Sabra Health Care REIT, Inc. (NASDAQ: SBRA) announced that it has completed the acquisition of 21 independent living facilities from affiliates of Holiday Acquisition Holdings Corp. for a total cash purchase price of $550 million.
Monday’s announcement follows a string of Holiday deals involving Holiday Retirement unloading its senior living assets to big spending investors. In June, the provider sold 29 Canadian communities to Ventas, Inc. (NYSE: VTR) for $900 million. Prior to that, in December 2013 Newcastle Investment Corp. (NYSE: NCT) closed a $1 billion acquisition of 51 independent living communities from a Holiday affiliate, Fortress Investment Group, LLC.
In the most recent deal, Sabra acquired a Holiday portfolio comprised of 2,850 units — all of which are private pay — located across 15 states, increasing the REIT’s geographic footprint from 28 to 34 states. The deal, Sabra says, will create “a significant shift in our portfolio composition and increase our total annualized revenues by 23% (pro forma as of June 30, 2014).”
This shift will come from Genesis concentration decreasing from 46.8% to 38.1%; exposure to skilled nursing/transitional care facilities decreasing from 68.6% to 55.8%, and revenue attributable to private payers increasing from 41.6% to 52.4%, the company said.
“This acquisition is transformational for Sabra,” said CEO and Chairman Rick Matros. “Our profile moves significantly, in line with our stated goals including diversification of our asset base into private pay senior housing and continued reduction of our exposure to our largest tenant.”
In addition, seven of the 21 independent living properties have been recently acquired by Holiday, which Sabra views as an added benefit.
“One of the unique aspects to this portfolio is that seven of the 21 facilities have been acquired since 2011 and so are in various stages of conversion to the Holiday model and, in our view, provide strong potential upside for the Holiday Portfolio,” Matros said.
Concurrently with the acquisition, Sabra entered into a triple-net master lease agreement with certain wholly-owned subsidiaries of Holiday AL Holdings LP (collectively, “Holiday Tenant”). An affiliate of Holiday will continue to operate the facilities pursuant to a management agreement with Holiday Tenant.
The master lease has an initial term of 15 years with two five-year renewal options and provides for base rent in the first year of approximately $30.3 million, with annual rent increases of 4% in years two and three and the greater of 3.5% or CPI during the remainder of the lease term. The master lease is expected to generate annual lease revenues determined in accordance with GAAP, of $39.3 million and an initial yield on cash rent of 5.5%.
“We anticipate this acquisition will also accelerate our progress toward achieving investment grade ratings from the ratings agencies,” Matros said.
Written by Emily Study