Sabra Health Care eyes more addiction treatment partnerships

Sabra Health Care REIT Inc. (Nasdaq: SBRA) is looking to expand its partnerships with behavioral health operators, particularly in the area of ​​addiction treatment.

Executives of the Irvine, Calif.-based real estate investment trust (REIT) said on a third-quarter earnings call on Tuesday that behavioral health was a major investment area for Sabra, second only to housing for the elderly.

“We continue to meet new operators and explore business relationships in the addiction recovery industry, as well as other areas of behavioral health, where we see investment opportunities,” said Talya Nevo. -Hacohen, chief investment officer of Sabra Health Care, on the call. .

Sabra Health Care’s portfolio consists largely of skilled nursing facilities and senior living assets. Last quarter, business leaders said Sabra’s investments in behavioral health were aimed at stabilizing facility rental revenue and tapping into growing demand for behavioral health services.

CEO Rick Matros echoed Nevo-Hacohen’s sentiments, noting that he also expects more behavioral health investment opportunities in the future. He also said that future investments will be financed by “capital recycling” or by using proceeds from the sale of other facilities.

Sabra Health Care’s investments in behavioral health will ultimately total $811 million once it completes the conversion of five facilities it owns for behavioral health purposes.

In the first nine months of the year, Sabra Health Care acquired a new behavioral health facility, according to its third quarter financial record. By the end of the third quarter, it had invested $756 million in a portfolio of 16 properties and two mortgages.

Sabra Health Care previously entered into agreements with substance use disorder (SUD) operators Landmark Recovery in 2019 and Recovery Centers of America in 2021.

Behavioral health facilities are the second largest asset class, at 13.5%, of Sabra Health Care’s portfolio. This is second only to Sabra’s Skilled Nursing and Transitional Care portfolio. The latter represents 60% of its assets.

Signature Healthcare Services, based in Corona, Calif., and Recovery Centers of America, based in King of Prussia, Pa., are the fourth and fifth largest sources of net annualized cash income (NOI), respectively, for Sabra Health Care, according to an investor in the company. presentation.

Signature Healthcare Services represents 7% while Recovery Centers of America represents 5.3% of annualized cash NOI.

During the third quarter, an unnamed behavioral health operator reported limited occupancy due to difficulties finding enough staff, Nevo-Hacohen said. This is a prominent issue, even among the biggest behavioral health operators.

Behavioral health facilities may be better equipped to deal with workforce issues than other healthcare facilities in Sabra, Matros said, referring to how staffing issues can limit occupancy. .

“While labor issues can affect all asset classes to some degree… the break-even point is much lower from an occupancy perspective [for the behavioral facilities] than for skilled nursing and senior housing,” Matros said.

In total, Sabra’s portfolio of 16 behavioral health facilities totals 965 beds, with an occupancy rate of 83.1%.

Sabra Health Care revenue rose 9.5% to $140.8 million in the third quarter of 2022. It posted a net loss of $50.1 million, $0.22 per share, versus profit net of $10.2 million last year.

Healthcare REITs have been largely absent from behavioral health. Industry fragmentation, regulatory uncertainty and operational immaturity have driven them away. But in recent years, Sabra Health Care and others have taken action.

Medical Properties Trust Inc (NYSE:MPW), based in Birmingham, Alabama, acquired Springstone for $950 million in 2021. The company then sold Springstone’s management group to LifePoint Health, based in Brentwood, Tenn. , for $250 million and retained the Springstone real estate.

CareTrust REIT Inc (Nasdaq: CTRE), another REIT focused on senior care, has also entered into a facility conversion agreement with Landmark Recovery.