Sabra Health Care REIT has agreed to purchase a portfolio of four transitional care facilities located in Maryland. Four skilled nursing facilities that specialize in transitional care and medically complex post-surgical, ventilator and dialysis patients are included in the transactions, collectively called “NMS Portfolio,” located in Maryland for $234 million.
Upon completion of the acquisition, Sabra and the current operator will have a triple-net master lease agreement on three of the facilities and 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% or CPI, but not to exceed 2.75%.
The leases are collectively expected to create an annual lease revenue determined in accordance with GAAP of $24.5 million and an initial yield on cash rent of 8.75%. Closing on the acquisition of three of the facilities, with an allocated purchase price of $175.2 million, is 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% per annum.
The closing of the acquisition of the NMS Portfolio is subject to customary conditions, including the satisfactory completion by Sabra of its due diligence and, as to the fourth facility, the HUD loan assumption. 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.
Rick Matros, CEO and Chairman, mentioned in a statement, “The Canadian acquisition we recently announced reduced our skilled nursing exposure to approximately 50%, 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%, and our intent is to maintain our skilled nursing exposure at or around 50%. 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. Other operators in our portfolio do the same in select states.”
Mr. Matros also 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.”