man in wheelchair with blanket on his lap

Mission Viejo, CA-based North American Health Services said Tuesday that it is preparing to transfer 24 skilled nursing facilities in California and Washington that were part of an “untenable” master lease agreement with Sabra Health Care REIT to different operators and refocus its footprint on its remaining 12 California facilities.

“NAHS anticipates leveraging and expanding on this base to re-establish itself as a leading provider of high-quality skilled nursing services,” the company said.

The transition will see NAHS exit from the master lease agreement with Sabra “after efforts to renegotiate the economic terms failed to materialize in an agreement,” according to NAHS.

“Our team worked diligently, in good faith, and consistently to reach a resolution with Sabra which would have enabled us to retain our full 36 facilities. Ultimately, we had no option other than transferring our operations in these 24 Sabra-owned facilities,” NAHS CEO Michael Moore said in a statement.

In NAHS’ telling, the separation sounds more contentious than Sabra President and CEO Rick Matros indicated on a third-quarter earnings call earlier this month.

Matros said that NAHS has new leadership, which approached Sabra in mid-August about either downsizing or obtaining rent discounts. 

“We didn’t [think] the rent reduction is something that was necessary given our assessment of the performance of the portfolio, and we’re actually happy to accommodate them on their request to downsize [to] the 12 [remaining] buildings,” Matros said, adding that North American had been “terrific” about the deal.

Tuesday, however, Moore said: “Losing 24 facilities and the more than 3,000 loyal employees and [employee stock ownership plan] members is heartbreaking, but the lease terms at these facilities had become uneconomic given the continuously slow recovery of the skilled nursing market. We believe our scaled-down company will be more viable without the Sabra lease terms. We look forward to continuing to invest in our ESOP in ways that will drive value back into the business and provide us the flexibility to pursue strategic growth opportunities.”

NAHS said that, in addition to recovering from the effects of the pandemic, it had, as had other skilled nursing operators, “endured significant operational strains from labor and supply shortages, exponentially increased costs for goods and services from vendors and suppliers, and a reimbursement landscape that has failed to keep pace with these rising costs.”

As previously reported, 20 of the NAHS facilities in California will move to the Ensign Group, and four in Washington will go to Avamere. Both new operators have indicated their intent to offer employment to virtually all current employees, according to NAHS.

“With 12 facilities remaining, NAHS will need to retain as much of their talent as possible in order to continue providing best-in-class service at their remaining facilities while being able to support our anticipated future growth,” the company said.