Sabra Health Care REIT, Inc. — Q1 2016 Form 10-Q
Business context and reporting period
Sabra is a healthcare-property REIT that leases properties to third-party operators and also invests in loans and preferred equity. This unaudited filing covers the three months ended March 31, 2016, compared with Q1 2015; balance-sheet figures are as of March 31, 2016, unless otherwise noted. The portfolio included 178 properties held for investment, one property held for sale, 17 loan investments and 10 preferred-equity investments.
Key financial metrics
| Metric | Q1 2016 | Q1 2015 / prior balance-sheet date |
|---|---|---|
| Total revenue | $62.6 million | $55.6 million |
| Net income (loss) attributable to common stockholders | $(18.3) million; $(0.28) per diluted share | $16.9 million; $0.28 per diluted share |
| FFO attributable to common stockholders | $33.9 million; $0.52 per diluted share | $31.0 million; $0.52 per diluted share |
| AFFO attributable to common stockholders | $34.8 million; $0.53 per diluted share | $30.5 million; $0.51 per diluted share |
| Cash flow from operations | $24.7 million | $24.7 million |
| Cash and cash equivalents | $9.1 million | $7.4 million at Dec. 31, 2015 |
| Total debt, principal balance | $1.417 billion | Not provided here on a comparable principal basis |
| Total assets / total equity | $2.434 billion / $1.007 billion | $2.469 billion / $1.054 billion at Dec. 31, 2015 |
Revenue comprised $55.3 million of rental income, $5.3 million of interest and other income, and $1.9 million of resident fees and services. Operating cash flow was nearly unchanged year over year. Investing activities provided $2.0 million and financing activities used $25.1 million, including $29.3 million of dividends paid. Sabra reported approximately $311 million of liquidity: about $9 million of unrestricted cash (excluding cash held by its RIDEA joint venture) and $302 million of available revolving capacity.
Debt included $700 million of senior notes, $341.4 million of term loans, $198 million drawn on the revolving facility, and $178.0 million of mortgage principal. The revolving facility had $302 million available and a 2.84% rate at quarter-end. The company reported compliance with applicable debt covenants.
Material changes versus the prior comparable period
- Revenue rose 12.6%, chiefly from acquisitions and investments made after January 1, 2015; rental income increased $5.8 million. Management said the increase was partly offset by a $3.6 million decline, primarily because it stopped recognizing Frisco-related revenue.
- Sabra reported a net loss versus prior-year net income. The change principally reflected a $29.8 million real-estate impairment and a $4.6 million loss on sale of a skilled nursing facility; interest expense also rose $3.0 million.
- FFO increased to $33.9 million, while FFO per diluted share remained $0.52. AFFO rose to $34.8 million and $0.53 per diluted share.
- Interest expense increased to $16.9 million from $13.9 million. The company also recorded $2.5 million of doubtful-account and loan-loss provisions, versus $1.1 million a year earlier.
- Common dividends declared and paid in the quarter were $0.41 per share, up from $0.39 per share in Q1 2015. Shares outstanding increased to 65.3 million from 59.2 million weighted-average basic shares in the prior-year quarter.
Outlook, commentary, risks and unusual items
- Management said cash, operating cash flow and available revolver capacity should be sufficient for operations, scheduled debt service and dividend requirements for the next 12 months. It expects capital expenditures over the next 12 months not to exceed $4.0 million. No earnings or FFO guidance was provided.
- The board declared a common dividend of $0.42 per share and a Series A preferred dividend of $0.4453125 per share, payable May 31, 2016.
- On April 1, 2016, Sabra completed the sale of the Forest Park–Frisco hospital for a total price of $96.3 million, less approximately $7.3 million of assumed capital-lease obligations. Sabra received $86.6 million net and expected another $3.5 million from collections. The Q1 impairment and increased loan-loss reserve were recorded before considering approximately $21.3 million of owner guarantees.
- For Forest Park–Fort Worth, a buyer’s $112 million bid was approved as the stalking-horse bid, subject to bankruptcy-court approval and an auction process. Sabra reported $60.8 million of loan principal and $8.1 million of accrued interest and fees outstanding, and expected full recovery upon closing; this was an expectation, not a completed transaction.
- Tenant and credit concentration remain important: Genesis, Holiday and NMS Healthcare represented 33.9%, 16.7% and 10.4% of annualized revenue, respectively. Skilled nursing/transitional care generated 59.2% of annualized revenue. Sabra identified dependence on major tenants, operator performance, healthcare reimbursement and regulation, debt levels and interest rates as key risks.
- Two loans totaling $123.5 million were on nonaccrual; another $60.9 million loan was more than 90 days past due but remained on accrual. A 100-basis-point rise in rates was estimated to increase annual interest expense by $4.4 million after hedging. Management reported no material legal proceedings or material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether Frisco proceeds, expected receivable collections and the owner guarantees ultimately support the reported recovery assumptions and loan-loss estimates.
- Whether the Fort Worth sale closes, the final proceeds and the recovery of principal, interest and fees.
- Genesis, Holiday and NMS tenant rent coverage, liquidity and lease performance given their combined concentration in annualized revenue.
- The status and collectability of nonaccrual and delinquent loans, including collateral values and reserve adequacy.
- Debt covenant headroom, refinancing needs, variable-rate exposure and the capacity to sustain dividends while funding investments and debt service.