Sabra Reports Second Quarter 2019 Results; Significantly Improves Leverage and Other Credit Metrics; Reaffirms 2019 Guidance

IRVINE, Calif.–(BUSINESS WIRE)–#Healthcare–Sabra Health Care REIT, Inc. (“Sabra,” the “Company” or “we”) (Nasdaq:SBRA) today announced results of operations for the second quarter of 2019.

RECENT HIGHLIGHTS

  • For the second quarter of 2019, net income attributable to common stockholders, FFO, Normalized FFO, AFFO and Normalized AFFO per diluted common share were $0.46, $0.76, $0.46, $0.72 and $0.46, respectively.
  • We made significant progress this quarter toward our stated goal of lowering leverage to below 5.50x by year end and in the process improved our cost of debt capital and other key credit metrics:

    • On May 29, 2019, we completed the issuance of $300.0 million of 4.80% senior notes due 2024. This offering represents our first investment grade rated issuance, following the completion of our merger with Care Capital Properties, Inc. in 2017. The net proceeds from the offering, together with borrowings under our unsecured revolving credit facility, were used to redeem all $500.0 million of our outstanding 5.5% senior notes due 2021. These transactions are expected to result in annual interest expense savings of approximately $5.8 million.
    • During the second quarter of 2019, we sold 11.1 million shares of common stock under our ATM Program, generating gross proceeds of $217.3 million, before $3.3 million of commissions. These proceeds, together with the proceeds from real estate sales, were used to reduce total consolidated debt from $3.2 billion as of March 31, 2019 to $2.7 billion as of June 30, 2019.
    • These transactions combined to lower our cost of permanent debt by 19 basis points to 4.09% as of June 30, 2019 and to reduce our Net Debt to Adjusted EBITDA ratio (including our unconsolidated joint venture) from 6.08x as of March 31, 2019 to 5.76x as of June 30, 2019.
    • In addition, these activities improved other key credit metrics compared to the first quarter of 2019:

      • Interest Coverage improved 0.43x, increasing to 4.62x
      • Fixed Charge Coverage improved 0.40x, increasing to 4.46x
      • Total Debt/Asset Value improved 9%, decreasing to 39%

For additional detail and information regarding these key credit metrics, refer to the Credit Metrics and Ratings section of our corresponding Supplemental Report, available in the Investor Relations section of our website at http://www.sabrahealth.com/investors/financials/reports-presentations.

  • Subsequent to June 30, 2019, we embarked upon amending and extending our $2.2 billion (U.S. $2.1 billion plus CAD $125.0 million) credit facility and have obtained commitments for the full amount of the amended facility. The closing is expected to occur in August 2019 and will result in lower interest rate spreads for revolver borrowings of 15 basis points and for term loan borrowings of 20 basis points, based on our current credit rating; this is expected to result in annual interest expense savings of approximately $2.8 million based on our revolver balance as of June 30, 2019. This amendment will also improve our debt maturities laddering by extending the maturity for the revolver to August 2023 (compared to the current maturity date in August 2021) and creating additional laddering of our term loans with various maturities through August 2024 (compared to the current maturity dates through August 2022).
  • During the second quarter of 2019, we entered into forward starting interest rate swaps and collars to extend existing interest rate protection on floating rate borrowings through the final maturity date of the proposed amended credit facility described above. The initial aggregate notional amount of these hedges is $645.0 million, accreting to $845.0 million in January 2023. The forward starting interest rate swaps fix LIBOR at a weighted average rate of 1.62% (compared to our current swapped LIBOR of 1.19%), and the forward starting interest rate collars set a floor and ceiling for LIBOR at 0.525% and 2.75%, respectively. These hedging activities took advantage of the current interest rate environment to provide us with interest rate protection on the vast majority of our variable rate term loan borrowings for the duration of the extended terms of such borrowings.
  • We reaffirm our previously issued guidance with the following updates:

