Irvine-based Sabra Health Care REIT Inc.’s 2017 outlook is largely hinged on the completion of the sale of 35 properties leased by Genesis Healthcare Inc. this year, which would reduce its exposure to skilled nursing and free up liquidity for acquisitions. The reduction, though, might be smaller than first planned.
“We had buyers lined up, but [we may need to look] to a different buyer pool [now that] Genesis has decided to retain [operations at] 21 of the 35 assets we said we were going to sell,” said Chief Executive Rick Matros, noting that in some asset sales only the real estate will be sold and Genesis will remain the operator. “We are still committed and in the process of selling the 35 assets in the third quarter.”
Sabra has a $1.75 billion market capitalization, with a 183-property portfolio comprising 97 skilled nursing facilities, 85 senior housing properties and one acute care hospital as of Dec. 31.
Kennett Square, Pa.-based Genesis operates 507 skilled nursing rehabilitation and senior living facilities in 34 states. It has a $453.7 million market capitalization.
Sabra announced its plan to sell 29 Genesis properties in August, with the goal of limiting exposure to its major skilled nursing tenant. Its concentration in skilled nursing should decline to the low 50% range following the sale of the Genesis assets, down from 58.8% of annualized revenue in last year’s second quarter.
Matros said that estimated proceeds from the sale are approximately $200 million to $220 million, which the company will use to repay debt and support acquisitions.
Sabra isn’t alone in its strategy. Other real estate investment trusts, including HCP Inc., Ventas Inc. and Welltower Inc., have taken steps to limit exposure to skilled nursing in light of regulatory and reimbursement pressure that have compromised skilled nursing operators’ financial performance. Fitch Ratings Director of REITs Britton Costa, though, said he doesn’t anticipate Sabra to go on a buying spree.
“Sabra won’t grow its skilled nursing portfolio meaningfully because it will be a challenging time for skilled nursing, especially given uncertainties with legislation,” he said.
Costa added that Sabra can only reduce its exposure to skilled nursing, not exit it. “HCP exited skilled nursing, spinning it off into quality care properties. But it will be hard for Sabra to do the same. [When] Sabra first spun out, it was essentially a skilled nursing pure play.”
Sabra spun out of Sun Healthcare Group Inc., which had 166 skilled nursing centers and 25 senior properties in 46 states, in 2010. The nursing home company split its operations into two separate publicly traded businesses, Sabra—an 86-propery portfolio valued at $700 million, including 67 skilled nursing facilities—and Sun Healthcare. Genesis later acquired Sun Healthcare in 2012, creating one of the largest skilled nursing providers in the U.S. with 422 skilled nursing centers in 29 states.
Sabra reported fourth-quarter revenue of $61.8 million, down 7% year-over-year, according to Securities and Exchange Commission filings. Its $260.5 million in annual revenue was up from $238.9 million year-over-year.
Spinal Tech
Vertos Medical Inc. plans to ramp up sales, now that it has received national coverage approval for its minimally invasive lumbar decompression technology by way of a recently approved study under the Centers for Medicare & Medicaid Services. The technology is used to treat lumbar spinal stenosis, an age-related degeneration of vertebrae that causes pain and numbness in the lower back, legs or buttocks.
“We definitely want to go back to the Medicare market. When we were at our best, we had maybe one-third of the Medicare jurisdiction,” said Chief Executive Eric Wichems.
The Aliso Viejo-based medical device company received Food and Drug Administration clearance in 2008, though the technology—considered new and emerging—had inconsistent coverage. “Some were covering us, and some were not … In 2011 we were asked to conduct one randomized trial before [extension of] national coverage,” he said.
The randomized, controlled trial comprises 300 patients.
Vertos’ coverage by the Veterans Health Administration wasn’t affected by the Centers for Medicare & Medicaid Services’ decision, though Wichems noted that, “The VA is not a big market for us.”
Lumbar spinal stenosis affects approximately 1.2 million Americans, according to online database Quorum Consulting Inc. Common therapy includes open surgery, epidural steroid injection and physical therapy for pain relief. Vertos’ procedure removes enlarged spinal connective tissues, helping restore space in the spinal canal and reduce pressure on the nerves. The procedure is performed through a small opening about the size of a straw.
Stent Study Advances
San Clemente-based Glaukos Corp. completed enrollment for a 505-patient, 36-site third phase trial of its iStent Supra, a device designed to reduce eye pressure by accessing the suprachoroidal space in the eye. The device received European CE Mark in 2012.
Glaukos develops implants that help control eye pressure in patients with mid- to moderate open-angle glaucoma. Its core iStent technology received FDA approval in 2012.
