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Sabra CEO slams 'silly' criticisms of Care Capital deal

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Capital Markets View – January 2021


Sabra CEO slams 'silly' criticisms of Care Capital deal

Sabra Health Care REIT Inc. executives defended the company's planned acquisition of Care Capital Properties Inc., criticizing what the company's chief executive called a "lack of knowledge and experience" among critics of the deal.

On an earnings conference call, Chairman, President and CEO Rick Matros emphasized his and other Sabra executives' experience in the skilled nursing subsector, arguing that success for a skilled nursing landlord hinges on picking the right property-level operators.

"This industry has been here, it will continue to be here, I've been through every single up and down in this space and navigated through much, much tougher situations than this, and feel really good about where we're going with this, and know that this transaction will allow us to compete even further," he said.

Matros said the company's lenders have supported the transaction through a "tremendously oversubscribed" credit facility, and he criticized Sabra shareholders Hudson Bay Capital Management LP and Eminence Capital LP, which have come out publicly against the Care Capital deal. He also singled out Institutional Shareholder Services, the proxy advisory firm, for recommending that investors withhold support for the acquisition.

"We've got all these banks, blue chip organizations that have diligenced this deal and are completely supportive of the deal, and you contrast that, frankly, with a couple of dissident shareholders who do not have the requisite experience to address the fundamentals of this space," Matros said. "And with all due respect to ISS, nor do they have the requisite experience to address the fundamentals of the space, either."

He added: "Certainly they've got plenty of experience on governance and things like that, but not on fundamentals of the business."

CFO Harold Andrews said the Care Capital deal has "strong support" from the company's lenders, adding that it added 18 new banking relationships through a July credit facility amendment. The company had total commitments of more than $3.5 billion from the 31 banks in the syndication, he said.

Matros said a larger Sabra, post-acquisition, will have stronger credit ratings and a greater ability to compete for deals, and he emphasized the ways in which the transaction would diversify Sabra's portfolio away from its main tenant, Genesis HealthCare.

"Every time Genesis blinks, we take a hit," he said. "Genesis missed guidance last year and it wasn't even material, and their year-over-year earnings were actually flat or slightly up, and we took a 20% hit."

He dismissed charges from the deal's opponents that Sabra is overpaying for the Care Capital portfolio, relative to the cost of buying individual skilled nursing properties.

"That's just silly, and everybody knows how silly that is," he said, arguing that large portfolios historically have always traded at lower yields than single properties. "It's just a silly analogy to make, and it reflects the lack of knowledge and experience on those that are coming out against the deal."

Matros said the company is not considering any options, such as a partial purchase of the Care Capital portfolio, as an alternative to the planned deal, and added that the company has no intention of postponing a scheduled Aug. 15 shareholder vote on the transaction.