Sabra Health Care REIT is transitioning 24 previously leased properties to North American Health Care, Inc. to two existing tenants, The Ensign Group and the Avamere Family of Companies. With the agreement, Ensign added 20 properties in California to two master leases with initial terms of 18 and 20 years, respectively, and Ensign provided a corporate guarantee. Avamere will add four properties in Washington to its existing master lease with Sabra, which includes nine other properties in Washington, with an initial term of 13 years. The state recently increased its Medicaid rates by nearly 20%, and Avamere’s existing presence in the state could help them maximize revenue there going forward.
Initial rent attributable to the 20 Ensign properties will be $29.4 million, with CPI-based annual rent escalators not to exceed 2.5%. Ensign will account for about 8% of Sabra’s annualized cash NOI after the transition, making it one of its largest tenants. Initial annual rent attributable to the four additional properties leased to Avamere will be $5.1 million, with an annual rent escalator of 2.75%. Avamere will also now represent about 8% of Sabra’s annualized cash NOI, and pro-forma for this transition, EBITDARM coverage for the trailing twelve months ended June 30, 2022, on the 24 properties is 1.68x. Pro forma coverage for Sabra’s whole SNF/transitional care portfolio currently stands at 1.60x, exclusive of Provider Relief Funds.
The transition is expected to be completed by February 1, 2023, but Sabra expects to recognize a total of $14.7 million in revenue from these facilities during the fourth quarter through the end of the transition period, which is largely the rent Sabra would have received during this timeframe under the previous leases with North American Health Care.
