Hudson Bay Capital Issues Open Letter to Sabra Shareholders Urging Them to Vote against Proposed Acquisition of Care Capital

NEW YORK--()--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 Gerber
Chief Executive Officer and Chief Investment Officer

John Chen
Portfolio 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

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Amanda Klein, 212-257-4170

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