Sabra Health Care REIT, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Sabra is a healthcare-focused REIT that owns and leases properties, operates senior housing communities through third-party managers, and invests in loans, preferred equity and joint ventures.
Financial results and key metrics
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $161.6 million | $140.8 million | $484.1 million | $459.8 million |
| Net income (loss) | $(15.1) million | $(50.1) million | $(3.4) million | $7.3 million |
| Diluted EPS | $(0.07) | $(0.22) | $(0.01) | $0.03 |
| FFO per diluted share | $0.33 | $0.28 | $0.97 | $1.03 |
| AFFO per diluted share | $0.35 | $0.34 | $1.01 | $1.09 |
Q3 revenue growth reflected higher resident fees and services and rental revenue. Nine-month revenue rose 5.3%, as resident fees increased 31% while rental revenue declined 5%. Managed-community operating expenses increased 27% over nine months, reflecting transitions, acquisitions and higher labor costs. The filing does not state a consolidated operating margin.
For the first nine months, operating cash flow was $221.8 million, down from $248.1 million. Investing activities provided $164.9 million, including $248.2 million of real estate sale proceeds; financing activities used $400.9 million, including $208.1 million of dividends and $165.3 million of net revolving-credit repayments.
At September 30, 2023, total assets were $5.38 billion and total equity was $2.87 billion. Debt was $2.37 billion gross and $2.35 billion net of deferred financing costs and discounts. Cash and cash equivalents were $33.3 million; reported liquidity was approximately $1.0 billion, including $967.4 million available under the revolving facility. The revolving facility rate was 6.49%; term-loan effective rates were 3.94% for U.S.-dollar borrowings and 2.88% for Canadian-dollar borrowings, reflecting hedges. Sabra reported compliance with applicable debt covenants.
The board declared a quarterly dividend of $0.30 per share in November 2023, consistent with the quarterly rate paid during the first nine months.
Material changes versus the prior comparable period
- Q3 net loss improved from $50.1 million to $15.1 million, but included a $46.5 million loss on real estate sales. Q3 2022 included $60.9 million of real estate impairment, which did not recur in Q3 2023.
- Nine-month net income shifted from $7.3 million to a $3.4 million loss. The main drag was a $75.9 million net loss on real estate sales, versus $4.6 million in 2022; impairment fell to $7.1 million from $72.6 million.
- Nine-month FFO declined to $226.3 million from $238.0 million, and AFFO declined to $236.4 million from $253.7 million, despite higher resident-fee revenue.
- Interest expense increased to $85.0 million from $77.6 million over nine months, primarily due to higher borrowing and interest rates. Operating cash flow also declined.
- Sabra sold 27 facilities during the first nine months, recording a $75.9 million net loss on sale. It acquired two communities for $51.5 million and continued capital recycling.
Outlook, risks and unusual items
- Management said available cash, operating cash flow and revolving-credit availability should cover requirements for the next 12 months. No earnings or FFO guidance was provided.
- Management cited elevated interest rates, inflation, labor shortages and costs, supply-chain constraints, and lingering occupancy and operating pressures. These may impair tenants’ ability to pay rent or borrowers’ ability to service debt; managed-community results may also remain pressured.
- Skilled nursing/transitional care facilities generated 42.5% of nine-month revenue, creating exposure to healthcare reimbursement and sector conditions. CMS’s FY2024 skilled-nursing Medicare rate rule provided an estimated 4.0% net increase effective October 1, 2023.
- Q3 other income included insurance-related income following property damage and a fire; transition-related costs partly offset these gains. The filing also reports $1.5 million of nine-month debt-extinguishment loss tied to the January 2023 credit-agreement amendment.
- Sabra expects approximately $44 million of future triple-net property capital commitments, with about $26 million expected over the next 12 months, and approximately $41 million of managed-community capital expenditures, with about $34 million expected over the next 12 months.
- The company reported no material legal proceedings, no material change in risk factors, and effective disclosure controls. It cautioned that additional asset sales could produce further impairments or sale losses.
Important facts for investors to verify
- Whether tenant and borrower operating performance, occupancy and labor availability continue to improve enough to support rent and debt-service payments.
- How sale activity and the resulting losses affect portfolio quality, recurring cash flows, FFO/AFFO and asset values.
- Debt costs, refinancing needs and covenant headroom, particularly under higher interest rates; confirm the impact of hedges as they mature.
- Whether operating cash flow and liquidity adequately support dividends, debt service and planned capital spending.
- Progress on planned capital commitments and whether future dispositions or investment activity materially change the portfolio.