$234 Million Sabra Deal Points to New Skilled Nursing World Order

Sabra Health Care REIT, Inc. (Nasdaq: SBRA) has agreed to acquire four skilled nursing facilities in Maryland for $234 million, in a deal that could be a harbinger of what the most attractive SNF portfolios might look like in the coming years. 

The four SNFs specialize in transitional care and medically complex post-surgical, ventilator and dialysis patients. With the skilled nursing sector under continuing Medicaid reimbursement pressures and traditional long-term, custodial care being deemphasized, some have suggested that SNFs could find greater success with this blend of Medicare-reimbursed post-acute care and more specialized services that can bring in additional dollars. 

Maryland, for example, has specialized Medicaid rates for complex medical patients. The operating teams at the four SNFs being acquired can access Medicare, managed care and the non-traditional Medicaid reimbursement, Sabra CEO and Chairman Rick Matros said Wednesday in a press release announcing the deal.

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“Currently, there is a small percentage of operators in the skilled nursing sector that have strategically moved their model in this direction which we believe to be the future of the business,” Matros stated. “Over time that number will increase. We are fortunate to have quite a few operators in our portfolio whose business model reflects ‘the new world order’ including the Vision portfolio we acquired in the 4th quarter of 2014.”

Genesis is another operator moving in this direction, Matros added, saying that Sabra will focus on this particular model in building its skilled nursing portfolio.

Sabra’s SNF exposure was reduced to around 50% by a recent acquisition of a nine-property Canadian independent/assisted living portfolio, and this latest acquisition will bring it back up to about 56%. Going forward, the company intends to keep the SNF mix to “at or around” 50% of its portfolio, according to Matros.

The new four-SNF portfolio, which Sabra has dubbed the “NMS Portfolio,” includes 678 licensed beds. Sabra and the current operator—unnamed in the company’s SEC filing—will enter into a triple-net master lease agreement on three of the facilities and a triple-net lease agreement on the fourth building, which is encumbered by a HUD loan. The leases will have an initial 15-year term with two 10-year renewal options. Annual rent escalators will be equal to the greater of 2.50% or CPI, not to exceed 2.75%.

Initial yield on cash rent is expected to be 8.75%.

The HUD loan on the fourth facility is $10.8 million with an interest rate of 5.6%. In addition assuming this loan, Sabra expects to fund the acquisition with available cash and proceeds from its revolving credit facility. 

The flurry of recent activity for Sabra is not unexpected: In May, the REIT disclosed that it is pursuing a $1 billion pipeline—double its previous pipeline. 

Written by Tim Mullaney

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