Sabra Health Care REIT, Inc. - Q1 2011 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2011. Sabra Health Care REIT, Inc. (Sabra) is a self-administered, self-managed real estate investment trust (REIT) formed following a separation and REIT conversion merger from Sun Healthcare Group, Inc. (Old Sun) completed on November 15, 2010. As of the reporting date, Sabra owned 86 healthcare properties (including skilled nursing, assisted living, and mental health facilities) with 9,603 beds across 19 states. All properties are leased to subsidiaries of Sun Healthcare Group, Inc. (New Sun) under triple-net operating leases.
Key Financial Metrics
| Metric | Value (in thousands) |
|---|---|
| Total Revenues | $17,601 |
| Net Income | $1,248 |
| Funds from Operations (FFO) | $7,334 |
| Adjusted FFO (AFFO) | $9,058 |
| Net Cash Provided by Operating Activities | $12,458 |
| Cash and Cash Equivalents (Ending) | $80,210 |
| Total Debt (Mortgage + Senior Notes) | $385,164 |
| Available Credit Facility | $87,600 |
Per Share Data: Net income was $0.05 per share (basic and diluted). FFO per diluted share was $0.29, and AFFO per diluted share was $0.35.
Material Changes and Comparisons
Due to the November 2010 separation, Sabra has no historical operating data prior to Q4 2010. The filing compares Q1 2011 results to unaudited pro forma results for Q1 2010 (assuming the separation occurred on Jan 1, 2010):
- Rental Income: Remained flat at $17.561 million compared to the pro forma period.
- General and Administrative Expenses: Increased 21% to $2.670 million from $2.213 million pro forma, driven by stock-based compensation ($1.142 million) and start-up costs.
- Interest Expense: Remained stable at $7.597 million compared to $7.603 million pro forma.
- Depreciation: Increased slightly to $6.086 million from $6.054 million pro forma.
Outlook, Risks, and Subsequent Events
Subsequent Events:
- Dividend: On May 3, 2011, the Board declared a quarterly cash dividend of $0.32 per share, payable June 2, 2011.
- Acquisitions:
- Closed purchase of Texas Regional Medical Center at Sunnyvale (70-bed acute care hospital) for $62.7 million on May 3, 2011.
- Agreed to purchase Oakbrook Healthcare Center (120-bed skilled nursing facility) for $11.3 million, expected to close in Q2 2011.
Liquidity and Capital Resources: Sabra maintains $80.2 million in cash and $87.6 million available under a $100 million secured revolving credit facility. Management expects these resources to cover operations, debt service, and dividends for the next 12 months.
Risks and Contingencies:
- Tenant Concentration: 100% of rental revenue is derived from a single tenant (New Sun). Sabra's financial health is directly tied to New Sun's performance.
- Interest Rate Risk: $60.0 million of mortgage debt is variable rate. A 100 basis point increase would raise annual interest expense by approximately $0.2 million.
- Legal/Indemnification: Sabra indemnifies New Sun for liabilities related to real estate, while New Sun indemnifies Sabra for liabilities related to Old Sun's healthcare operations pre-separation.
Investor Verification Checklist
- Verify the financial stability and operational performance of New Sun (the sole tenant), as Sabra has no other revenue sources.
- Confirm the closing and funding status of the May 2011 acquisitions (Texas Regional Medical Center and Oakbrook Healthcare Center).
- Monitor compliance with financial covenants in the Senior Notes indenture and revolving credit facility, particularly regarding leverage and fixed charge coverage.
- Review the impact of the variable rate debt ($60 million) on future interest expenses if LIBOR rises.
- Assess the adequacy of the dividend payout ($0.32/share) relative to AFFO ($0.35/share) to ensure sustainability.