Sabra Health Care REIT, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; balance-sheet figures are as of June 30, 2021. Sabra is a healthcare real estate REIT leasing properties to third-party operators and also operates senior housing communities through third-party managers. Its portfolio included 423 properties held for investment, plus loans, preferred equity and a 49% interest in the Enlivant joint venture.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $152.9 million | $153.9 million | $305.3 million | $303.3 million |
| GAAP net income (loss) | $(132.6) million | $29.6 million | $(99.1) million | $64.8 million |
| GAAP diluted EPS | $(0.61) | $0.14 | $(0.46) | $0.31 |
| FFO per diluted share | $0.39 | $0.43 | $0.78 | $0.85 |
| AFFO per diluted share | $0.39 | $0.42 | $0.77 | $0.87 |
Q2 revenue fell 0.6% year over year; six-month revenue rose 0.7%. Six-month rental and related revenue increased 2.2%, while resident fees and services declined 4.3%, principally reflecting pandemic-related occupancy pressure. Interest expense decreased 4.5% for the six-month period to $48.7 million. No operating margin is reported in the supplied filing text.
Six-month operating cash flow was $152.3 million, down from $168.6 million. Investing used $77.2 million, including $62.1 million for acquisitions and $21.7 million in real estate additions. Financing used $66.8 million, including $110.0 million of term-loan repayments and $128.1 million of dividends, partly offset by $172.7 million of net equity proceeds. Cash, cash equivalents and restricted cash ended at $73.9 million.
Financial position and capital
Total assets were $5.82 billion and total equity was $3.38 billion. Debt carrying value, net of financing costs and premiums, was approximately $2.27 billion: $939.7 million of term loans, $1.25 billion of senior notes and $78.1 million of secured debt. Sabra repaid $110 million of term loans during the first half. The $1.0 billion revolving facility had no borrowings outstanding, leaving approximately $1.0 billion available; reported total liquidity was approximately $1.1 billion, including $69.3 million cash. Sabra reported compliance with applicable debt covenants.
Sabra issued common shares through its ATM program, generating $172.7 million net proceeds during the first half; $75.8 million remained available under the program at quarter-end. The quarterly dividend was $0.30 per share, declared and paid during the first half; a further $0.30 dividend was declared August 4, 2021, payable August 31.
Material changes and unusual items
- The principal driver of the GAAP loss was a $164.1 million other-than-temporary impairment of Sabra’s 49% Enlivant joint-venture investment. The investment’s carrying value was reduced to $114.0 million. FFO and AFFO exclude this impairment under Sabra’s reported non-GAAP reconciliations.
- Sabra ended plans to acquire TPG’s 51% joint-venture interest and expects to sell its stake if TPG secures a buyer. The impairment valuation used Level 3 assumptions, including a three-year holding period, 6.75%–7.25% terminal capitalization rates and 11.0%–11.5% discount rates; further impairment remains possible.
- Q2 net loss on real estate sales was $3.8 million; six-month net loss was $2.4 million. The six-month figure includes a $3.4 million loss on sales of four skilled nursing facilities, partly offset by a $1.0 million gain from reclassifying a lease as a sales-type lease.
- Six-month loan-loss provisions were $1.9 million, compared with $0.8 million in 2020; management attributed the increase to a loan deemed uncollectible. Three loans with no book value were on nonaccrual at June 30.
- Sabra acquired four facilities for $62.1 million during the first half and completed sales of four skilled nursing facilities for $11.3 million net proceeds.
Outlook, risks and contingencies
Management stated that available cash, operating cash flow and revolver capacity were expected to cover operations, scheduled debt service and dividends for the next 12 months. It anticipated approximately $78 million in capital expenditures over the next 12 months, of which $38 million was expected to generate incremental rental income. The filing does not provide formal earnings or FFO guidance.
COVID-19 continued to weigh on occupancy and operating costs at tenants, borrowers, managed communities and the Enlivant portfolio. Tenants and borrowers had continued to meet expected rent and debt-service obligations as of June 30, but prolonged disruption could lead to defaults, restructurings, reduced collections or additional impairments. Government assistance had mitigated some operator pressure; Sabra recognized $0.5 million of grants in resident fees and services in each of Q2 and the first half.
Additional risks include dependence on tenant operating performance, healthcare reimbursement and regulation, sector concentration, debt service and refinancing, interest-rate and LIBOR transition exposure, and the uncertain sale value of Enlivant. A 100-basis-point increase in the variable-rate index was estimated to increase interest expense by $0.9 million over the following 12 months after hedging. Management reported no material change in risk factors, no material legal proceedings, and no material environmental liability known at quarter-end. Disclosure controls were considered effective.
Important facts for investors to verify
- Whether Enlivant operating conditions and any eventual sale price support the $114.0 million carrying value or lead to further impairment.
- Whether COVID-related occupancy and cost pressures affect rent collections, managed-community results, or tenant credit quality.
- Debt maturities include $345 million of term loans in 2023 and $600.8 million of term loans plus $300 million of notes in 2024; assess refinancing capacity and covenant headroom.
- How ATM share issuance and the $0.30 quarterly dividend affect per-share results and future capital needs.
- Whether the planned $78 million capital program and anticipated $38 million incremental-rent component are achieved.