Real estate investment trust Sabra Health Care REIT (Nasdaq: SBRA) is prioritizing behavioral health as it continues its strategy to diversify revenue, Sabra CEO Mark Rick Matros said during the company’s Q1 earnings call.
The company, which also has existing assets in the skilled nursing facility and senior living space, said that it is looking to convert properties to behavioral health facilities.
“For those properties identified for conversion, we have found that the residential format of skilled nursing and senior housing sets up well for inpatient behavioral health assets, specifically addiction treatment,” Talya Nevo-Hacohen, executive vice president and chief investment officer and treasurer, said during the company’s Q1 earnings call.
Sabra reported a strong Q1, beating its earnings per share and revenue guidance. The company announced $163.1 million in revenue in Q1.
Nevo-Hacohen, noted that the company made its first investment in stand-alone addiction treatment facilities in 2019, with the purchase of two facilities from Landmark Recovery for $14.8 million.
Since then the company has continued to invest in the space. In September Sabra announced it would provide Recovery Centers of America (RCA) with a $325 million mortgage loan, adding eight inpatient addiction treatment facilities.
Nevo-Hacohen noted that the company’s investment in behavioral health now totals roughly $730 million with a weighted average yield of 8.3%, which comprises 13 owned properties and two mortgage loans.
“We currently have four or more owned skilled nursing and senior housing properties that are under letter of intent with an operator and will be modified for use as addiction treatment facilities,” Nevo-Hacohen said. “Upon completion of the conversion of these four properties, as well as the conversion of an asset acquired at the end of 2021, we anticipate that our investment in the behavioral health sector will increase by about $75 million.”
Forging partnerships with sophisticated operators
The next step for the company is finding and building relationships with sophisticated operators who have “scalable platforms and evidence-based results” in the space. However, finding those operators poses unique challenges in the behavioral health space.
“The real question is finding those that have the ability to have scale and operate at a level today that we feel is sophisticated enough to have a capital partner like us that is really going to want to grow with them,” Nevo-Hacohen said. “We have that with the current operators in our portfolio, and we have – are in discussions with a handful of additional operators that we think fulfill those prerequisites.”
Because the behavioral health space is still relatively new to the company, Nevo-Hacohen stressed the importance of vetting companies prior to making deals.
“[W]e’re really cautious with new operators because there aren’t that many true operators out there,” Nevo-Hacohen said. “We spent six months with Landmark before we did our first deal, just spending time getting to know them and understand[ing] their model and all that, which we never would’ve done skilled [for] nursing or senior housing because we’d either know everybody or there’d be two degrees of separation.”
Companies featured in this article:
