Sabra Health Care REIT recently provided updates on the status of the 38 facilities owned by Sabra and operated by Senior Care Centers and three of the remaining facilities leased by Sabra to Genesis Healthcare Inc. as well as the conversion of its Holiday operated 21-community independent living portfolio from a triple net master lease to a management agreement structure.
As previously announced, the company entered into an agreement to sell the Senior Care Centers Facilities for an aggregate purchase price of $385 million. This agreement has been amended to reduce the number of Senior Care Centers Facilities being sold and the associated purchase price therefor to 28 and $282.5 million, respectively, and to allow Sabra to retain the remaining 10 facilities (the “Retained Facilities”) for lease to one or more new operators. Once stabilized, we expect the value of the Retained Facilities to be between $95 million and $105 million.
The REIT expects the sale of the 28 Senior Care Facilities and transition of the Retained Facilities to both occur on April 1, 2019, subject to customary closing conditions including bankruptcy court approval of operations transfer and related agreements.
On December 21, 2018, the REIT completed the previously announced sale of nine facilities leased to Genesis for gross sales proceeds of $37.1 million, leaving three facilities (the “HUD Facilities”) leased to Genesis that we plan to sell. We have entered into agreements for the sale of the HUD facilities, which are being sold subject to HUD-insured debt. These sales are expected to close upon approval by HUD, which has been delayed due to the government shutdown. The sale of the HUD Facilities is expected to generate gross sales proceeds of $33.2 million and result in the elimination of $2.7 million of annual cash rents. The company’s agreement with Genesis provides for residual rents to be paid to Sabra for 4.28 years following the sale of each facility. Upon completion of the sale of the HUD Facilities, the company expects these residual rents to total $10.4 million per year. “We expect to retain eight facilities leased to Genesis, which currently generate annual cash rents of $10.4 million (which would be in addition to the residual rents of $10.4 million per year).”
Also as previously announced, the company expects to terminate its Holiday master lease and concurrently enter into one or more management agreements with Holiday. In exchange for terminating the lease agreements, the REIT would receive $57.2 million of total consideration, including $15.1 million of retained security deposits and a $42.1 million termination fee, which we have elected to receive in cash. “We currently expect this transition to occur in the first quarter of 2019, though there can be no assurances that this transition will be completed on the foregoing terms or timing or at all.”
Commenting on these developments, Rick Matros, CEO and Chairman, said, “The revised terms of the Senior Care Centers Facilities sale represent a good outcome for Sabra. Upon completion, we will have achieved each of our stated objectives in connection with this transaction by wrapping up our association with a troubled operator and reducing our geographic concentration in a challenging state, with the ability now to reduce earnings dilution through re-tenanting of the retained properties with desired operating partners. The transition of the Holiday portfolio remains on track and the delay in the sale of the HUD Facilities should have a modest positive impact on our 2019 results as we expect to continue collecting contractual rents until these sales are completed.”