Sabra CEO: Signature Deal Likely, Genesis Model ‘Does Not Work’

The CEO of Sabra Health Care REIT (Nasdaq: SBRA) on Thursday indicated that a deal to restructure Signature HealthCARE could soon be in the cards.

“We have an agreement with the other primary landlords on Signature,” Sabra CEO Rick Matros said on his company’s fourth-quarter earnings call with shareholders and analysts — though he added that the deal faces potential hangups with medical-malpractice players.

“I’m still a little bit cautious, but right now we are more optimistic than we had been at any point in time,” Matros said. “There’s a really good opportunity to get Signature restructured outside of a BK [bankruptcy] so we can put this behind us sooner than later.”

The day before the call, Signature CEO Joe Steier told Louisville Business First that his company was four to six weeks away from a potential out-of-court solution. Like Matros, Steier also cautioned that bankruptcy wasn’t off the table for the troubled skilled nursing provider, which has fallen behind on rent with landlord Omega Healthcare Investors (NYSE: OHI).

Last fall, Matros said Sabra was in the process of restructuring its leases with Signature either through an out-of-court solution or a court-supervised prepackaged bankruptcy plan.

Sabra stats

Sabra turned in revenue of $150.92 million for the quarter, up 161% on a year-over-year basis but still missing analysts’ projections by $8.49 million.

Matros touted the company’s progress in finalizing its merger with fellow real estate investment trust (REIT) Care Capital Properties ahead of schedule, as well as its sale of 22 facilities operated by Genesis Healthcare, Inc. (NYSE: GEN). Matros and Sabra last year announced a plan to fully dispose of its Genesis-operated properties — the so-called “Genesis Exodus” — and currently has letters of intent to sell 29 of its remaining 54 properties.

A further six Genesis properties are under purchase-and-sale agreements, with the company announcing Thursday that it would retain eight Genesis facilities even after the “exodus” is complete.

When asked by an analyst why Sabra remained intent on dumping its Genesis assets — despite upbeat language from fellow REIT Welltower, Inc. (NYSE: HCN) — Matros said he’s more focused on smaller, regional operators.

“The company has to be restructured. The current business model does not work,” Matros said of Genesis, adding that in today’s market, operators with 400 or 450 locations are simply no longer viable. “In fact, you could never run a company that size in the skilled nursing space, ever — even in a much simpler time.”

Exodus benefits

Those moves have already dropped Sabra’s overall SNF exposure to 63% after it ballooned to 74% in the immediate aftermath of the CCP acquisition. That current figure represents only a six-percentage-point increase from its pre-merger exposure, Matros said, and the CEO took the opportunity to tout the importance of the CCP transaction in achieving investment-grade status — which he has said was essential toward eventually reducing its SNF exposure.

“I’d ask everybody to think about where we would be if we had stood pat with one operator having 33% of our revenue exposure, with all the requests and compromises we’ve had to make with that operator,” he said. “We’d be in a pretty tough spot right now.”

Sabra currently has an $850 million acquisition pipeline, consisting almost exclusively of senior housing assets. While the company isn’t looking to make a major SNF purchasing push, Matros said Sabra continues to receive intense interest from buyers who want to help the REIT offload its properties.

“Despite the fact that we don’t see very many acquisition opportunities on the skilled nursing side, the appetite for buyers to acquire skilled nursing assets remains unabated, and we get unsolicited offers — on a very competitive basis — on skilled nursing assets in our portfolio on almost a weekly basis,” he said on the call.

Sabra stock rose in the wake of the company’s earnings release and call, reaching $17.07 per share at Thursday’s close; that’s a gain of $0.52 per share, or 3.14%.

Genesis stock, meanwhile, didn’t fare so well: Despite announcing a new $555 million asset-based loan facility late Wednesday afternoon, GEN tumbled 21.25% to close at $1.26 per share.

Written by Alex Spanko