Following a $550 million, 21-property acquisition from Holiday Retirement only two weeks ago, Sabra Health Care REIT, Inc. (Nasdaq: SBRA) announced Tuesday a string of eight more acquisitions collectively valued at $59.1 million.
The transaction, which Sabra announced late Tuesday night and were funded with available cash and proceeds from the REIT’s revolving credit facility, consists of acquiring a portfolio of four memory care facilities in Texas, a three-property portfolio in Florida and one assisted living community in Maryland.
“These four investments reflect a cross section of the types of deals that have been a hallmark of Sabra’s success; good stabilized assets, quality assets with upside potential, and another senior housing development opportunity, this one with a seasoned developer and operator,” said Sabra CEO and Chairman Rick Matros in a written statement.
Sabra purchased the four Texas properties from affiliates of Avalon Care Group for $25.9 million. Located in Fort Worth and Arlington, the Avalon portfolio comprises a total of 115 beds.
Concurrently with the purchase, Sabra entered into a triple-net master lease agreement with affiliates of the seller. The lease has an initial term of 10 years with two 5-year renewal options and provides for an annual rent escalator equal to the greater of the Consumer Price Index (CPI) and 3%, but not to exceed 4%, the company said. In accordance with GAAP, the portfolio is expected to result in annual lease revenues of $2.3 million and an initial yield on cash rent of 7.75%.
The three assisted living facilities Sabra acquired in Florida total 256 beds, for which the company paid $27.6 million. Known as the “Rosecastle Portfolio,” Sabra entered into a triple-net master lease agreement with a new tenant for the portfolio.
The tenant, affiliates of local firm Hills-Citrus Holdings, is pursing a turnaround opportunity for the Rosecastle portfolio and the REIT has obtained a “limited revenue participation right” in the early years of the new lease in exchange for flexibility on the initial rental rate.
Upon completion of the turnaround, Sabra anticipates the cash rent yield to be 9.7%. Beginning in year four of the new lease, the company’s annual rent escalator would apply equal to the greater of CPI and 3%, resulting in minimum annual lease revenues of $2.7 million.
As the last component of Tuesday’s announced acquisitions, Sabra acquired a 64-bed assisted living and memory are facility located in Baltimore, Md. for $5.6 million, which the company dubbed “Tudor Heights.”
With this purchase, Sabra entered into a triple-net lease with Peregrine Senior Living of Pikesville LLC, a lease with an initial term of 15 years with two 5-year renewal options.
Peregrine is pursing a turnaround opportunity, in which Sabra has obtained a limited revenue participation right in the third year of the new lease in exchange for initial rental rate flexibility. In accordance with GAAP, the company determines minimum annual lease revenues of $0.6 million.
For this acquisition, Sabra has also committed funding up to $1.2 million for the renovation of the facility, following which rent will be reestablished based on the “then-appraised value” of the property and a lease rate between 8% and 9%, with rent increasing annually thereafter per the annual rent escalators after year four equal to the greater of the CPI and 3%.
Also announced Tuesday, Sabra originated a $4.5 million loan with BRP Celebration, LLC for the purchase of land in Celebration, Florida, which will be used to assist Celebration Senior Living, an affiliate of the borrower, in developing a 225-unit senior housing facility on the property securing the loan. The loan bears interest at a 10% annual rate and matures in one year.
“We are making this loan in anticipation of providing a portion of the development capital to Celebration Senior Living for this project and anticipate that we could have a purchase option upon stabilization of the facility,” Sabra stated in its announcement.
The Celebration facility will be the first senior housing project in the area located near the Walt Disney World Resort, and also marks Sabra’s seventh development partnership.
Sabra signaled a shift in its portfolio at the end of September when it announced its $550 million purchase of 21 independent living communities from affiliates of Holiday Acquisition Holdings Corp. The acquired communities totaled 2,850 units located across 15 states.
“While the recently announced Holiday acquisition was a unique opportunity that furthered our goals of increasing private pay, decreasing Genesis exposure, and accelerating our progress toward investment grade ratings, the investments we announced today reflect our primary and continued focus, which has successfully fueled our sector-leading growth rate for almost four years,” Matros said.
Written by Jason Oliva