Hudson Bay Capital Management LP, a New York-based investment
manager, and its affiliated investment funds (collectively “Hudson
Bay”), which beneficially own approximately 3.2% of the common
stock of Sabra Health Care REIT, Inc. (NASDAQ: SBRA)
(“Sabra”), today released an open letter to Sabra shareholders
urging them to reject Sabra’s proposed acquisition of Care Capital
Properties, Inc. (NYSE: CCP) (“CCP”). A special meeting to vote on
the proposed merger is scheduled to be held August 15, 2017.
The letter details:
- How the proposed acquisition of CCP has
resulted in the destruction of substantial Sabra shareholder value
through a significantly lower stock price and trading valuation
multiples;
- Why the rejection of the acquisition is
the best means available for Sabra shareholders to most quickly
achieve full and fair value for their Sabra shares; and
- The extent to which Sabra’s share price
could significantly increase in excess of $28 per share, an
over 22% premium to current levels of $22.98, absent the merger
agreement with CCP.
The full text of the letter follows below:
July 13, 2017
Dear Fellow Sabra Shareholders,
Hudson Bay Capital Management LP and its affiliated investment
funds (collectively “Hudson Bay”) are the beneficial owners of
2,088,965 shares, or approximately 3.2%, of Sabra Health Care REIT,
Inc. (NASDAQ: SBRA) (“Sabra” or the “Company”). As a large
shareholder of the Company, we believe it is our duty to ensure
that we, and more importantly all Sabra shareholders, achieve full
and fair value for our collective investment in Sabra.
Accordingly, we are calling on our fellow Sabra shareholders to
protect the fair value of their investment and to VOTE AGAINST Sabra’s proposed acquisition
of Care Capital Properties, Inc. (NYSE: CCP) (“CCP”) at the special
meeting of Sabra shareholders scheduled to be held August 15, 2017.
We are confident that Sabra shareholders have a lot to lose by
approving the CCP Acquisition, and even more to WIN BY REJECTING IT.
On May 7, 2017, Sabra announced an agreement to acquire
Care Capital Properties, Inc. for all stock consideration (the “CCP
Acquisition”) valued at $29.96 per CCP share, an 11.8% premium
to CCP’s closing share price of $26.79 on May 5, 2017, the
trading day prior to announcement. Since then, Sabra’s share price
has deteriorated significantly on both an absolute and relative
basis. Sabra’s share price is down nearly
14% as compared to its closing price of $26.68 on May 5,
2017 (the “Unaffected Price”), while comparable companies
(“Sabra Peers”),1 chosen by Sabra’s financial advisor (UBS) and
CCP’s financial advisor (Barclays) in their fairness opinions, have
seen an average share price increase of
nearly 6% over the same period. As a result of the CCP
Acquisition, in just over two months, there has been a massive
relative underperformance in Sabra shares versus the Sabra Peers of
nearly 20%.
Based on this drastic decline in Sabra shareholder value, it
is clear to us that the strategic rationale of the CCP Acquisition,
as stated by Sabra management, has NOT
been accepted by the market and the CCP Acquisition is NOT in the best interests of shareholders.
As Sabra shareholders, we are being asked to approve a
transaction that has caused a massive decline in Sabra’s stock
price and trading multiples relative to Sabra Peers. It is
important to understand that the merger agreement signed by Sabra
and CCP contractually compels the Sabra Board of Directors to
maintain its recommendation in favor of the CCP Acquisition, absent
an acquisition proposal for Sabra.
It is even more important to recognize that one of the conditions to completing the CCP
Acquisition is that Sabra receives the affirmative vote of a
majority of votes cast by holders of Sabra common stock (as opposed
to majority of shares outstanding). In other
words, if a Sabra shareholder is unhappy with the CCP Acquisition,
abstaining from voting is NOT
the equivalent of casting a vote against, as only votes cast are
tallied. Thus, in order to maximize the probability of an
unsuccessful Sabra vote, and protect the value of your shares, if
you are unhappy with the CCP Acquisition, it is IMPERATIVE that you actively CAST YOUR VOTE
AGAINST the transaction.