    • Net income and FFO were positively impacted by the $9.7 million non-cash lease termination income we recognized in the second quarter of 2019 in connection with the conversion of the Holiday portfolio to our Senior Housing – Managed portfolio. As such, we expect for 2019 to be near the high end of our guidance range for these measures.
    • AFFO was positively impacted by the classification of certain costs of disposing of and transitioning certain facilities previously operated by Senior Care Centers as an impairment charge; these costs were classified as cash expenses in the original guidance, which had the effect of decreasing AFFO. As such, we expect for 2019 AFFO to be near the high end of our guidance range.
    • Normalized FFO and Normalized AFFO ranges remain unchanged; however, we expect Normalized FFO to be near the low end of the range due to the reduction of straight-line rental revenues associated with certain leases converted to cash basis under the new lease accounting standard adopted in 2019. This change reduces 2019 expected straight-line rental income by approximately $0.04 per share for the year.
    • Interest and other income increased to $80.0 million from the prior guidance of $13.8 million primarily due to a reclassification of the $57.2 million Holiday lease termination fee received in the second quarter of 2019 that our initial guidance included in Other income (expense) and the recognition of a $9.7 million non-cash gain upon conversion of the Holiday portfolio that was not previously assumed in our guidance and only impacts net income and FFO as discussed above.
    • Total interest expense increased to $124.3 million due to changes in dispositions expectations.
    • Capital expenditures (Senior Housing – Managed and non-yielding NNN) expected to total $15.3 million for the second half of 2019.
    • Investments for the second half of 2019, primarily related to our propriety development pipeline, are anticipated to total $70 million with an average initial cash yield of 7.5% and are anticipated to occur primarily during the fourth quarter of 2019.
    • Dispositions in the second half of 2019 are anticipated to total $80 million with associated annualized Cash NOI of $3.7 million.
    • These updates continue to be based on our expectation of reducing our Net Debt to Adjusted EBITDA ratio (including our unconsolidated joint venture) to below 5.50x (below 5.0x excluding our unconsolidated joint venture) by December 31, 2019.
  • On August 7, 2019, we announced that our board of directors declared a quarterly cash dividend of $0.45 per share of common stock. The dividend will be paid on August 30, 2019 to common stockholders of record as of the close of business on August 20, 2019.

Commenting on the second quarter results, Rick Matros, CEO and Chairman, said, “This quarter saw the successful execution of Sabra’s first investment grade issuance, continuing to demonstrate the ongoing benefits and results of our completed repositioning. Additionally, we made significant progress on de-levering our balance sheet, have full commitments for our proposed amended credit facility and have initiated strategic talks to put a new joint venture arrangement in place with respect to the Enlivant portfolio, which, when executed, should mitigate the need to raise any material amount of equity in connection with that joint venture.

“With respect to the second quarter, in our triple-net operating portfolio, our same store Senior Housing sequential EBITDAR Coverage was flat and Occupancy was up 120 basis points. Same store Skilled Nursing sequential EBITDAR Coverage was essentially flat, with Occupancy and Skilled Mix down 20 basis points and 30 basis points, respectively. In our top ten relationships, rent coverage was down for Avamere, Healthmark and McGuire primarily due to an exceptionally strong first quarter of 2018 falling off the trailing 12 month period. Otherwise, current performance is stable and in line with expectations. Additionally, effective July 2019, Avamere is expecting NOI to improve due to an Oregon Medicaid rate increase and a new pharmacy contract, and North American, as expected, is now trending back up with reported performance for the trailing three months ended May 2019 up over 1.20x on an EBITDAR basis. We are not currently engaged in any additional restructurings and do not currently anticipate others. Our operators report good progress toward the October 1st implementation of PDPM, and CMS has affirmed the 2.4% Medicare market basket increase also effective October 1st,both of which are expected to result in stronger rent coverage. I am also pleased to share that we hosted 35 of our leading care providers in June at the Sabra Operator Conference aptly named Strategies for Success. The conference gave operators the opportunity to network, share best practices, learn from one another and hear from industry experts about reimbursement trends and upcoming innovations.”

LIQUIDITY

As of June 30, 2019, we had approximately $772.4 million of liquidity, consisting of unrestricted cash and cash equivalents of $47.4 million (excluding joint venture cash and cash equivalents) and available borrowings of $725.0 million under our revolving credit facility. As of June 30, 2019, we also had $282.7 million available under the ATM Program.

