Business context and reporting period
Sabra Health Care REIT, Inc. (Nasdaq: SBRA) filed this Form 10-K for the fiscal year ended December 31, 2020. It owns and invests in healthcare real estate in the U.S. and Canada, earning revenue primarily from leases, managed senior housing communities, loans and preferred equity. The portfolio included 426 consolidated properties with 42,059 beds or units, plus loans, preferred equity and a 49% interest in the Enlivant joint venture.
The filing reports full-year results; fourth-quarter figures are included below where relevant. Sabra’s financial statements were audited, and the auditor gave unqualified opinions on the financial statements and internal controls. The auditor identified real estate impairment assessment as a critical audit matter.
Financial results and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $598.6 million | $661.7 million | Down 9.5% |
| Net income attributable to common stockholders | $138.4 million | $69.0 million | Up 100.6% |
| Diluted GAAP EPS | $0.67 | $0.37 | Up $0.30 |
| FFO attributable to common stockholders | $346.5 million; $1.67 per diluted share | $393.3 million; $2.09 per diluted share | Down 11.9% in total |
| AFFO attributable to common stockholders | $361.2 million; $1.74 per diluted share | $392.8 million; $2.08 per diluted share | Down 8.0% in total |
| Cash flow from operations | $354.9 million | $372.5 million | Down 4.7% |
| Common dividends declared and paid per share | $1.35 | $1.80 | Down 25.0% |
Revenue comprised $430.6 million of rental and related revenue, $11.9 million of interest and other income, and $156.0 million of resident fees and services. Operating cash flow was $354.9 million; investing activities used $136.5 million and financing activities used $202.1 million. Cash dividends paid totaled $278.3 million.
At year-end, cash and cash equivalents were $59.1 million and available borrowings under the revolving credit facility were $1.0 billion, for approximately $1.1 billion of stated liquidity. Principal debt was approximately $2.38 billion: $1.25 billion of senior notes, $1.05 billion of term loans and $80.2 million of secured debt. The Enlivant joint venture separately had $776.6 million of debt; Sabra’s proportionate share was reported as $380.5 million. Sabra reported compliance with applicable debt covenants.
Full-year occupancy fell across most categories: skilled nursing/transitional care was 77.3% versus 82.1%; senior housing leased 83.1% versus 87.0%; senior housing managed 80.0% versus 87.7%; and Enlivant joint venture senior housing managed 71.6% versus 82.2%. Specialty hospitals and other improved to 75.3% from 71.0%.
Fourth-quarter 2020 revenue was $152.1 million, net income attributable to common stockholders was $37.1 million ($0.18 per basic and diluted share), operating cash flow was $89.4 million, FFO was $87.5 million ($0.42 per diluted share), and AFFO was $87.2 million ($0.42 per diluted share).
Material changes versus the prior comparable period
- Revenue declined, principally reflecting lower rental revenue and the absence of $67.8 million of 2019 income associated with transitioning 21 Holiday communities to managed operations, including a lease termination payment and related gain. Resident fees increased as those communities and another community moved into the managed portfolio.
- Rental revenue decreased $21.6 million. This included a $17.6 million decrease related to leases no longer accounted for on an accrual basis, including write-offs associated with Genesis Healthcare and Signature Healthcare, as well as dispositions and portfolio transitions.
- GAAP net income increased, but comparison is affected by 2019’s $121.8 million real estate impairment charge and other unusual items. FFO and AFFO, which exclude specified items, both declined.
- Interest expense decreased $26.2 million, primarily following redemption of the 2021 and 2023 notes and lower revolving-facility and term-loan costs; issuance of the 2024 and 2029 notes partly offset the decrease.
- Senior housing managed operating expenses increased $24.7 million, reflecting portfolio transitions, acquisitions and pandemic-related supplies and labor. Sabra recognized $4.0 million of real estate impairment, compared with $121.8 million in 2019.
- Sabra acquired four senior housing communities for aggregate consideration of $113.7 million and sold eight skilled nursing/transitional care facilities for $50.0 million net of closing costs, recording a $2.9 million gain.
Outlook, commentary, risks and unusual items
- COVID-19: Management said tenants and borrowers continued to pay expected cash rents and debt service at year-end, but lower occupancy and higher operating costs were pressuring operators and managed communities. The duration and financial effects of the pandemic remained uncertain; defaults, rent restructurings, impairments, reduced liquidity or further dividend reductions were identified as possible outcomes.
- Liquidity and investment plans: Management believed cash, operating cash flow and available revolver borrowings were sufficient for operations, scheduled debt service and dividend requirements over the next 12 months. It expected future investments to be funded through cash, credit facilities and capital-market issuances. Planned capital expenditures for the next 12 months were not expected to exceed $68 million, of which $35 million was expected to produce incremental rental income.
- Dividend: The board declared a quarterly dividend of $0.30 per share on February 2, 2021, payable February 26, 2021. The filing provides no general earnings or FFO guidance.
- Debt and rates: Significant scheduled maturities include $105 million of term loans in 2022, $350 million in 2023, and $598.1 million of term loans plus $300 million of notes in 2024. Variable-rate exposure, rising rates and the transition away from LIBOR were identified as risks. Interest-rate and currency derivatives are used for hedging, not speculation.
- Tenant and property risks: The filing highlights dependence on tenant/operator performance, Medicare and Medicaid reimbursement, regulatory approvals, possible bankruptcies, litigation and insurance costs. Genesis and Signature leases were moved off accrual accounting after their auditors expressed substantial doubt about their ability to continue as going concerns. No tenant relationship represented 10% or more of 2020 revenue.
- Other items: Sabra recognized $5.3 million of government grants under the CARES Act and other programs, including $1.8 million in resident fees and $3.5 million associated with the joint venture. A nonmaterial out-of-period accounting adjustment increased 2020 net income by $1.6 million. The company also reported two loans with no book value on nonaccrual status and a $2.5 million year-end loan-loss allowance.
Important facts for investors to verify
- How tenant rent coverage, collections and lease status—particularly for Genesis and Signature—evolve, and whether reported rents translate into cash receipts.
- Whether occupancy and operating costs recover from pandemic-related pressure, especially in managed senior housing and the Enlivant joint venture.
- Debt refinancing and covenant capacity around the 2022–2024 maturities, and the effect of variable rates and LIBOR replacement.
- Dividend sustainability relative to operating cash flow and AFFO, including the reduction in the annual dividend from $1.80 to $1.35 per share.
- Assumptions supporting real estate valuations, impairment assessments, loan-loss reserves and the stated $68 million capital expenditure outlook.
- That FFO and AFFO are non-GAAP measures and do not represent operating cash flow or cash available after property capital expenditures.