We hope that it is as clear to you as it is to us that voting
against the CCP Acquisition maximizes the value that we, as
collective holders of Sabra shares, deserve for our investment.
Share Price Performance of Comparable Companies
The share price underperformance of Sabra as compared to the
share price performance of Sabra Peers since the CCP Acquisition
was announced on May 7 illustrates that the market has
significantly derated Sabra’s trading valuation multiples based on,
we believe, the much higher exposure that the combined CCP / SBRA
pro-forma company will have to the skilled nursing facility sector.
Since May 5, 2017, shares of the four Sabra Peers (pages 73-74
and page 90 respectively of the proxy statement2) have, on
average, appreciated nearly 6% (Table 1). On the other hand, Sabra shares have declined by
nearly 14% during the same time period: a massive ~20% relative
underperformance.
Table 1: Percentage Change From 5/5/17 Through 7/12/17
CTRE CARETRUST REIT INC 7.4% LTC LTC PROPERTIES INC
6.5% NHI NATL HEALTH INVESTORS INC 6.6% OHI OMEGA HEALTHCARE
INVESTORS 2.4% Average
5.7% SBRA SABRA HEALTH CARE REIT INC -13.9%
Valuation of Comparable Companies
Table 2 below shows that as of May 5, 2017, the last trading day
prior to the CCP Acquisition, the market valued Sabra at 1.9 turns
discount on 2017E Price / FFO (funds from operations) and 1.8 turns
discount on 2018E Price / FFO to Sabra Peers.
Table 2: Sabra Valuation Metrics versus Peers - 5/5/2017
Sabra * 11.4 x 2017E P/ FFO 11.0 x 2018E P/ FFO
Sabra Peers ** 13.3 x 2017E P/ FFO 12.8 x 2018E P/ FFO
Sabra # Turns (Discount) / Premium vs Sabra Peers
-1.9 x 2017E P/ FFO -1.8 x 2018E P/ FFO
* $26.68 Unaffected Price, Consensus Estimates from
proxy**average of CTRE, LTC, NHI, OHI using Bloomberg consensus
estimates as of 5/5/2017
Table 3 below shows that as of July 12, 2017, the market is now
valuing Sabra at 4.1 turns discount on 2017E Price / FFO and 3.9
turns discount on 2018E Price / FFO to Sabra Peers, a massive
derating in just over two months from the CCP Acquisition
announcement.
Table 3: Sabra Valuation Metrics versus Peers - 7/12/2017
Sabra * 10.0 x 2017E P/ FFO 9.5 x 2018E P/ FFO
Sabra Peers ** 14.0 x 2017E P/ FFO 13.5 x 2018E P/ FFO Sabra
# Turns (Discount) / Premium vs Sabra Peers
-4.1 x 2017E P/ FFO -3.9 x 2018E P/ FFO
*$22.98 price, consensus estimates from Bloomberg**average of
CTRE, LTC, NHI, OHI using Bloomberg consensus estimates as of
7/12/2017
We see no reason that absent the CCP Acquisition announcement,
SBRA would have suffered the current massive contraction in its
trading multiples relative to peers since 5/5/17 (last trading day
before deal announcement). Without the negative impact of the CCP
Acquisition announcement weighing on SBRA’s stock price, SBRA
should in our view be trading in-line with pre-announcement
multiples relative to peers, implying a price in excess of $28,
over a 22% premium from current levels (Table 4).
