On Tuesday, Sabra Health Care REIT (Nasdaq: SBRA) announced it had entered into a definitive agreement to acquire a 49% equity interest in a joint venture that owns 183 senior housing communities managed by Chicago-based operator Enlivant.
The move is a “proverbial strategic win-win-win” for Sabra, Enlivant and the operator’s private equity ownership firm TPG, Enlivant CEO Jack Callison told Senior Housing News on Wednesday. It also clarifies exactly how Sabra intends to grow—a notion that has been frequently questioned following Sabra’s recently approved merger with skilled nursing REIT Care Capital Properties (NYSE: CCP), according to Sabra CEO Rick Matros.
“Everybody was freaking out,” Matros explained to SHN, referencing certain investors’ reactions to the August merger. Some of those critics wanted to know whether the CCP merger meant Sabra would pivot to focus primarily on skilled nursing—an asset class facing numerous challenges at the moment—or whether the REIT would truly commit to being a diversified organization going forward.
“This answers the question, doesn’t it?” Matros said of the Enlivant joint venture.
Art of the deal
The new joint venture deal was in the works for some time.
“Enlivant and TPG had been in conversations, and we’d contemplated bringing in an additional minority-interest capital provider at some point in time,” Callison said.
It made sense for Sabra to fill that role, Matros explained, because Enlivant was seeking a long-term partner. Some of the other parties that were interested in the joint venture were private equity firms, which have shorter exit horizons.
Representatives from Sabra, TPG and Enlivant eventually met for dinner, and “the chemistry was immediate,” Matros said. Still, it’s the CCP merger and its aftermath that may have actually helped Sabra seal the deal, he believes.
“Once we won the vote on CCP and got the new credit facility, I think it enhanced TPG’s confidence in us that we wouldn’t have any problem closing the deal,” Matros said.
The way the deal is structured, Sabra’s investment is valued at $371 million. That’s 49% of the equity interest in the portfolio; the remainder of the total $1.62 billion valuation is debt.
TPG remains the 51% majority owner in the portfolio.
Despite the possibility that Sabra could eventually purchase the remaining 51% stake in the portfolio from TPG within three years, Enlivant does not anticipate changing its overarching strategy in any way.
“I don’t think our strategy shifts at all,” Callison said. “We just have another capital provider in Sabra at this time.”
Still, the inclusion of the exercise to own option was “critical” for Sabra, Matros said.
“That’s going to be a bigger play for us,” he added.
Additionally, both Sabra and Enlivant seem unfazed by the slew of pressures—from occupancy to labor to supply—currently facing the assisted living sector. After all, the 183 properties are primarily in smaller markets, according to Matros, and “they don’t have a lot of new developments that they’re up against.”
“We intentionally want to be in some of the secondary and tertiary markets across the country,” Callison added.
Plus, deals shouldn’t necessarily be made based on current market sentiments.
“You don’t buy stuff based on what’s happening today, anyway, or based on sentiment,” Matros said. “Senior housing is here to stay.”
Written by Mary Kate Nelson