Sabra Woes Continue with Latest Bankruptcies

Sabra Health Care REIT (Nasdaq: SBRA), one of the nation’s major senior housing owners, continues to have trouble with a different part of its portfolio.

Specifically, the company is dealing with another blow as two more Texas-based physician-owned hospitals in its portfolio filed for bankruptcy relief on Monday. This wasn’t the first bankruptcy rodeo for its Texas assets, as the news comes after another hospital within the same network of hospital chains in Sabra’s portfolio filed for bankruptcy relief in September.

Rick Matros, CEO and chairman of Sabra, said Tuesday that the real estate investment trust (REIT) has a plan regarding the situation.

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“With all three hospitals, we’ve got a clear path to resolution,” Matros said on a conference call with analysts Tuesday.

The latest filings delayed a previously scheduled foreclosure auction for the assets with the likelihood that new buyers could soon strike a deal, Matros said on the call.

“Often in these cases…it’s just a delaying tactic in terms of delaying the foreclosure,” Matros said. “In this case, we believe that the borrower has real buyers and they wanted to do this filing because they have real buyers at the table in Fort Worth and Dallas.”

The REIT entered into three deals in Fall 2013 with Texas-based Forest Park Medical Center, a luxury chain of hospitals that have struggled in earnings over the last two years. Sabra holds a $110 million mortgage loan secured by Forest Park Medical Center – Dallas; a $66.8 million construction loan for Forest Park Medical Center – Fort Worth; and Forest Park Medical Center – Frisco hospital acquisition that was purchased for nearly $120 million.

Sabra Texas Holdings, part of Sabra Health Care REIT, placed the Fort Worth hospital up for sale in October after it missed an interest payment, the Dallas Business Journal reported.

The borrowers under the Forest Park Dallas mortgage loan and the Forest Park Fort Worth construction loan filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Northern District of Texas on November 30.

Sabra has a few options to position itself as the bankruptcy petitions play out in court. The REIT is hopeful that a buyer will come through for the assets, though it is unlikely all three hospitals will be sold to the same buyer in one deal, according to Matros.

“It doesn’t mean there will be a deal that will be acceptable, but the fact that there might be buyers is worth it for us to go through this process,” Matros explained on the call.

Sabra executives stated Tuesday they were not surprised by the filing of the borrowers, as the Fort Worth hospital is continuing to ramp up its profitability while the Dallas facility remains closed. The tactic is one that will likely help the borrowers see their value returned by avoiding a foreclosure auction, according to Harold Andrews, executive vice president and chief financial officer of Sabra.

“The technical reason they filed is that it’s the only path they have to see any value,” Andrews said on the call. “Had the foreclosure gone through, we would have acquired those properties…or someone else…and they would have been out. We expected them to do something in Fort Worth because it had so much equity.”

Without a buyer, the assets could fall into foreclosure auction, where Sabra has the option to credit bid and acquire the hospitals themselves. Sabra could also request the court to go forward with the foreclosure sale, which Andrews estimated would be a 60-day process. In this scenario, executives were also unconcerned.

“If it doesn’t work out, we can credit it, take it over,” said Matros. “We think it would work out cohesively if that were the case.”

Despite its previous troubles, the Frisco hospital has recently found its footing following its bankruptcy petition in September. According to Matros, the Frisco hospital will be able to cover its rent to Sabra for December.

Sabra has a total real estate portfolio of 178 properties as of September 30. While its share price held steady on Tuesday, its troubles certainly have been noticed by investors and equity analysts. In November, Stifel downgraded the company to a “hold” recommendation.

Written by Amy Baxter

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