Sabra looking forward to 'fun part' now that CCP merger is approved
Richard K. Matros
Sabra Health Care REIT will continue efforts to diversify its asset base now that its merger with skilled nursing-focused Care Capital Properties has been approved by the boards of both companies, the real estate investment trust's CEO and chairman, Richard Matros, told McKnight's Senior Living on Wednesday.
The deal merging the companies, which will have an anticipated pro forma total market capitalization of approximately $7.4 billion and an equity market capitalization of approximately $4.3 billion, is expected to be finalized Thursday after both boards voted for the transaction on Tuesday.
“We'll get it closed tomorrow, and then we'll execute, and execution is actually the fun part, not all this other stuff,” Matros said.
The “other stuff” included opposition from some shareholders. Perhaps most vocal among them was Hudson Bay Capital, which owned approximately 3.9% of Sabra common stock and with which proxy advisory firm Institutional Shareholder Services agreed. Its biggest splash came a couple of months after Sabra announced its intentions May 7.
Hudson Bay called the planned transaction “disastrous” in a July 31 press release and said Sabra would be buying CCP's “troubled assets at inflated values.” The investment manager also proposed that the REIT put itself up for sale to maximize shareholder value.
Earlier this month, Sabra had countered by sharing that proxy voting advisory firms Glass, Lewis & Co. and Egan-Jones Proxy Services recommended that shareholders approve the merger.
Matros said detractors came “simply to create some noise and try to make some money,” affecting stock in the short term and occupying his time.
“I had a couple of conversations with them, and they knew nothing about the management team or the company,” he said. “They knew certainly nothing about the fundamentals of either skilled nursing or senior housing, although their focus was on skilled nursing. So I think that their agenda was transparent, and I think I know that's why we got a pretty decisive victory here.”
Sabra announced that more than two-thirds of the shares voted at its meeting were voted in favor of the common stock issuance proposal, with more than 56 million, or approximately 87%, of the REIT's outstanding shares of common stock voted at the meeting. CCP said that approximately 98% of votes cast at its meeting, representing about 76% of its shares of common stock outstanding, voted for the merger.
SNF sales, selective investment in the future
At the time of the merger announcement, the companies said they planned to optimize the portfolio by selling skilled nursing facilities and investing selectively in assisted living, memory care and independent living communities. That plan is still in place, Matros said Wednesday.
“There were so many attributes to this deal that, even though it was going to increase our exposure to skilled nursing, the benefits of the deal were worth it,” he said. “But in terms of focusing on a diversified asset base, that's always what we've executed on, and we'll continue to do that. As Sabra grows, we will continue to buy assisted living, memory care and independent living properties as well as develop.”
Sabra's top five tenants as of June 30 were Genesis Healthcare (33%), Holiday Retirement (16%), NMS Healthcare (12%), Cadia (4%) and Meridian (3%). Its portfolio was 57% skilled nursing, 37% senior housing, 2% acute care hospitals and 4% managed properties. The portfolio was almost evenly split between private pay and public.
CCP's top five tenants as of the first quarter were Senior Care Centers (18%), Signature Healthcare (15%), Avamere Family of Companies (12%), Wingate Healthcare (6%) and Magnolia Health Systems (5%).
A July 28 presentation posted on Sabra's website noted that “skilled nursing facilities will remain an integral component of the U.S. continuum of care, leading to attractive risk adjusted returns for sophisticated and experienced healthcare investors.”
The new company
The combined company will have a portfolio of 564 facilities in 43 states and Canada.
SNFs will represent 73% of the portfolio; senior housing 19%; and hospitals 8%, according to a June 6 presentation on Sabra's website. Thirty-six percent of the portfolio will be private-pay.
The combined company, which will continue to use the Sabra name, will be headquartered in Irvine, CA. Twenty-five to 30 people will work at the headquarters, an increase from the 15 that Sabra had at the time of the merger announcement, Matros said. CCP is based in Chicago.
Upon completion of the merger, Matros, Harold Andrews and Talya Nevo-Hacohen will continue to serve in their current Sabra roles of chairman and CEO, chief financial officer and chief investment officer, respectively, the companies had said in May. The Sabra Board of Directors will be expanded to eight members with the addition of CCP CEO Raymond Lewis and two more directors from CCP.
Matros said that providers formerly in CCP's portfolio will continue to run their own businesses but will benefit from Sabra's operational experience. Benefits will include group purchasing opportunities, the sharing of best practices and trends in reimbursement, and capital delivery, according to the REIT.
“I spent 30 years on the operating side before Sabra, and I ran three publicly held companies in the space, so we've been able to do some things in terms of referring services that positively impacted costs for our operating partners,” he said.