Sabra Health Care REIT (Nasdaq: SBRA) is less enthusiastic about doing deals in the behavioral health space.
Leaders of the Tustin, California-based health care real estate investment trust (REIT) said they no longer see the same opportunity to diversify portions of their portfolio to behavioral health uses. The company has also identified few prospective behavioral health providers with comparable acumen to providers in other health care segments.
“I have spoken in the past [that behavioral] began as a vehicle for us to reuse existing assets that were no longer viable as either skilled nursing or senior housing,” Talya Nevo-Hacohen, chief investment officer of Sabra, said on Sabra’s Q3 2024 earnings call. “That was a fixed amount of assets. We’ve depleted that and converted those, so right now, we’re sitting tight on that.”
Irvine, California-based Sabra is a health care real estate investment trust (REIT) with a portfolio of 373 real estate properties consisting of 18 behavioral health facilities along with investments in skilled nursing, senior housing and other health care specialties.
In its Q3 2023 earnings call, the company reported that while behavioral health opportunities arise less often than Sabra’s other business segments, the company would continue to expand its behavioral portfolio with smaller, established operators.
Sabra’s leadership team said in the most recent earnings call that its behavioral health portfolio is unlikely to significantly grow any time soon because behavioral acquisition opportunities are now “rarely of institutional quality,” Nevo-Hacohen said.
Instead, the company is focusing on senior housing and skilled nursing investments.
This strategy is a change from Sabra’s approach to behavioral health, stretching back to its first investment in the SUD treatment industry in 2019.
Sabra’s behavioral health facilities include inpatient and outpatient care for SUDs and mental health conditions. It has partnered with two large SUD providers: Landmark Recovery and Recovery Centers of America.
Landmark currently operates two Sabra facilities in Arkansas and Kentucky. The SUD treatment provider has suffered negative media attention and regulatory restrictions after four patients died while in care with Landmark Recovery in 2023.
Landmark closed three Indiana-based centers and laid off a third of its workforce in September 2023, but has since been allowed to operate SUD treatment facilities in the state.
Sabra previously expressed little concern regarding Landmark’s operating woes.
“As far as Landmark is concerned, they’re less than 1% of our NOI,” Rick Matros, president and CEO of Sabra, said on the Q3 2023 call. “There were some issues raised around it, but they’re staying current on rent, so it’s immaterial to us.”
Nevo-Hacohen said on the Q3 2024 earnings call that real estate investors and brokerage firms have a growing interest in behavioral health.
Sabra did not completely rule out future behavioral health investments: Matros suggested that the company may be open to high-quality partnerships but added that these are “very, very few and far between.”
“On behavioral, we’ve been in it long enough to come to the conclusion that there’s a very particular model that we like from a capital perspective,” Matros said. “That’s what we have with two of our partners, where the operating platform is owned by a private equity fund. We like that relationship because there are deep pockets other than us that are in the deal. If we can find more opportunities like that, we’ll pursue them.”
