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Market Concerned About Sabra REIT’s CCP Buy

Irvine-based Sabra Health Care REIT Inc.’s $7.4 billion all-stock merger with Care Capital Properties Inc. in Chicago—which will create a company with a portfolio of 546 investments across 43 states and Canada—faces some headwinds after proxy advisory firm Institutional Shareholder Services Inc. recommended Sabra shareholders oppose the acquisition.

The firm pointed out in an Aug. 2 report that the market responded unfavorably to the announcement, sending Sabra’s share price down 5% to $25.31 on May 8 and Care Capital’s shares down 10% to $24.23. It also noted that “the fragility of CCP’s portfolio calls into question whether the risks associated with the transaction are justified by what appears to be an uncertain outcome.”

Sabra recently traded at $23 per share to a $1.5 billion market cap, Care Capital at $25 per share to a $2.1 billion market cap. Sabra ranks 14th on the Business Journal’s 2017 public companies list.

A primarily skilled nursing-focused real estate investment trust when it spun out of Sun Healthcare Group Inc. in 2010, it has reduced its concentration in skilled nursing to about 57%. Its portfolio is made up of highly private pay-focused properties.

Other REITs, such as HCP Inc., Ventas Inc. and Welltower Inc., have taken steps to limit exposure to skilled nursing in light of a changing reimbursement model.

By contrast, Care Capital gets only 5% of its revenue from the private-pay sector and is highly dependent on nonprivate pay, which is subject to regulatory changes. The REIT owns a portfolio of 345 properties with approximately 38,000 beds in 36 states, according to Securities & Exchange Commission filings. It was spun out of Ventas in 2015 as a pure-play skilled nursing REIT comprised of 335 nursing facilities in 37 states.

The deal would increase Sabra’s skilled nursing exposure to more than 70%.

Sabra issued a response, calling for shareholders to vote for the company’s proposed merger.

“In its report, ISS fails to demonstrate understanding of the [skilled nursing facility] industry,” it said in a statement. “Skilled nursing remains an integral component of the U.S. continuum of care that provides attractive risk adjusted returns for sophisticated and experienced healthcare investors that are able to partner with successful operators on the right assets.”

Sabra Chief Executive Richard Matros pointed out that “[with this deal,] we got increased size, increased liquidity, lower leverage and we expect to be investment grade. The merger will make Sabra more competitive with its enhanced balance sheet.”

Sabra also announced it entered into a $2.5 billion credit facility this month supporting the acquisition. The credit facility is made up of a revolving credit facility and U.S. and Canadian dollar term loans. Lenders include Bank of America; BMO Harris Bank; Barclays Bank PLC; Citibank; Citizens Bank; Compass Bank; Credit Agricole Corporate and Investment Bank; J.P. Morgan Chase Bank; Sumitomo Mitsui Banking Corp.; Suntrust Bank; The Bank of Tokyo-Mitsubishi UFJ Ltd.; UBS AG; and Wells Fargo Bank.

Buy

Irvine-based NextGen Healthcare Information Systems LLC, a wholly-owned subsidiary of Quality Systems Inc., said it plans to acquire EagleDream Health Inc., a population health-management software company in Rochester, N.Y. The deal is expected to close this quarter for approximately $26 million in cash.

Quality Systems provides software and analytics services to the ambulatory care market as NextGen. It recently traded at $16 per share to a $1 billion market cap.

The deal is NextGen’s second acquisition. It acquired Entrada Inc. in Brentwood, Tenn. in April for $34 million. Entrada develops a mobile health platform, a mobile app that connects with clinical systems and all major electronic medical records systems. It reported revenue of $12 million last year and a loss of $2 million.

Wellness

Reton, Wash.-based Providence St. Joseph Health announced that the first round of $10 million in grants and contracts will fund selected initiatives to support those struggling with addiction. It’s partnering with Wellness Being Trust, which was formed late last year with a $100 million endowment from the health system, to select community partners that would have the greatest impact with the money.

The commitment is part of Providence health system’s $30 million grant to address mental health needs in California. It committed $100 million to mental healthcare across the entire service area—50 hospitals in seven states, including Alaska, Montana, New Mexico, Oregon, Texas and Washington.

The program is administered by St. Joseph Hoag Health in Southern California.

Bits & Pieces

Dr. Barbara Victor was appointed chairwoman of Laguna Hills-based Saddleback Memorial Foundation’s board of directors, effective this month. Victor is an emergency physician with CEP America Inc.—an acute care and staffing management provider with over 250 practices nationwide. She replaced Bill Phillips, who completed two, two-year terms as board chair. MemorialCare Health System is a nonprofit, five-hospital system in Fountain Valley. … Children’s Hospital of Orange County is one of only three emergency departments in California and 22 in the U.S. to be recognized for emergency room excellence from the Emergency Nurses Association. The 22,000-square-foot, full-service Julia and George Argyros Emergency Department is exclusively dedicated to treatment of children.

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