Sabra Health Care REIT, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; balance-sheet comparisons are to December 31, 2013. Sabra owns and finances healthcare real estate, primarily under triple-net leases. Its portfolio included 129 properties, 11 debt investments and two preferred equity investments across 28 states.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $40.9 million | $32.0 million; up 27% |
| Rental income | $36.1 million | $31.5 million; up 15% |
| Interest and other income | $4.8 million | $0.5 million |
| Net income (loss) | $(7.3) million | $9.6 million |
| Net income (loss) attributable to common stockholders | $(9.9) million; $(0.25) per share | $9.3 million; $0.25 per share |
| Operating cash flow | $1.2 million | $21.6 million |
| FFO / AFFO | $(0.5) million / $0.3 million; $(0.01) / $0.01 per diluted share | $17.5 million / $16.6 million; $0.46 / $0.43 per diluted share |
| Total assets | $1.331 billion | $1.198 billion at year-end |
| Total debt | $842.1 million | $691.2 million at year-end |
| Cash and available revolver capacity | $4.3 million cash; $125.5 million available | $129.8 million total reported liquidity |
Interest expense was $11.1 million versus $10.0 million. The filing does not present a headline operating margin; the quarter’s net loss was substantially affected by a $22.1 million loss on extinguishment of debt. Sabra reported $438.7 million of total equity at quarter-end. Operating cash flow fell sharply, principally reflecting $20.8 million of early-redemption payments on the 2018 Notes. Investing used $128.1 million of cash, while financing provided $126.9 million.
Material changes and transactions
- Sabra acquired six skilled nursing facilities and two senior housing facilities for $117.7 million in Q1, including the $90 million Nye Portfolio and facilities acquired through exercise of the Chai option. It also originated or funded $19.4 million of loans.
- Sabra issued $350 million of 5.5% senior notes due 2021 and retired its remaining $211.3 million of 8.125% notes due 2018. The tender and redemption premiums and related write-offs drove the debt-extinguishment charge.
- Sabra refinanced $44.8 million of variable-rate mortgage debt with HUD-insured loans at 4.25%, with maturities from 2039 to 2044. At March 31, $29.8 million of variable-rate mortgage debt remained; it was repaid on May 1 using the revolving facility.
- Properties increased from 121 at year-end to 129 at March 31. Real estate investments, net, increased to $1.022 billion from $915.4 million.
- Genesis-affiliated tenants leased 81 of 129 properties and contributed 49% of Q1 revenue, compared with 64% in Q1 2013. The filing notes that Genesis information is unaudited, supplied by Genesis and not independently verified by Sabra.
Outlook, risks and unusual items
- Management expects to grow primarily through senior housing and memory care acquisitions, with additional skilled nursing, other healthcare real estate, lending and joint-venture investments. It expects cash flows to rise as acquired investments contribute for full periods; no numerical company earnings or revenue guidance is provided.
- Management stated that cash, operating cash flows and revolver availability should be sufficient for operations, scheduled debt service and dividends over the next 12 months. The revolving facility had $162.0 million drawn, $125.5 million available and a 3.15% rate at quarter-end; it matures in 2016 and has a one-year extension option. Sabra reported compliance with applicable debt covenants.
- Interest-rate risk is material: $191.8 million of debt was variable-rate at quarter-end. A 100-basis-point increase, holding debt constant, was estimated to raise interest expense by $1.7 million over the following 12 months.
- Key risks include reliance on tenant performance and government reimbursement, concentration in Genesis, significant indebtedness and debt covenants, interest-rate and refinancing exposure, access to capital, and REIT qualification. Sabra reported no material change to its prior-year risk-factor assessment and no material legal proceeding.
- Subsequent events: on April 29 Sabra acquired the 140-unit Park Place campus for $23.8 million, assuming a $14.1 million HUD-insured mortgage; on May 1 it repaid the $29.8 million variable-rate mortgage using revolver proceeds. The board declared Q2 dividends of $0.38 per common share and $0.4453125 per preferred share.
- Contingent consideration liabilities totaled $10.4 million at quarter-end. After quarter-end, $5.3 million of Forest Park escrow was released to the seller, with $5.2 million remaining subject to performance hurdles.
Most important facts to verify
- Whether tenant coverage and rent-paying capacity—especially for Genesis-affiliated facilities—remain adequate, and whether Sabra can continue diversifying tenant exposure.
- How recurring operating performance and cash generation compare with GAAP results after excluding the one-time debt-redemption charge; assess FFO and AFFO alongside, not instead of, cash flow.
- Debt-service capacity, covenant headroom, revolver availability and refinancing needs, including the 2016 revolver maturity and the effect of variable rates.
- Acquisition performance, integration and yields, including Nye, Chai and Park Place, and the eventual amount payable under contingent consideration arrangements.
- Whether liquidity and recurring cash flows support the declared dividends, future investment commitments and debt obligations.