Business context and reporting period
Sabra Health Care REIT, Inc. is a self-managed healthcare REIT that owns and finances properties leased to third-party operators and operates senior housing communities through managers. Its portfolio includes skilled nursing and transitional care, senior housing, specialty hospitals, loans, preferred equity and a joint venture. This Form 10-K covers the fiscal year ended December 31, 2021; it does not provide standalone fourth-quarter results.
At year-end, Sabra held 416 properties with 41,346 beds or units, plus 18 loans receivable, eight preferred equity investments and a 49% interest in the Enlivant joint venture. Skilled nursing/transitional care represented 60.4% of the undepreciated book value of its real estate portfolio.
Financial and operating performance
| Metric | FY 2021 | FY 2020 |
|---|---|---|
| Total revenue | $569.5 million | $598.6 million |
| Rental and related revenue | $396.7 million | $430.6 million |
| Net income (loss) attributable to common stockholders | $(113.3) million; $(0.52) per diluted share | $138.4 million; $0.67 per diluted share |
| Nareit FFO attributable to common stockholders | $253.2 million; $1.15 per diluted share | $346.5 million; $1.67 per diluted share |
| AFFO attributable to common stockholders | $297.1 million; $1.35 per diluted share | $361.2 million; $1.74 per diluted share |
| Net cash from operating activities | $356.4 million | $354.9 million |
| Capital expenditures | $42.7 million | $47.4 million |
Total revenue declined about 4.8%; FFO per diluted share fell about 31% and AFFO per diluted share about 22%. GAAP net results were substantially affected by impairment and debt-redemption charges. FFO and AFFO are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
Year-end total assets were $6.0 billion and total equity was $3.4 billion. Cash and cash equivalents were $112.0 million; Sabra reported approximately $1.1 billion of liquidity, including $1.0 billion available on its revolving facility. Debt principal totaled approximately $2.4 billion: $1.75 billion of senior notes, $598.4 million of term loans and $67.6 million of secured debt. The revolving facility was undrawn. Term loans mature in 2024; the revolving facility matures in 2023, with two six-month extension options. Sabra reported compliance with applicable debt covenants at year-end.
Occupancy weakened in skilled nursing/transitional care to 71.4% from 77.3% and in Senior Housing-Leased to 78.1% from 83.1%. Senior Housing-Managed occupancy was 79.4% versus 80.0%; specialty hospitals and other facilities improved to 83.2% from 75.3%. These operator-provided figures were not independently verified by Sabra.
Material changes versus the prior comparable period
- Rental revenue fell by $33.9 million, including a $30.7 million net reduction associated with leases no longer accounted for on an accrual basis. At Avamere, Sabra wrote off $25.2 million of straight-line rent receivables and accelerated $18.6 million of above-market lease intangible amortization. Avamere’s annual base rent was reduced from $44.1 million to $30.7 million effective February 1, 2022.
- Sabra recorded a $164.1 million impairment on its Enlivant joint-venture investment after deciding it would no longer seek to acquire the partner’s majority interest and expected to exit if the partner found a buyer. Year-end carrying value was $96.7 million; further impairment remains possible.
- Sabra issued $800 million of 3.20% notes due 2031, redeemed $300 million of 4.80% notes due 2024, and repaid $345 million of U.S. dollar term loans. Debt extinguishment charges were $34.6 million.
- Sabra originated a $290 million mortgage loan to Recovery Centers of America at a 7.50% return, secured by six addiction-treatment facilities, and acquired six facilities for $99.4 million. It sold 16 facilities for net proceeds of $103.4 million, recognizing an $11.3 million net gain.
- Annual common dividends declined to $1.20 per share from $1.35 in 2020. The board declared a $0.30-per-share quarterly dividend payable February 28, 2022.
Outlook, commentary, risks and contingencies
- Management said available cash, operating cash flow and revolving-credit availability were sufficient for anticipated requirements over the next 12 months. It expects to fund longer-term needs through operating cash, debt and equity financing, property sales and other sources. No earnings or FFO guidance was provided in the supplied filing text.
- COVID-19 continued to pressure tenant and borrower occupancy, staffing and operating costs, and also affected managed communities and the Enlivant joint venture. Sabra had agreed to $3.4 million of temporary rent deferrals for six tenants; $0.3 million had been repaid by year-end. Federal and state relief partially mitigated impacts, but its sufficiency and duration were uncertain.
- Labor shortages and wage inflation, healthcare reimbursement and regulatory changes, tenant/operator financial distress, lease collection and replacement-tenant risk, impairment estimates, interest rates, refinancing, and Canadian currency exposure are key risks. Skilled nursing/transitional care accounted for 50.0% of Sabra’s revenue in 2021, and 59.8% of tenants’ and operators’ revenue was from government reimbursement programs, based on information supplied to Sabra.
- Future capital expenditure commitments were approximately $117 million at year-end, with up to $74 million expected over the next 12 months. Sabra also had up to $63 million of future funding commitments for preferred equity and loan investments.
- Management reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion and identified real estate and joint-venture impairment assessments as critical audit matters. Management reported no material reasonably possible legal loss contingency known at year-end.
Most important facts for investors to verify
- Whether Avamere pays rent under the amended terms and whether any further rent restructuring or impairment is required.
- Enlivant’s operating performance, the partner’s ability to secure a buyer, and the recoverability of Sabra’s $96.7 million carrying value.
- Tenant and borrower rent and debt-service collections, deferred rent repayment, and occupancy and labor-cost trends across facility types.
- Debt covenant headroom and refinancing plans for the 2023 revolving facility and 2024 term loans, alongside committed capital spending and funding obligations.
- The sustainability of the $0.30 quarterly dividend in light of cash generation, debt terms, and REIT distribution requirements; FFO and AFFO should be assessed alongside GAAP results and cash flows.
- Assumptions underlying property and joint-venture valuations, which rely in part on management estimates and unobservable inputs; tenant and operator data cited in the filing was not independently verified.