Fitch Upgrades Sabra Rating After CCP Acquisition

Sabra Health Care REIT (Nasdaq: SBRA) is in a positive place following its recently approved merger with Care Capital Properties (CCP), according to several ratings agencies.

Fitch Ratings on Wednesday increased Sabra’s rating from BB+ to BBB-, an investment-grade rating, while Standard & Poor’s boosted its corporate credit rating on the Irvine, Calif.-based real estate investment trust (REIT) to BB+ from BB-. On Monday, Moody’s increased both Sabra’s corporate credit rating and senior unsecured notes rating from Ba3 to Ba1.

Prior to Sabra’s merger with CCP, Fitch had been concerned with the REIT’s asset concentration, tenant concentration, and relative access to capital. Now, post-merger, asset concentration is “much less of a concern,” as the transaction reduced Sabra’s concentration of Genesis HealthCare from about 33.3% of its revenues to a percentage in the low teens, Fitch said in a note on Wednesday.

Additionally, Sabra has now likely achieved “increased importance with its bank-lending group” due to its combined enterprise value of $7 billion, the note reads. The debt load of the combined company should enable the issuance of bonds with increased frequency and liquidity, Fitch said.

Still, none of this means that operating skilled nursing facilities will be a walk in the park. Fitch anticipates that SNF profitability and revenues will continue to be constrained by shorter stays, volume shifting to other settings, expense growth, and price growth that is either under pressure or does not keep up with inflation.

All the while, Sabra’s management team is “uniquely positioned to assess and work with tenants” due to the company’s history as a “leading skilled nursing operator.” Sabra is realistic about the persistence of skilled nursing operator pressures, Fitch adds.

The ratings increases were welcome news to Sabra Chairman and CEO Rick Matros.

“Achieving investment grade ratings from S&P and Fitch represents the realization of one of our long stated objectives,” Matros said in a press release on Wednesday. “These ratings upgrades provide an immediate improvement to our cost of debt under our recently completed amended and restated $2.5 billion credit agreement, lowering our spread over LIBOR by 75 basis points on revolver borrowings and 50 basis points on term loan borrowings as compared to our prior credit facility. These ratings upgrades will also provide a significant improvement in future debt costs as we continue to execute on our growth strategy.”

Sabra shareholders officially approved the company’s merger with CCP on August 15, ending a public battle involving multiple lawsuits and dissident hedge funds.

Fitch’s assessment of the deal closely tracks with the arguments that Matros had made during the merger process, including his assertions that the deal would diversify Sabra’s portfolio and allow the combined REIT to gain access to higher-profile deals within the senior housing marketplace.

As of market close on Wednesday, Sabra’s share price had risen 0.84% to $21.61.

Written by Mary Kate Nelson

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