Sabra Health Care REIT Inc. packed a lot of news into the past two weeks, including two acquisitions and one disposition.
In August, it acquired Care Capital, a Chicago-based pure-play skilled nursing real estate investment trust that was spun out of Ventas Inc. in 2015. The combined entity owns a 564-property portfolio of skilled nursing and senior housing facilities.
The Irvine-based REIT, which announced Sept. 25 that it will sell its remaining 43 properties operated by Genesis Healthcare Inc., said the move is critical in overall portfolio improvements because of Genesis’ poor performance. It said it plans to have no Genesis exposure by the end of next year.
Separately, Sabra said it will buy 24 skilled nursing and transitional care facilities from a West Coast operator via a two-phase sale-leaseback arrangement. It paid $378 million for 21 facilities and will buy the remaining three for $52 million by year-end.
Sabra issued 16 million shares of common stock at a price to the public of $21 per share. It said it intends to use the proceeds from the offering to repay debt and fund future acquisitions. It currently trades at about $21 per share for a $3.4 billion market cap. It traded at about $24 per share a year ago for a $1.7 billion market cap.
What it calls Sabra 2.0 “was us getting bigger” following the Care Capital merger. Sabra 3.0 is the company unloading Genesis and reshuffling its operator mix, said Chief Executive Rick Matros.
Genesis Exit
Kennett Square, Pa.-based Genesis is one of the country’s largest nursing home and senior living community operators, with 507 skilled nursing rehabilitation and senior living facilities in 34 states. It’s had a rocky ride since it returned to the ranks of publicly traded companies following its merger with Skilled Healthcare Group Inc. in 2015. Shares of the care services provider trade at about $1.14 each. It reported revenue of $5.73 billion and losses of $64 million last year.
Genesis is a major skilled nursing tenant of Sabra’s, representing nearly a third of the REIT’s annualized revenue and about 36% of total properties. The sale would eliminate Sabra’s exposure to Genesis and free up cash for acquisitions—approximately $425 million to $475 million worth, according to Sabra.
Skilled nursing has experienced reimbursement challenges, especially given the uncertainties of legislation, and several REITs have reduced skilled nursing exposure, including HCP Inc. in Irvine and Ventas.
Matros, responding to a question about the motivation for Sabra buying additional skilled nursing assets following its announcement to exit Genesis, said he weighs opportunities based on the quality of the operator, not property type.
“I have known the principals for over 20 years, and the CEO was my COO at Regency Health Services in the early 1990s,” he said, pointing out that 21 of the 24 facilities received a five-star rating under the Centers for Medicare and Medicaid Services’ quality rating system, and that the other three got four-star ratings. Occupancy is at 92%.
Senior Housing
Sabra’s long-term goal is to create a portfolio evenly divided between skilled nursing and senior housing assets, the latter being predominantly private-pay and therefore insulated from regulatory shifts. Matros said the market “ebbs and flows” and that the company is focused on growing its senior housing concentration.
Sabra’s skilled nursing exposure increased from 57% to 73% immediately upon buying Care Capital.
In another mega-deal for Sabra this year, the company purchased a 49% minority interest in a 183-property portfolio of Enlivant-operated senior housing communities for $371 million last month. It said it plans to eventually acquire 100% interest in the portfolio.
The portfolio, owned by TPG Real Estate, is valued at $1.62 billion. TPG has dual headquarters in San Francisco and Fort Worth comprised of equity investment and a debt origination platforms.
The portfolio is 83% occupied. Matros said, “this is a turnaround story, and [Enlivant is] not done yet.” Occupancy was at 60% when Enlivant and TPG acquired the portfolio in 2013.
Matros noted that the Care Capital buy was key to Sabra buying Enlivant. The merger increased Sabra’s borrowing capability, bringing its revolving credit facility to $1 billion.
“We are now bigger and can do larger deals at a quicker pace if we choose to do them,” he said, noting that while the company now has more ammo to do deals of more than $300 million, it will still do smaller deals of $20 million to $100 million.
Sabra 3.0
Sabra ranks 21st among senior housing owners in the U.S., with 74 communities and 7,624 units as of June 1, according to the American Seniors Housing Association. The ranking didn’t take into account the CCP, Enlivant and skilled nursing operator purchases.
The transactions make up Sabra’s new portfolio, which is part of the company’s 2018 plan calling for Sabra 3.0—more scale and diversification of its portfolio, including continuum of care, operator and geography.
In 2010 Sabra spun out of Sun Healthcare Group Inc., which had 166 skilled nursing centers and 25 senior housing properties in 46 states. The nursing home company split its operations into separate publicly traded businesses—Sabra and Sun Healthcare. Sabra acquired the real estate assets. The portfolio, valued at $700 million and comprised of 86 properties, including 67 skilled nursing facilities—is in 19 states.
