Sabra Health Care REIT intends to terminate triple-net master leases for 21 Holiday Retirement communities and enter into management agreements with Holiday for those communities, the Irvine, CA-based real estate investment trust announced Wednesday evening.
The change is expected to occur in the first quarter of 2019, Sabra said.
“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,” Sabra CEO and Chairman Rick Matros said.
As part of the move, the REIT will receive $57.2 million, including $15.1 million in security deposits and a $42.1 million termination fee, which Sabra can choose to receive either in cash or in additional Holiday communities. “Should we elect to receive the termination fee in additional communities, those communities would be operated by Holiday pursuant to the Holiday Management Agreements,” Sabra said.
Holiday is the country’s largest operator of independent living communities, according to Argentum.
During the first year of the management agreement, the REIT will pay Holiday a monthly base management fee equal to 5% of revenues. After the first year, an added incentive will be based on the growth in EBITDAR (earnings before interest, taxes, depreciation, amortization and restructuring or rent costs) after capital expenditures for the communities above agreed-on performance thresholds. The management agreements will have one-year terms, and Sabra will have the option of extending them for another year.
National Health Investors announced in November the restructuring of its the lease agreement for the 25 Holiday Retirement communities in its portfolio, saying the status quo was “not viable.” NHI President and CEO Eric Mendelsohn said at the time that Holiday’s recent change in management model, from live-in managers to traditional executive directors, “went well,” but that the move of its headquarters from Oregon to Florida last year had been “stressful” for the company.
In May, New Senior Investment Group said it was moving 51 Holiday communities that have “lagged expectations” from its triple-net lease portfolio to its portfolio of managed properties as part of a strategic review process. At the time, when asked whether Sabra would consider taking similar actions with its Holiday portfolio, Matros said no.
“We have to remind everybody, it’s independent living. It’s not a healthcare model. …Their EBITDAR margins are 40%. It’s a pretty healthy business,” he said then.
Sabra also announced on Wednesday that the sale of four leased Genesis facilities had been completed Dec. 12 for gross proceeds of $38.6 million. Nine more facilities should be sold this week for $37.1 million, leaving three Genesis facilities to be sold, according to the REIT.
The CEO said Sabra is looking forward to having “the ‘noise’ behind us and a solid platform of operating partners to grow from” after the transactions involving Holiday and Genesis, as well as the sales of the Senior Care Centers facilities in its portfolio, are complete. Earlier this month, Sabra said it had entered into an agreement to sell its Senior Care communities — two senior living communities and 36 skilled nursing communities — for $385 million after the REIT had issued notices of default and lease termination due to nonpayment of rent. The announcement of the sales followed Senior Care Centers filing for bankruptcy.
“We appreciate this has all taken some time, but the transformation of the company these last 18 months has been critical for us to grow effectively while controlling the narrative ourselves rather than have that dictated by certain tenants with outsized exposures,” Matros said. “The anticipated impact of these transactions will be included in our guidance for 2019, which we expect to provide in January.”
