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Sabra makes $234m bet on nursing shift.

Sabra Health Care REIT, Inc. has agreed to purchase a portfolio of four transitional care facilities located in Maryland.

Sabra agreed to acquire four skilled nursing facilities that specialize in transitional care and medically complex post-surgical, ventilator and dialysis patients with a total of 678 licensed beds (the NMS Portfolio) located in Maryland for $234.0 million.

Upon completion of the acquisition, Sabra and the current operator will enter into a triple-net master lease agreement on three of the facilities and enter into a triple-net lease agreement on the fourth facility, which is encumbered by a HUD loan.


Each of the master lease and the lease for the fourth facility will have an initial term of 15 years with two 10-year renewal options and annual rent escalators equal to the greater of 2.50 percent or CPI, but not to exceed 2.75 percent.

The leases are collectively expected to generate annual revenues determined in accordance with GAAP of $24.5 million and an initial yield on cash rent of 8.75 percent.

Closing on the acquisition of three of the facilities, with an allocated purchase price of $175.2 million, was expected to occur on or before June 30, 2015. The fourth facility is expected to close upon the assumption of an existing $10.8 million HUD loan having an interest rate of 5.60 percent per annum.

In addition to the HUD loan assumption, Sabra expects to fund the remainder of the acquisition with available cash and proceeds from their revolving credit facility.

After giving effect to the completion of the NMS Portfolio acquisition, Sabra's total investments year to date for 2015 would be $406.5 million, with a blended cash yield of 7.89 percent.

Commenting on the investments, Rick Matros, CEO and Chairman, said, "The Canadian acquisition we recently announced reduced our skilled nursing exposure to approximately 50 percent, opening up the opportunity for us to look more seriously at skilled nursing acquisitions.

"The NMS Portfolio will only increase that exposure to 55.9 percent, and our intent is to maintain our skilled nursing exposure at or around 50 percent.

"We had first looked at this portfolio a few years ago and were very impressed with the team. Their focus was and is on short stay post-surgical patients and longer term complex medical patients requiring ventilator care and other complex conditions. They've continued to build on that capability since we were first introduced to them.

"The State of Maryland, like numerous other states, has specialized Medicaid rates for complex medical patients that approximate Medicare rates so the operating team can access Medicare, Managed Care and non-traditional Medicaid reimbursement sources for these services."

Matros added, "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.

"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 moving in that direction with their PowerBack model.

"Our focus is to populate our skilled nursing portfolio with more of this higher end model."
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Title Annotation:Markets
Comment:Sabra makes $234m bet on nursing shift.(Markets)
Publication:Real Estate Weekly
Date:Jul 1, 2015
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