Sabra Health Care REIT, Inc. (Nasdaq: SBRA) announced on Monday that its portfolio of Senior Care Centers buildings hasn’t generated straight-line rents since May, resulting in a $1.9 million shortfall in the company’s third-quarter income.
The Irvine, Calif.-based real estate investment trust (REIT) issued notices of default and lease termination during the third quarter, the company noted, after the operator stopped paying its rent. Before the issues, Sabra had collected $58.5 million in annual lease payments from Senior Care Centers.
Sabra in August entered into a non-binding letter of intent to sell its 36 Senior Care Centers-operated skilled nursing facilities — along with two senior housing communities — for $405 million. At the time of Sabra’s second-quarter earnings call, Senior Care Centers had only just hired a CEO; Senior Care Centers’ website names David Friend as CEO.
Friend is both CEO of Senior Care Centers and managing director at BDO Center for Health Care Excellence & Innovation, according to his LinkedIn profile.
“While we certainly hope he’ll get things turned around, we’re just not willing to wait it out at this point,” Matros said on the company’s second-quarter earnings call back in August. “There are just too many advantages to us to move the Senior Care portfolio out: As we’ve talked about, reducing our exposure in Texas, and getting our skilled exposure along with the Genesis sales to a point where it’ll be lower than it was before the CCP merger.”
Calls to numbers for Senior Care Centers were not returned as of press time.
“We expect to complete the sale in early 2019,” Sabra said in a release issued late Monday. “There can be no assurances that a definitive agreement will be entered into or that the sale transaction will be consummated, on the foregoing terms or timing or at all.”
Senior Care Centers is now operating the facilities on a month-to-month basis, according to Sabra, and the REIT said “there can be no assurances” that the operator will make rent between now and the eventual sale; the company did not assume that it will receive any payments from Senior Care Centers in the fourth quarter of 2018, leading Sabra to slash net income guidance by $0.13 per diluted share.
“We adjusted guidance down, as expected, which is primarily driven by the expected sale of the Senior Care Centers portfolio,” Matros said in a statement. “We expect the sale to close in early 2019. We remain focused on resolving all portfolio-related issues by year end or early 2019, and on growing from there with the operating partners that we have a long term commitment to.”
The news came as the REIT also reported skilled nursing occupancy gains of 30 basis points over the second quarter, along with an increase in skilled mix of 60 basis points.
Matros and other Sabra executives will discuss the quarter’s results on a conference call Tuesday. Sabra’s stock ended Monday’s trading at $22.33, up $0.75 per share, but had fallen about 3% in after-hours movement as of 6:15 Eastern time.
Written by Alex Spanko