Inside Sabra’s ‘Unusual’ $430 Million Skilled Nursing Buy

October 3, 2017, Alex Spanko, Skilled Nursing News - Sabra Healthcare REIT, Inc. (Nasdaq: SBRA) last week made its first major skilled-nursing deal since merging with Care Capital Properties, buying the real estate associated with 24 SNFs for a total of $430 million: $378 million for the 21 properties that have already closed, and $52 million for three more set to close by the end of 2017.

For the Irvine, Calif.-based real estate investment trust (REIT), the transaction marked the latest step in its growth, but one player in the deal says it also is unique in certain ways compared with other property acquisitions in the skilled nursing industry.

Laca Wong-Hammond, managing director for M&A at Duff & Phelps Securities, LLC, served as the financial advisor for seller, which had been looking to find a sale-leaseback arrangement for the 24 properties in California and Washington state that it owned. * But the facilities had a curious ownership status, with each individual SNF owned by a separate limited liability company in a structure built over time since 1989.

“Organizationally, the structure is more complicated than just your usual, typical real estate transaction,” Wong-Hammond told Skilled Nursing News.

In addition, the network of properties have complications such as ground leases and multiple easements, she said.

But the facilities had several positive, marketable attributes, including five-star Quality Care Ratings from the Centers for Medicaid & Medicare Services (CMS) at 21 of the 24 SNFs — a fact that Sabra CEO Rick Matros trumpeted when announcing the deal — and solid operational statistics.

Occupancy across the facilities topped 92%, Wong-Hammond said, as compared to a national average that currently hovers somewhere in the low 80% range.  Furthermore, short-term Medicare and private-pay residents accounted for 59% of the portfolio’s census, with the lack of reliance on Medicaid payments helping to stimulate interest for the properties.

“[Those factors] ultimately led to a bidding frenzy when marketing this resale,” she said.  “I think it just goes to reaffirm that there’s always demand for high-quality assets in any sector, and this was proven so in skilled nursing.”

Sabra’s primary pitch when attempting to sell shareholders — including a few skeptical activist investors — on its merger with the nearly “pure play” skilled nursing REIT Capital Care Properties was that the deal would allow Sabra to scale up and diversify by gaining access to bigger, more prominent portfolios.

The deal was uncommon in both its size and price tag, Wong-Hammond said, noting that she typically sees smaller-scale sales of three to four properties at a time, with average price tags of $8 million to $12 million per property — while the 24-site Sabra deal came in at nearly $18 million per SNF.

Deals of that size typically involve attempts to exit a certain geographic area or ditch a specific provider, she said. Sabra, for instance, is currently plotting to do just that with troubled operator Genesis Healthcare (NYSE: GEN) through its “Genesis Exodus” plan.

“To have one that’s just for sale by operator, of this size, is quite unusual — definitely in my experience of doing this for over a dozen years,” Wong-Hammond said.  “To see something in this $400 million range, or property [number] range, is rare.”

*Editor’s note: This article has been updated from a previous version which stated that North American Health Care was the seller and operator. North American Health Care was and is the provider of certain services, including accounting services, legal services, some training services and some bulk purchasing services, for the facilities but did not have ownership or the rights to sell the real estate.