Sabra Health Care REIT, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This filing reports full-year results; fourth-quarter figures below are unaudited. Sabra is a healthcare-focused REIT that owns and leases properties, operates certain senior housing communities through third-party managers, and makes loans and preferred equity investments.
Business context and portfolio
- At year-end, the portfolio included 429 owned properties with 43,112 beds/units across the U.S. and Canada: 296 skilled nursing/transitional care facilities, 62 leased senior housing communities, 46 managed senior housing communities, and 25 specialty hospitals and other facilities.
- Sabra also held a 49% interest in a joint venture owning 170 managed senior housing communities, plus 18 loans receivable and nine preferred equity investments. The majority of owned properties, excluding managed communities, were under triple-net leases; weighted-average remaining lease term was eight years.
- Skilled nursing/transitional care represented 56.2% of 2019 revenue excluding the one-time Holiday lease termination income. No tenant relationship accounted for 10% or more of annual revenue.
Financial results and key metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $661.7 million | $623.4 million |
| Net income attributable to common stockholders | $69.0 million; $0.37 per diluted share | $269.3 million; $1.51 per diluted share |
| FFO attributable to common stockholders | $393.3 million; $2.09 per diluted share | $355.0 million; $1.99 per diluted share |
| AFFO attributable to common stockholders | $392.8 million; $2.08 per diluted share | $379.0 million; $2.11 per diluted share |
| Cash flow from operations | $372.5 million | $360.6 million |
| Cash flow from investing activities | $262.8 million provided | $258.5 million used |
| Cash flow from financing activities | $646.2 million used | $629.3 million used |
| Common dividends declared and paid per share | $1.80 | $1.80 |
Year-end total assets were $6.07 billion, total liabilities $2.58 billion, and stockholders’ equity $3.49 billion. Cash and cash equivalents were $39.1 million. Debt principal totaled approximately $2.42 billion: $1.25 billion of senior notes, $1.05 billion of term loans, and $114.8 million of secured debt. No balance was outstanding on the $1.0 billion revolving facility; Sabra reported over $1.0 billion of liquidity, including available revolver capacity. The company was in compliance with applicable debt covenants at year-end.
Fourth quarter: Revenue was $155.8 million, net income attributable to common stockholders was $39.7 million ($0.20 per diluted share), operating cash flow was $95.5 million, FFO was $91.0 million ($0.46 per diluted share), and AFFO was $89.6 million ($0.45 per diluted share).
Material changes versus 2018
- Revenue rose 6%, but the mix changed materially: rental revenue fell $84.5 million, while resident fees and services rose $57.9 million and interest and other income rose $64.9 million. The latter included $66.9 million associated with converting the Holiday communities from a lease to managed operations.
- GAAP net income attributable to common stockholders fell to $69.0 million from $269.3 million. The comparison reflects 2018’s $128.2 million real estate sale gain versus $2.3 million in 2019, as well as 2019 real estate impairment charges of $121.8 million versus $1.4 million in 2018.
- 2019 impairment included $95.2 million related to Senior Care Centers facilities and indemnification estimates, and $26.6 million related to other properties. The company sold 39 skilled nursing/transitional care facilities and seven senior housing communities for $323.6 million net of closing costs, recognizing a $2.3 million net gain.
- Cash from operations increased $11.9 million and included the $57.2 million Holiday lease termination payment. FFO per share improved, while AFFO per share declined slightly.
- Sabra issued $500 million of common stock through its prior at-the-market program and sold an additional $60 million under a new program. It issued $300 million of 4.80% notes due 2024 and $350 million of 3.90% notes due 2029, and redeemed $500 million of 5.50% notes due 2021 and $200 million of 5.375% notes due 2023. Debt extinguishment costs were $16.3 million.
Outlook, risks, contingencies, and unusual items
- Management expects to pursue healthcare real estate investments and portfolio diversification, subject to suitable opportunities and financing. It stated that cash, operating cash flow, and revolver availability should fund operations, scheduled debt service, and dividends for the next 12 months. No specific earnings or FFO guidance is provided in the filing.
- Expected capital expenditures for the next 12 months were not to exceed $78 million, of which $58 million was expected to generate incremental rental income. The board declared a $0.45-per-share quarterly dividend in February 2020.
- Sabra adopted lease accounting Topic 842 on January 1, 2019. Adoption reduced equity and receivables by $32.5 million; the new collectability rules may increase variability in reported rental revenue. The standard also brought $17.6 million of reimbursed lessor costs into both revenue and expense.
- Occupancy weakened in several categories: skilled nursing/transitional care was 82.1% versus 82.8%; specialty hospitals and other was 71.0% versus 76.7%; and managed senior housing was 87.7% versus 91.5%. Leased senior housing was 87.0% versus 86.7%. Tenant/operator data was not independently verified by Sabra.
- Key risks include tenants’ dependence on Medicare, Medicaid, and other reimbursement; operator performance, occupancy, labor and insurance costs; healthcare regulation; tenant bankruptcy and replacement-operator approval delays; substantial indebtedness and variable rates; and real estate impairment and liquidity risks. The Enlivant joint venture carries shared-control and partner-transfer/drag-along risks; Sabra’s option to acquire the remaining interest was exercisable through January 2, 2021.
- Management estimated contractual indemnification obligations related to Senior Care Centers at $8.8 million at year-end. The filing states that management was unaware of material reasonably possible legal loss contingencies and did not expect existing environmental compliance to materially affect results. The auditor issued unqualified opinions and identified real estate impairment assessment as a critical audit matter.
Important facts for investors to verify
- Whether tenant coverage, rent collection, and occupancy trends—particularly in skilled nursing and managed senior housing—remain adequate after the 2019 changes.
- The quality and sustainability of AFFO and dividend coverage, accounting for the one-time Holiday payment, Topic 842 effects, capital spending, and shares issued through ATM programs.
- Debt maturities, interest-rate exposure, covenant headroom, and continued access to the revolving facility and equity markets.
- Assumptions supporting the $121.8 million impairment assessment and the final amount of Senior Care Centers indemnification obligations.
- Enlivant joint venture performance, debt, partner rights, and any decision regarding Sabra’s option to acquire the remaining interest.