Sabra Health Care REIT, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. Although the request references 2023 Q4, this filing reports annual results; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary.
Business context
Sabra is a healthcare-focused REIT that owns properties leased to third-party operators and operates senior housing communities through third-party managers. At year-end, its portfolio included 378 properties with 37,834 beds or units, plus 14 loan investments, five preferred equity investments and two unconsolidated joint ventures. Skilled nursing and transitional care represented 54.1% of real estate investment by undepreciated book value.
Financial and operating highlights
| Metric | FY 2023 | FY 2022 |
|---|---|---|
| Total revenue | $647.5 million | $624.8 million |
| GAAP net income (loss) | $13.8 million | $(77.6) million |
| Net cash from operating activities | $300.6 million | $315.7 million |
| Nareit FFO | $296.5 million; $1.27 per diluted share | $295.9 million; $1.28 per diluted share |
| AFFO | $310.2 million; $1.33 per diluted share | $331.8 million; $1.43 per diluted share |
| Dividends paid on common stock | $277.4 million | $277.2 million |
Revenue increased 3.6%. Rental and related revenue fell 6% to $376.3 million, while resident fees and services rose 27% to $236.2 million, reflecting managed-community transitions, acquisitions, occupancy and rate growth. Interest expense increased 7% to $113.0 million. The filing does not present a single operating-margin measure.
Year-end total debt was approximately $2.44 billion: $1.75 billion of senior notes, $543.2 million of term loans, $94.4 million drawn on the revolving facility and $48.1 million of secured debt. Cash and cash equivalents were $41.3 million; available revolver capacity was $905.6 million, for stated liquidity of approximately $946.9 million. Sabra reported compliance with its debt covenants. A 100-basis-point change in the index on variable-rate debt, after hedging, would change annual interest expense by approximately $0.9 million.
Year-end assets were $5.39 billion and equity was $2.80 billion. Net real estate investments were $4.62 billion, down from $4.96 billion in 2022. Operating cash flow was below the $277.4 million of dividends paid. These figures are not directly interchangeable with AFFO, which is a non-GAAP measure.
Material changes versus 2022
- GAAP results moved from a $77.6 million net loss to $13.8 million net income. The 2022 result included a $57.8 million impairment of the Enlivant joint venture; Sabra discontinued equity-method accounting for that venture effective January 1, 2023 and exited it in May 2023.
- Real estate impairment expense declined to $14.3 million from $94.0 million. However, 2023 included a $76.6 million net loss on real estate sales, compared with $12.0 million in 2022.
- AFFO declined 6.5% and AFFO per diluted share fell from $1.43 to $1.33; FFO per diluted share eased from $1.28 to $1.27.
- Sabra acquired four facilities for $90.4 million and disposed of properties as part of its capital-recycling strategy. The portfolio decreased from 402 properties at year-end 2022 to 378 at year-end 2023.
- Occupancy improved in skilled nursing/transitional care (76.4% versus 73.5%) and Senior Housing - Leased (90.0% versus 84.4%). Behavioral Health occupancy declined to 81.1% from 84.0%; Senior Housing - Managed occupancy was 81.6% versus 82.1%.
Outlook, commentary and risks
Management expects to grow and diversify the portfolio through acquisitions, development, financing investments and selective dispositions. It stated that cash, operating cash flow and available revolver capacity should fund short-term requirements for the next 12 months. No specific 2024 earnings, FFO or AFFO guidance is provided in the supplied filing text.
Management reported that occupancy, labor availability and labor costs had improved incrementally, but some occupancy levels remained below pre-pandemic levels and labor supply and costs remained worse than before the pandemic. It warned that rent restructurings or deferrals, tenant or borrower defaults, and deterioration in managed-community results could reduce collections or lead to impairments.
Other principal risks include labor and operating-cost inflation, higher interest rates and refinancing costs, reliance on Medicare and Medicaid reimbursement at tenant facilities, healthcare regulation, tenant/operator insolvency, difficulty replacing tenants, real estate impairment, and concentration in healthcare property. The company’s audited critical audit matter was impairment assessment of real estate investments, which involves significant assumptions about rents, occupancy, growth and capitalization rates.
Unusual items included insurance income related to property damage and a fire, a $1.5 million loss on extinguishment of debt, and transition costs associated with operator changes. The board declared a quarterly dividend of $0.30 per share in February 2024, payable February 29, 2024.
Important facts for investors to verify
- Whether rent collections, tenant coverage and operator liquidity are improving, particularly for skilled nursing and managed senior housing.
- The cash sustainability of the dividend in light of operating cash flow, AFFO, capital spending and debt-service needs.
- The basis and expected proceeds for further dispositions, and whether sale prices could produce additional losses or impairments.
- Debt maturities, variable-rate exposure, hedging terms and covenant headroom, especially as refinancing dates approach.
- How much of the 2023 revenue and occupancy growth reflects durable same-property improvement versus acquisitions and transitions; tenant and operator data is not independently verified by Sabra.
PwC issued an unqualified opinion on the financial statements and internal control over financial reporting; management and the auditor reported effective internal controls as of December 31, 2023.