After doling out rent deferrals to Avamere Family of Companies for several months in 2021, Sabra Health Care REIT (Nasdaq: SBRA) announced Wednesday that it plans to amend its master lease with the Wilsonville, Ore.-based senior care provider.
The changes to the lease structure will include reducing Avamere’s annual base rent on the current portfolio roughly 30%, from $44.1 million to $30.7 million, representing an annual run rate reduction of $0.06 per diluted common share.
While no changes have been made to the lease maturity date – May 31, 2031 –- or the annual base rent escalator – 2.75% – the trailing 12-month EBITDARM coverage at this reduced rent would have been 1.99X as of Sept. 30, 2021 (reported one quarter in arrears) and 1.60X based on pre-pandemic performance.
“The combination of tight rent coverage on our portfolio prior to the COVID pandemic coupled with the unprecedented challenges of the past two years on Avamere’s overall operations necessitates a restructuring of our master lease,” Sabra CEO Rick Matros said in the news release. “Importantly, this restructuring provides valuable breathing room to Avamere, while preserving optionality for Sabra to participate in operating upside.”
Sabra will have the opportunity to recapture this rent reduction should the portfolio improve with a one-time option beginning in the fourth year and sixth year of the lease to reset Avamere’s rent to a fixed amount that will be tied to the portfolio’s historical performance.
Avamere’s portfolio with Sabra, which included 27 SNFs and one continuing care retirement community (CCRC) as of June 30, made up 8% of the REIT’s revenue for the first six months of 2021.
In September, Sabra used an $11.9 million letter of credit to fund rent for the provider from September through November.
Its properties were hard hit by the COVID-19 delta variant, according to Sabra, and state-mandated admissions limitations associated with COVID cases as well as labor issues led to census drop, labor cost spikes and cash flow constraints.
“The pandemic has led to one of the most challenging periods in our history,” Avamere CEO Rick Miller said in the news release. “At a time such as this, we appreciate our collaboration with Sabra as we have worked together to create a stronger and mutually beneficial relationship for the long term.”
During the REIT’s third quarter earnings call, Sabra Chief Financial Officer Harold Andrews Jr. said the credit was expected to cover rent through a portion of Avamere’s December 2021 amounts due and he expected rent to be paid in full through the end of the year.
At that time he admitted an adjustment to their rent structure may be coming.
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