Sabra Health Care REIT (Nasdaq: SBRA) is investing $800 million into behavioral health as part of its plans to diversify its portfolio.
The bulk of the REIT’s assets are in the skilled nursing facilities and senior living spaces. However, the company is expanding to include mental health and substance use facilities, attempting to tap into the vast demand and projected growth in those arenas.
“We are committed to supporting the delivery of behavioral health services by creating and financing the places where they happen so that these critical services are accessible to all regardless of age, income or location,” Talya Nevo-Hacohen, Sabra’s executive vice president and chief investment officer and treasurer, said during the company’s Q2 earnings call Thursday.
The investment plans will also open Sabra up to more stable revenue streams, the executive explained.
“In doing so, we are creating value in our portfolio by generating higher returns and durable income streams, as well as continuing to diversify our portfolio,” Nevo-Hacohen said. “Our attention to this underserved factor is being noticed. And we are now in active discussions with more operators on additional conversion opportunities.”
By “conversion opportunities,” Nevo-Hacohen was referring to the transitioning of certain skilled nursing facilities (SNFs) and senior housing buildings into behavioral health locations.
Currently, behavioral health makes up 13% of Sabra Health Care REIT’s annualized cash net operating income.
The company has a total of 14 properties and two mortgages dedicated to behavioral health, representing an investment of $730 million. It boasts an average cash yield of more than 8% for this sector.
Moving forward, Sabra will invest $27.6 million towards converting three of its facilities. All three of those facilities have already been leased to operators, Nevo-Hacohen noted during the call.
This is part of Sabra’s ongoing strategy to convert properties into behavioral health sites and unlock value. It has a particular interest in expanding its substance use disorder treatment facilities.
“Last quarter, I mentioned that we had undertaken a comprehensive review of our portfolio with the intent of recycling assets and recycling capital,” Nevo-Hacohen said. “We are now determining which properties are long-term hold and which are candidates for conversion, repositioning or sale. As we continue to convert select properties for us as addiction treatment facilities, our investment in behavioral health is increasing.”
Sabra inked a deal with behavioral health operators on three wholly owned properties to convert SNFs and a memory care campus into inpatient addiction treatment facilities. The Irvine, California-based company will dedicate an additional $47.5 million towards this project.
While the company continues its drive into behavioral health, overall, Sabra had a tough quarter. It generated $155.96 million in revenue, but missed its expectations by $4.28 million.
Sabra has been looking to expand its behavioral health footprint for some time. In 2021, it purchased the former senior housing facility The Irvine, in order to convert it into an opioid use disorder treatment center.
Last year, Sabra inked a deal with Recovery Centers of America. This deal provides the Recovery Centers of America with a $325 million mortgage loan, secured by an eight inpatient addiction treatment facility.
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