Sabra Health Care REIT (Nasdaq: SBRA) has released details of a previously announced restructuring of its Genesis HealthCare (NYSE: GEN) portfolio, with the goal of making the skilled nursing and post-acute properties more marketable to potential buyers.
Kennett Square, Pennsylvania-based Genesis, the largest skilled nursing provider in the nation, has been beset by problems during the “most protracted and complex down cycle” in company history, CEO George Hager said last Thursday in conjunction with its third-quarter 2017 earnings release. The company announced that it was striking deals with its major REIT landlords—Sabra and Welltower Inc. (NYSE: HCN)—to bring an expected $80 million to $100 million in permanent annual reduced fixed-charge coverages.
On Monday, Sabra provided further details of its “Genesis Exodus” plan in a filing with the Securities and Exchange Commission (SEC). Key provisions include:
– Genesis may defer the majority of its rent payments for up to one month, from November 2017 through April 2018
– Genesis’ annual rent obligations will be reduced by $19 million as of January 1, 2018
If further rent reductions are needed to entice buyers in some cases, Genesis will be on the hook to pay for those rent cuts beyond the $19 million. Genesis would make these payments on a monthly basis for 4.286 years from the date of sale.
“[Sabra] estimates that this arrangement will result in up to $7.0 million of remaining payments per year from Genesis over this 4.286 year period, assuming all the Genesis Exodus Facilities are sold at an aggregate value of between $425 [million] and $475 million,” the SEC filing states.
That roughly 4-year timeframe could be extended if Genesis fails to meet certain process milestones—a provision meant to incentivize and expedite timely asset sales, according to the filing.
Sabra also is retaining the right to retain any and all of the Genesis facilities under new long-term leases. The REIT does not expect this deal with Genesis to impact its previously issued full-year 2017 or 2018 guidance.
These terms apply to 43 Genesis facilities leased to Sabra. There are 35 additional Genesis skilled nursing facilities that Sabra already has taken to market, under a separate memoranda of understanding; so far, four of those properties have been sold.
Genesis and Sabra shares were flat in after-hours trading Monday.
Written by Tim Mullaney