Sabra Health Care REIT, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; balance sheet compared with December 31, 2019. Amounts are in U.S. dollars unless noted. Sabra owns and leases healthcare real estate and also operates senior housing communities through third-party managers.
Financial performance
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Total revenue | $149.3 million | $136.8 million |
| Net income (loss) attributable to common stockholders | $35.2 million; $0.17 per diluted share | $(77.7) million; $(0.44) per diluted share |
| FFO per diluted share | $0.42 | $0.43 |
| AFFO per diluted share | $0.44 | $0.46 |
| Operating cash flow | $74.8 million | $54.0 million |
| Cash, cash equivalents and restricted cash | $62.4 million | $49.1 million at December 31, 2019 |
| Total assets | $6.09 billion | $6.07 billion at December 31, 2019 |
| Total debt, net carrying value | $2.48 billion | $2.40 billion at December 31, 2019 |
Rental and related revenue declined 8% to $106.5 million, while resident fees and services rose to $40.0 million from $17.1 million, largely reflecting communities shifted to the managed-housing model. Interest expense fell 29% to $25.7 million, principally after 2019 debt redemptions and term-loan paydowns. Q1 2020 had no real estate impairment; Q1 2019 included a $103.1 million impairment. No specific operating-margin measure is reported in the filing.
Investing cash outflow was $69.8 million, including $67.3 million for acquisitions and $12.0 million of real estate additions. Financing cash inflow was $8.9 million, including $101.0 million of net revolver borrowings and $92.4 million of dividends paid. The filing reports approximately $953.1 million of liquidity: $54.1 million unrestricted cash and $899.0 million available on the revolving facility.
Material changes and portfolio
- Sabra acquired two leased senior housing communities and one managed community for total consideration of $83.4 million; three skilled nursing facilities were sold for net proceeds of $6.8 million.
- At March 31, the portfolio included 427 properties held for investment, plus two properties classified as held for sale; the filing reports 437 properties held for investment at March 31, 2019.
- Revenue comparisons reflect portfolio changes: 21 Holiday communities shifted from leased to managed operations in April 2019, increasing resident-fee revenue and managed operating expenses while reducing rental revenue. The periods are therefore not directly comparable.
- Debt included $1.25 billion of senior notes, $1.04 billion of term loans and $101.0 million drawn on the revolving facility, in addition to secured debt. Sabra reported compliance with applicable debt covenants. It had $1.1 billion of variable-rate debt; interest-rate swaps hedge portions of its term loans.
Outlook, risks and unusual items
- Management expected COVID-19 to negatively affect results from Q2 2020 onward through lower occupancy and higher staffing, safety and other operating costs. These pressures could impair tenants’ ability to pay rent or service debt, lead to rent restructuring, and reduce results at managed communities and the Enlivant joint venture. The scale of the impact was not yet estimable.
- Management said available cash, operating cash flows and revolver capacity were expected to cover operations, scheduled debt service and dividends for the next 12 months. It did not expect material property investments while disrupted capital markets kept financing costs high and made asset values difficult to establish.
- The board declared a $0.30-per-share quarterly dividend on May 6, payable May 29. This followed a significant reduction from the prior $0.45 quarterly dividend; management said the board would reassess the dividend after the pandemic. The filing cites preserving balance-sheet strength and supporting operators as reasons for the reduction.
- Q1 included $2.3 million of other income, primarily a settlement related to legacy investments; a $0.7 million loan-loss provision; and $3.7 million of losses from the unconsolidated joint venture, including a $1.7 million property-sale loss. COVID-related costs identified were $0.3 million in managed operations and $0.5 million at the joint venture.
- Two facilities held for sale had $13.8 million of secured debt; after quarter-end, they were sold for $14.4 million gross and proceeds repaid the related debt. The filing also identifies healthcare reimbursement, tenant credit, litigation, refinancing, interest-rate and foreign-currency risks.
Important facts for investors to verify
- Subsequent-quarter rent collections, tenant liquidity, occupancy and the extent of any rent concessions or restructurings.
- Whether management’s 12-month liquidity assessment remains valid as COVID-19 effects and capital-market conditions evolve.
- Dividend sustainability after the reduction, including future board decisions and cash needs.
- Debt covenant headroom, variable-rate exposure, hedging effects and funding plans for maturities concentrated in 2023–2024.
- Changes in loan-loss reserves, real estate impairment assessments, managed-community results and the Enlivant joint venture’s performance.