Table 4: Implied Sabra Stock Price if
CCP Acquisition Voted Down
Sabra P / FFO Multiple Compression vs Sabra Peers
since 5/5/2017
-1.9 x
2017E P/ FFO – SBRA discount to peers on
5/5/17
-1.8 x
2018E P/ FFO – SBRA discount to peers on
5/5/17
-4.1 x
2017E P/ FFO – SBRA discount to peers on
7/12/17
-3.9 x
2018E P/ FFO – SBRA discount to peers on
7/12/17
-2.2 x
2017E P/ FFO – derating from 5/5 –
7/12/17
-2.2 x
2018E P/ FFO – derating from 5/5 –
7/12/17
Sabra Implied $ Compression vs Sabra Peers since 5/5/2017
-$5.11
2017E P/ FFO
-$5.24
2018E P/ FFO
-$5.18
Average $ compression
$22.98
SBRA current px
$28.16
Implied SBRA stock price if no CCP
Acquisition
22.5%
Implied premium to current levels
For the aforementioned reasons, we believe that the CCP
Acquisition is an extremely negative transaction for Sabra
shareholders that has ALREADY
resulted in SIGNIFICANT
shareholder value destruction.
We urge you to TURN AROUND this
destruction and PROTECT AND
MAXIMIZE your investment in Sabra by VOTING AGAINST the CCP Acquisition at the
upcoming Special Meeting.
Sincerely,
Sander GerberChief Executive Officer and Chief Investment
Officer
John ChenPortfolio Manager
We urge
stockholders to vote “AGAINST” the CCP Acquisition at the Special
Meeting on the Company’s proxy card. This is not a solicitation
of authority to vote your proxy. Please do not send us your proxy
card; we are not able to vote your proxies nor does this
communication contemplate such an event.
About Hudson Bay Capital
Hudson Bay Capital Management LP is a manager of alternative
investment opportunities in the global markets employing a diverse
set of catalyst-driven absolute return strategies. We invest across
the corporate capital structure and often trade around or in
conjunction with an event or catalyst in an effort to exploit
market inefficiencies.
Warning Regarding Forward Looking Statements
THIS PRESS RELEASE CONTAINS FORWARD LOOKING STATEMENTS. FORWARD
LOOKING STATEMENTS CAN BE IDENTIFIED BY USE OF WORDS SUCH AS
"OUTLOOK", "BELIEVE", "INTEND", "EXPECT", "POTENTIAL", "WILL",
"MAY", "SHOULD", "ESTIMATE", "ANTICIPATE", AND DERIVATIVES OR
NEGATIVES OF SUCH WORDS OR SIMILAR WORDS. FORWARD LOOKING
STATEMENTS IN THIS PRESS RELEASE ARE BASED UPON PRESENT BELIEFS OR
EXPECTATIONS. HOWEVER, FORWARD LOOKING STATEMENTS AND THEIR
IMPLICATIONS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR AS A
RESULT OF VARIOUS RISKS, REASONS AND UNCERTAINTIES. EXCEPT AS
REQUIRED BY LAW, HUDSON BAY CAPITAL MANAGEMENT LP AND ITS
AFFILIATES AND RELATED PERSONS UNDERTAKE NO OBLIGATION TO UPDATE
ANY FORWARD LOOKING STATEMENT, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE DEVELOPMENTS OR OTHERWISE.
__________________________
1 The companies used by UBS and Barclays in their Selected
Public Companies Analysis of their fairness opinions are CareTrust
REIT, Inc. (Nasdaq: CTRE); LTC Properties, Inc. (NYSE: LTC);
National Health Investors, Inc. (NYSE: NHI); Omega Healthcare
Investors, Inc. (NYSE: OHI) and CCP (used by UBS, excluded by
Barclays). We exclude CCP from all Sabra Peers calculations, as its
stock price is directly impacted by the CCP Acquisition.2 Joint
Care Capital Properties / Sabra Definitive Proxy Statement /
Prospectus, July 7, 2017
https://www.sec.gov/Archives/edgar/data/1492298/000119312517224331/d422419d424b3.htm#rom422419_47
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170713005568/en/
Gasthalter & Co.Amanda Klein, 212-257-4170