Private equity firm TPG wanted to come to a resolution with Sabra Health Care REIT (Nasdaq: SBRA) on its Enlivant joint venture by the end of 2021.
Ongoing operational pressures stemming from Covid-19 have forced TPG to reconsider that time table, and now the two sides have agreed to push back any resolution to the JV until the portfolio shows signs of a recovery, CEO Rick Matros said Thursday during Sabra’s Q1 2021 earnings call.
TPG owns a 51% stake in the venture, consisting of 158 assisted living facilities. While Matros has stressed that Sabra still likes the portfolio’s long-term upside, the communities continue to struggle with pandemic-related operational and expense headwinds that will take time to recover.
Any resolution to the JV would have to be financially beneficial for both parties. But any offer Sabra made for TPG’s share at this time would be at levels well below the strike price agreed upon under the old option, which expired on Jan. 1, 2021.
TPG would like to exit the JV with some measurable return on investment. Sabra, meanwhile, will only act on a price that will give the REIT some runway to grow the portfolio’s business. If it cannot, then it will put the proceeds in place to use on other investments.
“We’re still in the same position that we’ve been in all along,” Matros said. “Either way, we feel like we’re in a good position.”
For the quarter, Sabra reported normalized funds from operations (FFO) of 40 cents per share, on $152.4 million in revenue. The revenue was a 2% increase over the previous year.
The REIT also announced its Q2 2021 earnings guidance: net income ranging between 13 cents and 14 cents per share, and FFO ranging between 38 cents and 39 cents per share.
Overall, Sabra’s senior housing segment struggled in the first quarter. Occupancy across its leased portfolio bottomed out in the first half of February 2021, but has improved by 365 basis points since. Occupancy in the REIT’s managed senior housing portfolio hit its nadir in the first half of March 2021, but has improved by 143 basis points through the end of April.
The Enlivant JV saw same-store net operating income (NOI) decline 64.2% over the previous year, and occupancy fell 13.5%, year over year, ending the quarter at 68%, BMO Capital Markets analysts John Kim and Juan Sanabria wrote in a note to investors.
The Enlivant communities are showing small signs of recovery. Gross move-ins in March 2021 were at their highest levels in 18 months, and near a historical peak of 2.3 per month. Leads and tours in March 2021 were 35% higher than March 2019 levels — momentum which continued into April. And move-outs in March were 13% lower than budgeted.
Occupancy across the Enlivant communities improved 1.5% from March to April, to 68.9% as of April 30. From mid-March to April 30, however, occupancy improved to 69.7%
“Together these statistics point to a backlog of interest in senior housing, which should support higher lease conversions and results in increased occupancy,” said Sabra Executive Vice President, Chief Investment Officer and Treasurer Talya Nevo-Hacohen.
Enlivant also underwent a leadership change, with former COO Dan Guill becoming CEO effective April 1.
Sabra also reported operational improvement in its independent living assets managed by Holiday Retirement, which account for 5.4% of the REIT’s total NOI. Gross move-ins in March were 50% higher than February. April occupancy was 78.8% — a 2.5% improvement from mid-March.
Most importantly for Sabra, RevPOR has held up across the managed portfolio throughout the pandemic, and safety is now a vital component in the sales messaging process.
Sabra stock held steady in trading Thursday, closing up 1% to $17.39 per share.
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