Sabra Health Care, Care Capital Properties Agree to Merge, Create $7.4B REIT

by Jeff Shaw

IRVINE, Calif., and CHICAGO — Sabra Health Care REIT (NASDAQ: SBRA) and Care Capital Properties Inc. (NYSE: CCP) are joining forces to create a healthcare REIT with a pro forma total market capitalization of roughly $7.4 billion and an equity market capitalization of roughly $4.3 billion. The all-stock transaction is expected to close during the third quarter of 2017.

The new REIT will be headquartered in Irvine and include a healthcare portfolio comprised of 564 investments across 43 states and Canada. Sabra’s current executive team will manage the company, which will continue to trade under the SBRA ticker symbol.

During a conference call on Monday morning, Sabra CEO and Chairman Rick Matros stated that the merger enables Sabra to achieve its goal of upgrading its credit rating.

“With this structure to the stock deal, the transaction is credit-enhancing for both parties,” Matros said during the call. “Our leverage will be modest, we’ll have greater scale and diversification and greater opportunities for shareholder-friendly growth than either company had on a standalone basis.”

Matros also noted during the call that the merger allows Sabra to meet one of its diversification goals: adding more skilled nursing facilities. However, that focus won’t change the company’s long-term strategy.

“Certainly the transaction increases our exposure to skilled nursing assets,” said Matros. “But we’re not doing this to become a skilled nursing REIT. We will continue to focus on seniors housing deals and expanding that component of our portfolio.”

Matros added that Sabra has more than $600 million in seniors housing projects in the development pipeline that are expected to be delivered over the next few years.

Prior to the merger, the portfolio of Irvine-based Sabra totaled 205 healthcare investments and an enterprise value of $3 billion. The portfolio of Chicago-based CCP totaled 359 investments and an enterprise value of $4.2 billion. CCP went public in August 2015 as a spin-off of giant healthcare REIT Ventas.

Under terms of the transaction, CCP shareholders will receive approximately 1.1 shares of Sabra common stock for each share of CCP common stock. Upon closing, Sabra shareholders are expected to own roughly 41 percent of the company while CPP shareholders will own 59 percent.

Going forward, no tenant will represent more than 11 percent of the new REIT’s annualized net operating income.

The merger, which is intended to be a tax-free transaction, is expected to generate approximately $20 million per year in cost savings. If either party’s shareholders fail to approve the deal, that company will have to pay the other $38.5 million in termination fees, according to Reuters.

UBS Investment Bank served as financial advisor to Sabra in the transaction. Bank of America Merrill Lynch and Barclays acted as financial advisors to CCP.

Sabra’s stock price closed at $26.68 per share on Friday, May 5, up from its initial public offering of $24.63 per share in mid-August 2016. CCP’s stock price closed at $26.79 per share on Friday, May 5, down from $27.61 per share one year ago.

— Taylor Williams

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