Sabra Health Care REIT, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Sabra is a healthcare-focused REIT owning and investing in skilled nursing, senior housing, specialty hospital and other properties, as well as loans, preferred equity and a joint venture. At quarter-end, its portfolio included 421 real estate properties held for investment.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $128.6 million | $143.3 million | $433.9 million | $446.5 million |
| Net income (loss) | $10.2 million | $36.5 million | $(88.9) million | $101.3 million |
| Diluted EPS | $0.05 | $0.18 | $(0.41) | $0.49 |
| FFO per diluted share | $0.27 | $0.41 | $1.05 | $1.25 |
| AFFO per diluted share | $0.38 | $0.46 | $1.15 | $1.32 |
Q3 expenses were $114.3 million, including $24.2 million of interest expense. Nine-month operating cash flow was $258.5 million, compared with $265.5 million in 2020; investing activities used $77.4 million and financing activities provided $304.8 million. Capital expenditures were $29.3 million for the nine months.
At September 30, 2021, total assets were $6.21 billion, total liabilities $2.88 billion and equity $3.33 billion. Debt carrying value was $2.70 billion (about $2.73 billion principal); cash and cash equivalents were $546.3 million. Sabra reported $1.0 billion available under its revolving facility and approximately $1.5 billion of total liquidity. It was in compliance with applicable debt covenants. The filing does not present a single operating-margin measure.
Material changes and unusual items
- Q3 rental and related revenue fell $15.2 million year over year. The principal item was a $25.2 million write-off of straight-line rent receivables from Avamere after Sabra stopped accruing rent under the lease; lower cash rents were partly offset by prior-year noncash write-offs.
- Nine-month net loss primarily reflects a $164.1 million other-than-temporary impairment of Sabra’s Enlivant joint-venture investment, recorded in Q2. Sabra’s remaining investment carrying value was $109.9 million at quarter-end.
- On September 30, Sabra issued $800 million of 3.20% senior notes due 2031. It repaid $345 million of term loans that day. After quarter-end, it redeemed $300 million of 2024 notes at a premium, incurring $32.7 million of redemption costs and write-offs.
- In the nine months, Sabra issued common shares and received $172.2 million in net proceeds under its prior ATM program. After quarter-end, it issued 7.8 million shares for $112.6 million before expenses.
Outlook, commentary and risks
Management stated that cash, operating cash flow and available revolver borrowings were expected to be sufficient for operations, scheduled debt service and dividends over the next 12 months. It estimated approximately $83 million of capital expenditures over the next 12 months, including $49 million expected to generate incremental rental income. The board declared a further quarterly dividend of $0.30 per share, payable November 30, 2021.
COVID-19 continued to pressure tenant and borrower occupancy, operating costs and payment capacity, and to weigh on Sabra’s managed senior-housing results. Sabra had agreed to $2.2 million of temporary pandemic-related rent deferrals for five tenants and drew an $11.9 million Avamere letter of credit to fund September–November rent. It was discussing additional credit enhancements with Avamere, with no assurance an agreement would be reached.
Sabra expects to sell its 49% Enlivant joint-venture interest if TPG secures a buyer; future operating results or a sale below expectations could lead to further impairment. Other key risks include dependence on tenant performance, healthcare reimbursement and regulatory changes, sector concentration, debt and interest-rate exposure, and the ongoing effects of the pandemic. Management identified no material change in previously disclosed risk factors, no material legal proceedings, and no material environmental liability known to it.
Important facts for investors to verify
- Avamere’s ability to meet rent obligations, replenish the letter of credit and agree to credit enhancements or lease changes.
- Whether TPG finds a buyer for Enlivant and the proceeds Sabra ultimately realizes relative to the $109.9 million carrying value.
- Post-quarter financing effects: the 2024 note redemption, RCA mortgage loan funding and share issuance, including their impact on leverage, interest expense and per-share metrics.
- Tenant occupancy, collections and operating conditions, including the effects of COVID-19, labor costs and reimbursement changes.
- Dividend coverage and liquidity needs alongside planned capital expenditures and future investment commitments.