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Sabra Inks Deal to Buy Stake in Enlivant Joint Ventures

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Sabra Health Care REIT, Inc. (SBRA - Free Report) has struck a deal to acquire a 49% equity interest in senior housing joint ventures managed by Enlivant. The deal values the portfolio at $1.62 billion and Sabra’s 49% minority interest investment at $371 million. This move will enable the company to achieve greater diversification of its portfolio as well as increase net operating income (NOI) contribution from private pay senior housing assets.

The deal is likely to close prior to year-end 2017 and is structured in a manner such that it paves way for Sabra to gain 100% ownership of the portfolio. Particularly, there is an option which allows Sabra to acquire the residual majority stake over the next three years in the Enlivant Joint Ventures. Sabra plans to finance the investment with proceeds from its revolving credit facility and cash reaped through asset dispositions.

Deal Benefits

The Enlivant Joint Ventures, which also includes the TPG Real Estate — the real estate platform of TPG — as a partner, owns 183 senior housing communities. These communities comprise a total of 8,280 units, across 20 states and are almost 100% private pay.

Currently 82% occupied as against 60% in 2013, this portfolio is anticipated to have scope for additional NOI growth, according to Sabra. In fact, the properties are situated in markets which enjoy stable demographics and limited new supply.

The properties are likely to experience solid demand going forward amid rising senior population. Moreover, the assisted living/memory care demand is basically needs driven and through several market cycles, its demand has proved to be resilient.

Further, the stake acquisition would raise Sabra’s percentage of cash NOI from private payors from 36.7% (pro forma annualized Q2 2017) to 42.4%. Also, it would diversify the Sabra portfolio by tenants.

Presently, the Enlivant Joint Ventures are aiming for 2018 NOI after management fees of around $100-$105 million before projected capital expenditures. This indicates a year-one unlevered cap rate of 6.2%-6.5% and a levered cash-on-cash return of 7.3%-7.9% for Sabra, per the press release. Also, there are scopes of benefit for Sabra from incremental acquisition and developmental prospects.

Sabra currently carries a Zacks Rank #2 (Buy). Also, shares of the company have outperformed the industry it belongs to, in a month’s time. The stock has gained 6.2%, while the industry recorded growth of 1.6% during this time frame.

Other Stocks to Consider

Other similarly-ranked stocks in the REIT space include PS Business Parks, Inc. (PSB - Free Report) , InfraREIT Inc. (HIFR - Free Report) and UMH Properties, Inc., (UMH - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While PS Business Parks and InfraREIT have expected long-term growth rates of 5% and 8%, respectively, UMH Properties has an expected long-term growth rate of 10%.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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