Sabra Health Care REIT Inc. (Nasdaq: SBRA) is increasingly prioritizing behavioral health in its investment strategy, particularly within the addiction treatment space. The Irvine, California-based real estate investment trust (REIT) highlighted these expansion plans during its third-quarter earnings call, emphasizing that behavioral health is now a key focus area just behind senior housing in terms of investment priority. Talya Nevo-Hacohen, Sabra Health Care’s chief investment officer, said during the call, “We continue to meet with new operators and explore business relationships within the addiction recovery sector, as well as other areas of behavioral health, where we see investment opportunities.” These opportunities include strategic addiction treatment facility investment aimed at both growth and revenue stability.
Behavioral Health as a Growing Investment Sector
Behavioral health includes services for mental health disorders, substance use disorders, and other treatment needs. For Sabra Health Care, investment in this area represents an opportunity to stabilize rental income while participating in a market with increasing demand.
Sabra’s portfolio largely consists of skilled nursing facilities and senior living assets, but the behavioral health segment is emerging as a key growth area. The REIT is planning to convert five existing facilities to behavioral health uses, a move that will bring its total addiction treatment facility investment to $811 million once completed.
CEO Rick Matros emphasized that behavioral health will continue to be a focus, noting that future acquisitions will be funded through “capital recycling,” or reinvesting proceeds from the sale of other facilities into higher-potential assets, including addiction treatment facility investment.
Recent Acquisitions and Partnerships
In the first nine months of the year, Sabra Health Care acquired one new behavioral health facility, reflecting a cautious but steady expansion. By the end of the third quarter, the company had invested $756 million into a portfolio of 16 properties and two mortgages dedicated to behavioral health services.
Sabra has established relationships with key operators in the addiction treatment space. Notable partnerships include Landmark Recovery, which the REIT partnered with in 2019, and Recovery Centers of America, which joined Sabra’s portfolio in 2021. These collaborations demonstrate Sabra’s strategy of aligning with established operators to ensure operational stability and maximize returns from addiction treatment facility investment.
Behavioral health facilities now account for 13.5% of Sabra’s total portfolio, making them the second-largest asset class after skilled nursing and transitional care facilities, which represent 60% of holdings. Signature Healthcare Services and Recovery Centers of America are among the top-performing assets, contributing 7% and 5.3% of annualized cash net operating income (NOI), respectively.
Navigating Workforce Challenges
Staffing shortages remain a significant challenge in the behavioral health sector. During the third quarter, an unnamed behavioral health operator reported limited occupancy due to difficulties in recruiting sufficient staff. However, Sabra executives note that behavioral health facilities, including addiction treatment facility investment, may be better equipped to manage labor shortages compared to skilled nursing or senior housing facilities.
Matros explained, “Even though labor issues can affect all the asset classes to one extent or another … the breakeven point is much lower from an occupancy perspective [for the behavioral facilities] than it is for skilled nursing and senior housing.” This makes addiction treatment facility investment a more resilient asset in fluctuating labor markets.
Currently, Sabra’s 16 behavioral health facilities offer 965 beds, with an occupancy rate of 83.1%. This utilization rate reflects strong demand for addiction treatment and other behavioral health services.
Financial Performance Highlights
Sabra Health Care’s third-quarter 2022 results showed revenue of $140.8 million, a 9.5% increase year-over-year. However, the company reported a net loss of $50.1 million, or $0.22 per share, compared with net income of $10.2 million in the previous year.
The REIT’s continued focus on behavioral health, including strategic addiction treatment facility investment, is intended to stabilize revenue streams over the long term. As demand for mental health and substance use treatment continues to grow, these investments offer predictable cash flow compared to other healthcare assets.
Behavioral Health in the Broader REIT Landscape
Historically, healthcare REITs have largely avoided behavioral health due to industry fragmentation, regulatory uncertainty, and operational challenges. Behavioral health operators often face complex regulations and staffing limitations, which have traditionally limited institutional investment.
However, several REITs have recently moved into the sector. Birmingham, Alabama-based Medical Properties Trust Inc. (NYSE: MPW) acquired Springstone for $950 million in 2021 and later sold the management group while retaining the real estate. CareTrust REIT Inc. (Nasdaq: CTRE) has also pursued facility conversion deals with Landmark Recovery.
Sabra Health Care’s ongoing addiction treatment facility investment positions the company at the forefront of this emerging trend, showing how REITs can diversify portfolios and capture growth in behavioral health while addressing pressing societal needs.
The Opportunity in Addiction Treatment
Substance use disorders continue to affect millions of Americans, creating high demand for residential and outpatient treatment. By investing in established operators like Landmark Recovery and Recovery Centers of America, Sabra Health Care ensures its addiction treatment facility investment is paired with professional management and operational stability.
This strategy allows REITs to diversify revenue streams, as behavioral health operators typically run long-term programs with steady occupancy rates. For Sabra, this makes addiction treatment facility investment not only socially impactful but financially strategic.
Looking Ahead
As Sabra Health Care continues expanding its behavioral health portfolio, the company is expected to explore additional partnerships and acquisitions. CEO Rick Matros has emphasized that behavioral health will remain a strategic priority, funded through capital recycling and selective acquisitions.
The conversion of five facilities to behavioral health uses, combined with ongoing acquisitions, signals Sabra’s long-term commitment to the sector. With the behavioral health market projected to continue growing, particularly in addiction treatment, Sabra’s investments are likely to yield both social and financial returns.
Through its sustained focus on addiction treatment facility investment, Sabra Health Care is emerging as a leading REIT in the behavioral health sector, positioning itself to capitalize on growing demand while stabilizing revenue streams and diversifying its portfolio.
