Health-care real estate landlords Sabra Health Care REIT Inc. and Care Capital Properties are merging to form a $7.4 billion company that would create a more diversified real-estate investment trust with better access to debt markets.
The management team at Sabra will head the company, which will be based in Irvine, Calif. Sabra, whose portfolio includes skilled nursing facilities and senior housing, said within the merged company no one tenant will represent more than 11% of the annualized net operating income.
Continue Reading Below
The transaction will reduce Sabra's reliance on Genesis Healthcare, its largest tenant, from contributing about a third of net operating income to the low teens, said Fitch Ratings in a note.
Shareholders of Care Capital, whose current portfolio is primarily skilled nursing facilities, will receive 1.123 shares of Sabra for each Care Capital share, which would result in them owning approximately 59% of the combined firm and Sabra shareholders owning the rest.
The combined company, given its bigger scale, will attract more investors and greater access to capital markets, which will allow it to compete better for investment opportunities, Sabra said. The deal also would generate annual cost savings of around $20 million. It is expected to be completed in the third quarter.
Investors have been more careful about investing in health-care REITs that include skilled nursing facilities in part because revenue from such facilities comes largely from Medicare and government insurance programs that could face funding cuts.
Some REITs have pared their skilled nursing facilities in recent years, including Chicago-based Ventas Inc., which spun off 355 skilled nursing facilities and outpatient recovery centers into Care Capital Properties. Ventas said it later benefited from stronger growth and achieved a greater portion of its income from private-pay assets.
Write to Esther Fung at email@example.com
(END) Dow Jones Newswires
May 09, 2017 15:36 ET (19:36 GMT)