of uncertainty and with the expected near-term dilution,” Sabra’s statement read.

Excluding the Enlivant JV, Sabra’s credit profile as of June 30 was 4.75x net debt to EBITDA, well below the REIT’s target of 5.5x. Selling its interest in the JV would enhance its position.

Sabra intends to allocate proceeds from a sale toward future acquisitions and managing its balance sheet. The REIT also excluded the operating performance of the JV in its Q2 2021 supplemental report.

With 216 communities overall, Chicago-based Enlivant ranked as the 11th largest U.S. provider on the most recent list from industry association Argentum. Early this year, long-time president and COO Dan Guill became CEO, after his predecessor Jack Callison took the chief executive position at Sunrise Senior Living.

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