Sabra Health Care REIT (Nasdaq: SBRA) on Monday announced a pair of major moves, revealing a plan to buy 24 skilled nursing and transitional care units on the West Coast — and taking concrete steps to sell off its remaining 43 properties operated by Genesis HealthCare (NYSE: GEN) by the end of next year.
The new acquisitions take the form of a two-step sale-leaseback arrangement, with the Irvine, Calif.-based real estate investment trust closing on the first 21 properties on September 19 for $378 million. Sabra will pick up the remaining three facilities by the end of the year for a total of $52 million, the company announced.
The triple-net master leases have initial terms of 12, 13, and 14 years with three five-year renewal options, which Sabra expects will generate $34.1 million in annual lease payments. The remaining three will add $4.7 million to that total, the company said.
The identity of the operator was not disclosed, but Sabra CEO Rick Matros praised its team and commitment to quality; 21 of the facilities have five-star ratings under the Centers for Medicare & Medicaid Services (CMS) Quality Rating System, with the remaining three sporting four stars.
“We believe that this portfolio is a perfect fit for Sabra’s perspective on where the industry is going, and is an ideal replacement for the facilities we sell as we execute on the Genesis Exodus Plan,” Matros said in the statement.
That cheeky plan name refers to Sabra’s final push to rid itself of Genesis properties after already reaching agreements to dispose of 35 by the end of 2017. Kennett Square, Pa.-based Genesis is one of the largest skilled nursing providers in the country, and like other large SNF operators has faced a series of challenges in recent years that have negatively impacted its financial performance.
On a conference call earlier this month, Matros promised a vision for finally ending its relationship with Genesis, and he delivered: Sabra announced that it has engaged a broker to develop a strategy for selling all 43 remaining sites by the end of 2018. This could include severing ties with Genesis before the properties are even sold and “selling them independent of any relationship with Genesis,” the company said.
Sabra hopes to receive $425 million to $475 million when the sales are all completed.
The last few weeks have proven eventful for the REIT, which only recently emerged from a bruising merger process with “pure play” skilled nursing REIT Care Capital Properties.
Matros and Sabra received pushback from some activist shareholders who questioned the company’s decision to make such a prominent investment in skilled nursing given industry headwinds, but Matros repeatedly insisted that the play would give them a lower cost of capital and give them access to higher-stakes deals.
So far, the strategy seems to be working out: Sabra last week announced a deal to acquire 49% of a joint venture that owns 183 senior housing communities operated by Enlivant, and delivered this one-two punch of deal news late Monday afternoon.
In a separate statement, the REIT also announced an offering of 16 million common-stock shares in an underwritten public offering, with a 30-day option to buy 2.4 million more. The company will use the additional capital to pay down its revolving credit line and fund future acquisitions.
This flurry of expansion news prompted Matros to call the post-merger incarnation of his company “Sabra 3.0.”
“The CCP transaction was critical to this execution of our vision and has allowed us to bring in a premier skilled nursing operator as well as demonstrate our commitment and ability to expand our senior housing asset base with a true platform in a sector where there are few platforms left, much less one of Enlivant’s quality and upside,” Matros said.
Written by Alex Spanko