Sabra Healthcare REIT (Nasdaq: SBRA) boasts its most diversified portfolio as it continues to invest in behavioral health properties.

While most of the Irvine, California-based real estate investment trust’s (REIT) assets are in the skilled nursing facility (SNF) and senior living spaces, behavioral health now makes up about 14% of its asset concentration.

“Our portfolio is the most diversified it has ever been, with our SNF concentration reaching its lowest point in our history,” Michael Costa, Sabra’s chief financial officer and executive vice president, said during Tuesday’s Q2 earnings call. “Additionally, our SNF concentration will decrease further as we realize the embedded upside opportunities in our portfolio.”

This will be done through recovery in Sabra’s senior housing portfolio and stabilizing its property transitions and behavioral health conversions.

“Once realized, this increased [net operating income] will not only provide meaningful further future earnings growth but also naturally diversify our portfolio further,” Costa continued.

While behavioral health is a crucial part of Sabra’s diversification strategy, it expects the behavioral health expansion to take time to happen.

“We continue to invest in our behavioral rural health portfolio primarily through the conversion of existing owned properties,” Talya Nevo-Hacohen, Sabra’s chief investment officer, said on the call. “This is a granular process and takes time.”

Sabra’s investment in behavioral health in the second quarter included 17 properties and two mortgages, with a total investment of just over $800 million.

Part of its behavioral health strategy is investing in substance use disorder (SUD) facilities. Its portfolio of owned addiction treatment providers is now up to 12 properties. These are made up of acquired SUD providers or converted properties.

One example is Sabra’s acquisition of the vacant skilled nursing facility Advanced Recovery Systems, which was converted into an 80-bed addiction treatment facility. The company purchased the asset for $1.9 million and agreed to invest up to $14.4 million in conversion renovations.

Still, it’s unlikely that there will be any significant acquisition in the space this year.

Sabra’s CEO, Rick Matros, noted that the company’s current acquisition pipeline is light, given the current cost of capital. But Matros hinted that there could be a lot of M&A activity as the company moves into 2024.

“As we get further into this year, and certainly next year, we’ll see a more normal flow of assets coming into the pipeline. Sellers that have been holding off … will be more amenable to putting their assets up for sale,” Matros said. “So it’s still sort of not a normal flow that we’ve historically seen that I think should get there. And then we’ll have more opportunities, … and hopefully the cost of equity will be better at that point as well.”