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Small owners could exit skilled nursing ahead of turnaround, Sabra CEO says

The market for skilled nursing properties has been quiet, but more facilities could come on the market as mom-and-pop owner-operators sell out of the business, Sabra Health Care REIT Inc. Chairman, President and CEO Rick Matros said.

Matros said on a conference call that participants in the sector see "a light at the end of the tunnel" with skilled nursing properties, which have been buffeted by operator bankruptcies and changing government reimbursement rules in recent years. That means many are holding on to their properties in the expectation of realizing some gains, possibly from changes in the reimbursement model to a so-called "patient-driven payment model."

Still, he predicted the change will come gradually, with occupancy improving in the second half of 2019 and operators gaining power to raise their rates in 2020.

Sabra has "dismissed out of hand" some skilled nursing buying opportunities, deeming the properties "pretty unattractive, even from a turnaround perspective," Matros said.

Continuing operating difficulties and the potential for dramatic changes to reimbursement policy could prompt some small owners of skilled nursing properties to quit the business, creating buying opportunities for larger owners, Matros said, noting that mom-and-pop owners make up about one-third of the industry.

The company is in talks to sell a portfolio of 38 skilled nursing properties, leased to Texas-based operator Senior Care Centers LLC, to an undisclosed private equity buyer that was the largest purchaser when Sabra previously sold properties leased to Genesis Healthcare Inc., Matros said. The company settled on the buyer after moving away from talks with another potential purchaser and has also received inquiries about the portfolio from "parties that everybody on this call would know," he added.

Sabra expects to disclose more information about the Senior Care Centers deal, which would be a single portfolio transaction, toward the end of the year, Matros said.

In seniors housing, private equity buyers are making bids on properties "that we think are just much too high, with forecasts that we think are not achievable," Matros said. Still, he added, that enthusiasm does not necessarily translate to skilled nursing, which he called "a completely different animal."