A month after Sabra Health Care REIT, Inc. (Nasdaq: SBRA) announced its pipeline would more than double, the senior housing investor is making good on its promise with a nine-property senior housing portfolio acquisition and a 10-property development pipeline.
The real estate investment trust has agreed to purchase a nine-property senior housing portfolio in Canada for approximately USD$137 million, with plans to enter into a triple-net master lease agreement with an affiliate of Senior Lifestyle Corporation (SLC) upon completion of the acquisition.
The investment marks Sabra’s first foray into Canada as well as SLC’s first operation outside of the U.S.
“The Canadian portfolio acquisition will give Sabra its first foothold in Canada and the opportunity to grow with two first class operators: the existing operator who will be focusing on assisted living and memory care, and SLC,” said Rick Matros, Sabra CEO and chairman, in a statement. “Once the Canadian portfolio acquisition is completed, our total investments would exceed $170 million to date in 2015.”
Sabra declined SHN’s request for further comment.
Among the properties Sabra will acquire are eight private pay independent living communities and one assisted living/independent living community totaling 865 units (302 units in British Columbia and 563 units in Ontario) with an average occupancy of 85%, according to a company presentation at the 2015 NAREIT REITWeek Conference on Tuesday.
An affiliate of the seller, whose name was not disclosed, will manage the facilities for 12 months pursuant to an agreement with the tenant. The master lease is expected to have an initial term of 10 years with two five-year renewal options with annual rent increases of 4% in years two and three.
The master lease is expected to generate annual lease revenues of approximately USD$9.6 million, and an initial yield on cash rent of 6%.
After completion of the portfolio acquisition — which is expected to occur shortly, upon completion of the assumption of the existing mortgage loans — Sabra expects to have total liquidity of approximately $360 million, consisting of availability under its revolving line of credit and available cash.
The seller was advised by Greystone Real Estate Advisors.
$250 Million Development Pipeline
Additionally, Sabra has entered into a forward purchase program with the Leo Brown Group (LBG) — a Carmel, Indiana-based developer and operator of health care and senior living properties — which will identify potential senior housing development projects and secure the construction financing for those projects.
“The pipeline agreement with Leo Brown Group, who we consider to be fantastic developers and operators, takes an already fruitful relationship and memorializes it as one with a longer term future,” Matros said in a statement.
Through March 31, 2017, Sabra will have the right to provide a portion of the required equity financing for up to 10 of the identified projects through a preferred equity structure, and at the time of its equity investment, Sabra will be granted a purchase option for the facility.
The total purchase price of the facilities under the pipeline agreement is estimated to be approximately $250 million.
Senior housing facilities acquired by Sabra under the agreement will be leased to LBG or an affiliate of LBG, with the initial annual yield on cash rent expected to be 7% to 8.5% depending on the asset class.
Sabra currently owns one facility operated by LBG and has provided preferred equity funding for the development of two additional facilities to be operated by LBG. Sabra has purchase options for both of those additional facilities.
Previously, Matros told SHN that while deals under $100 million have been the REIT’s “bread and butter,” and will continue to be, decreasing costs of capital will allow Sabra to be “more competitive.”
“We will pursue larger deals that make sense,” he said at the time. “Larger deals are more opportunistic for us because capital is not really an issue.”
Written by Emily Study