Irvine, CA-based real estate investment trust Sabra Health Care REIT will transition a 24-property skilled nursing portfolio leased to North American Health Care to two of Sabra’s existing tenants, The Ensign Group and the Avamere Family of Companies, the REIT announced Monday. The combined initial annual rent will be $34.5 million.
Ensign will add 20 properties in California to two master leases with its operating companies with initial terms of 18 and 20 years. Avamere will add four properties in Washington state to its existing master lease, which includes nine other properties in Washington, with an initial term of 13 years.
The transition is expected to be complete by Feb. 1. At that time, Ensign will become one of Sabra’s largest tenants, representing approximately 8% of annualized cash net operating income, and Avamere will remain one of Sabra’s largest tenants, also accounting for approximately 8% of annualized cash NOI. Other long-term care operators among Sabra’s top 10 relationships include skilled nursing providers Signature Healthcare, Cadia Healthcare, The McGuire Group and CommuniCare, as well as independent living operator Holiday by Atria (formerly Holiday Retirement) and assisted living provider Leo Brown Group, according to supplemental information filed with the Securities and Exchange Commission.
Sabra said the transition of the 24 SNFs represents a “unique opportunity” to improve the long-term value of the real estate portfolio, which the REIT characterized as “high-quality.”
“This is an opportunity to expand our relationship with Ensign, substantially improving the credit profile of our portfolio,” Sabra Chair and CEO Rick Matros said in a statement. “Importantly, adding the four properties to Avamere’s existing Washington facilities enhances that portfolio as well, even more so after consideration of the recent increase in Washington’s Medicaid rates of nearly 20%.”
Ensign CEO Barry Port said that Ensign was “honored that Sabra will be entrusting us with the operation of this portfolio and are very excited to expand our growing relationship with them.”
The California properties, he added, “are a perfect fit with our existing footprint in one of our strongest and most mature markets.”
Avamere CEO Rick Miller characterized Sabra as “a valuable, highly regarded and collaborative partner to Avamere, our valued workforce, and our customers” and said the company was “eager” to bring Avamere’s culture to the facilities.
“The North American portfolio represents the right geographic and strategic fit for Avamere in our growing Pacific Northwest footprint that aligns with our relationships with local hospitals and Med Advantage partners,” Miller said.
Sabra said it expects to recognize a total of $14.7 million in revenue from the facilities during the fourth quarter through the end of the transition period, which approximates the rent the REIT would have received during this timeframe under the previous leases with North American.
The initial annual rent attributable to the 20 properties going to Ensign will be $29.4 million, with Consumer Price Index-based annual rent escalators not to exceed 2.5%. The initial annual rent attributable to the four additional properties leased to Avamere will be $5.1 million, with an annual rent escalator of 2.75%.
