Sabra to Terminate Holiday Lease, Convert to Management Agreement

Sabra Health Care REIT (Nasdaq: SBRA) intends to terminate its master lease with Holiday Retirement and enter into management agreements with the independent living giant.

Under the terms of a non-binding letter of intent, Sabra would terminate the master lease with regard to all 21 Holiday communities in its portfolio, the REIT announced Wednesday. At the same time, the REIT would enter into a management agreement or agreements and receive $57.2 million. That figure includes $15.1 million of retained security deposits and a $42.1 million termination fee.

That termination fee could take the form of a cash payment or the addition of more communities that are currently owned by Holiday or its affiliates. These additional communities also would be operated by Holiday under the terms of the management agreements.

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During the first year of the management agreements, Sabra would pay a management fee equal to about 5% of monthly revenues. In subsequent years, an incentive fee would be added, based on EBITDAR growth after capital expenditures, above an agreed-upon threshold.

This lease conversion is expected to be completed during the first quarter of 2019.

Holiday recently has been weathering occupancy challenges and going through operational upheaval, as it has changed its long-time management model while also moving the company headquarters from Oregon to Winter Park, Florida. Another of its REIT landlords, New Senior Investment Group (NYSE: SNR), converted its 51-property portfolio to a management agreement last spring. More recently, National Health Investors (NYSE: NHI) inked a new lease agreement with Holiday, lowering rents and escalators. Last month, Sabra CEO Rick Matros said that he favored converting Sabra’s Holiday portfolio to a management agreement rather than just cutting rents. It is unclear what Holiday’s private equity owner, Fortress, intends for the company, he added.

“It’s important to note that should events arise that cause us concern with Holiday, we control our future and can move the portfolio to the operator of our choice,” Matros said in a press release issued Wednesday, announcing the Holiday conversion.

In that same press release, Sabra announced further progress in its efforts to dispose of skilled nursing facilities operated by Kennett Square, Pennsylvania-based Genesis HealthCare (NYSE: GEN).

Written by Tim Mullaney

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