Sabra Health Care REIT Buys Again

Fresh off the heels of its $3.0 billion merger with Care Capital Properties in August and its $430 million joint venture acquisition of most of Enlivant’s assisted living properties for an investment of $371 million, Sabra Health Care REIT announced a $430 million acquisition of 24 skilled nursing facilities with 2,216 beds, or a price of $194,000 per bed.

That price will certainly help bolster what has been a mostly down year for SNF pricing, where we have seen more below-average facilities sold than in the previous two years. But this portfolio is certainly not average, with a 92% occupancy rate and a 59% skilled mix, which is huge for a portfolio of this size. In addition, 21 of the facilities have a five-star rating, and the other three have a four-star rating. We have not seen that level of consistency across a sold portfolio in a while. The properties are on the west coast, but the states have not been disclosed yet. Laca Wong-Hammond of Duff & Phelps represented the seller in the transaction.

Sabra’s share price dropped by 6.3% yesterday, but not so much because of the acquisition, but because the REIT also announced it was selling 16 million shares at $21 per share. Shareholders never like dilution. The funds will be used to pay down short-term debt, presumably used for the acquisitions.

While it is counterintuitive that Sabra would be expanding its ownership of SNFs at a time when shareholders questioned the merger with SNF-dominated Care Capital Properties, these appear to be unique assets with a great census and quality mix, and with a management team well known to Sabra’s CEO, Rick Matros.

At the same time, Sabra announced it hired a broker to sell 43 Genesis Health Care SNFs, with expected proceeds of between $425 million and $475 million. This is in addition to the 33 Genesis SNFs that have already been slated for divestiture. Consequently, when both of the Genesis sales are completed, expected to be sometime in 2018, Sabra will no longer have a Genesis exposure, which comes with a low 1.18x fixed charge coverage ratio. The new SNF acquisition has an initial 8% cash yield and an EBITDAR coverage of 1.4%, which is a nice replacement for the Genesis portfolio. The SNFs will be leased back to the seller, and the annual escalators will be the greater of 2.0% or the CPI, but not exceeding 2.5%.

These are a lot of changes for Sabra, and while they will not be operating the properties, it is a lot to take on in a two-month period. The REIT has obviously become the go-to buyer in the market in the minds of some, but acquisitions have to fit in with the long-term vision of Mr. Matros, not only of Sabra but of the entire sector. Stay tuned.


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