After Sabra Reit Deal, Sunshine Retirement Seeks To Expand Middle-market Senior Living Footprint

Sunshine Retirement Living is taking its first steps into third party management as a way to grow while ground-up development remains hard to do.

The Bend, Oregon-based operator entered into an agreement with real estate investment trust (REIT) Sabra Health Care REIT on Aug. 15 to manage five independent living communities in Arizona and California, where Sunshine has communities; and in Utah and Washington, two new states for the operator.

The partnership marks the start of a new growth strategy for Sunshine, according to CEO Luis Serrano.

“Over the course of the last four years, my team and I realized that the value really is in the management company,” Serrano told Senior Housing News. “The management company really is the soul of the operations.”

Sunshine’s communities offer senior living services at middle-market rates for about $3,000 or fewer a month for independent living. Serrano sees the partnership with Sabra as a way to expand the company’s middle-market focus to other parts of the country, and third-party management agreements offer a new way to scale.

“We hope to obtain more contracts and more management agreements from Sabra,” Serrano said. “At the same time, once we have proven ourselves with a public REIT like Sabra, we hope that we can attract the interests of other REITs to expand our portfolio in those directions.”

Expanding middle-market services

Sunshine’s mission centers on more affordable offerings and care for middle-class families across the country, and Serrano noted a large portion of new-builds are geared toward more affluent senior living residents.

That is why Sunshine has focused on acquiring and renovating older buildings that have been in operation for decades.

“We specialize in taking an asset, really having the vision of what it could become, and then investing in the community, turning around and then creating a home for seniors in that middle market at a price that is affordable,” Serrano said.

Other middle market operators could find additional growth opportunities by approaching REITs and forming partnerships as Sunshine is doing, Serrano said.

Sunshine and Sabra have communicated with one another on a daily basis since announcing their new partnership. Sunshine has had to adapt its financial systems to provide data in a faster manner, but other than that change the company has not had to further adapt its operations, according to Serrano.

Serrano sees his company as part of a “thin layer” of operators that have enough experience and a large enough portfolio to manage a variety of new properties, while maintaining a niche that has room to grow and provide their specific specialty to operators.

“Frankly, Sabra has been very brave and valiant in partnering with us,” Serrano said. “The safe thing for these big REITs is to go with an operator that all they do is third party management. By partnering with an owner-operator like us that is branching out … My perception is that we are signaling to the market that other owner-operators can manage properties for REITs.”

Sunshine’s new growth plan

By expanding into third party management, Serrano seeks to grow Sunshine’s portfolio from its current size of 40 to a target around 100 communities, but not much larger than that.

“I don’t want to grow past the point where we’re not able to do our jobs and we’re just going to sacrifice the culture and experience for profit,” he said.

While Sunshine is starting with five communities, Serrano believes there will be an opportunity to take on contracts for additional communities within Sabra’s portfolio. As of June 30, Sabra has 36 leased senior living communities and 73 managed communities within its senior housing operating portfolio (SHOP).

Additionally, Serrano sees opportunities for Sunshine to expand its management offerings to more REITs than Sabra once it is able to prove itself as a viable operator for them and further expand its portfolio “in their directions.”

Despite its new foray into Utah and Washington, Serrano said the company hasn’t had to make any significant changes to its operations. Because the properties are mostly independent living, the company also doesn’t need to grapple with as many regulatory issues.

Although third-party management is the focus for now, Sunshine still plans to grow through community acquisitions and renovations.

“To me, the value that Sunshine brings to the table is we take care of these communities as if they were ours,” Serrano said. “That’s part of the DNA of my company … As an example, if I’m managing a community that is owned by my family, I care for it as if it’s my family. I don’t want to lose that.”

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