CONFERENCE CALL AND COMPANY INFORMATION

A conference call with a simultaneous webcast to discuss the 2019 second quarter results will be held on Thursday, August 8, 2019 at 10:00 am Pacific Time. The dial-in number for U.S. participants is (844) 862-3710. For participants outside the U.S., the dial-in number is (612) 979-9902. The conference ID number is 4883179. The webcast URL is https://edge.media-server.com/mmc/p/bvcyb9fw. A digital replay of the call will be available on the Company’s website at www.sabrahealth.com. The Company’s supplemental information package for the second quarter will also be available on the Company’s website in the “Investors” section.

ABOUT SABRA

As of June 30, 2019, Sabra’s investment portfolio included 432 real estate properties held for investment (consisting of (i) 304 Skilled Nursing/Transitional Care facilities, (ii) 62 Senior Housing communities (“Senior Housing – Leased”), (iii) 44 Senior Housing communities operated by third-party property managers pursuant to property management agreements (“Senior Housing – Managed”) and (iv) 22 Specialty Hospitals and Other facilities), one investment in a direct financing lease, 20 investments in loans receivable (consisting of (i) one mortgage loan, (ii) two construction loans and (iii) 17 other loans), nine preferred equity investments and one investment in an unconsolidated joint venture that owns 170 Senior Housing – Managed communities. As of June 30, 2019, Sabra’s real estate properties held for investment included 43,445 beds/units and its unconsolidated joint venture included 7,538 beds/units, spread across the United States and Canada.

FORWARD-LOOKING STATEMENTS SAFE HARBOR

This release contains “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified, without limitation, by the use of “expects,” “believes,” “intends,” “should” or comparable terms or the negative thereof. Examples of forward-looking statements include all statements regarding our de-levering activity, our proposed amended credit facility, our potential new joint venture arrangement with respect to the Enlivant portfolio, the impact of the new PDPM system and CMS market basket increase, as well as our expected future financial position, results of operations (including our updated outlook for the full year 2019), business strategy, and plans and objectives for future operations, capital raising activity and operator restructurings.

Our actual results may differ materially from those projected or contemplated by our forward-looking statements as a result of various factors, including among others, the following: our dependence on the operating success of our tenants; the potential variability of our reported rental and related revenues following the adoption of Accounting Standards Update (“ASU”) 2016-02, Leases, as amended by subsequent ASUs (“Topic 842”) on January 1, 2019; operational risks with respect to our Senior Housing – Managed communities; the effect of our tenants declaring bankruptcy or becoming insolvent; our ability to find replacement tenants and the impact of unforeseen costs in acquiring new properties; the impact of litigation and rising insurance costs on the business of our tenants; the possibility that Sabra may not acquire the remaining majority interest in the Enlivant joint venture; risks associated with our investments in joint ventures; changes in healthcare regulation and political or economic conditions; the impact of required regulatory approvals of transfers of healthcare properties; competitive conditions in our industry; our concentration in the healthcare property sector, particularly in skilled nursing/transitional care facilities and senior housing communities, which makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries; the significant amount of and our ability to service our indebtedness; covenants in our debt agreements that may restrict our ability to pay dividends, make investments, incur additional indebtedness and refinance indebtedness on favorable terms; increases in market interest rates; the potential phasing out of the London Interbank Offered Rate (“LIBOR”) benchmark after 2021; our ability to raise capital through equity and debt financings; changes in foreign currency exchange rates; the relatively illiquid nature of real estate investments; the loss of key management personnel; uninsured or underinsured losses affecting our properties and the possibility of environmental compliance costs and liabilities; the impact of a failure or security breach of information technology in our operations; our ability to maintain our status as a real estate investment trust (“REIT”); changes in tax laws and regulations affecting REITs (including the potential effects of the Tax Cuts and Jobs Act); compliance with REIT requirements and certain tax and tax regulatory matters related to our status as a REIT; and the ownership limits and takeover defenses in our governing documents and under Maryland law, which may restrict change of control or business combination opportunities.

Additional information concerning risks and uncertainties that could affect our business can be found in our filings with the Securities and Exchange Commission (the “SEC”), including in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019. We do not intend, and we undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, unless required by law to do so.

TENANT AND BORROWER INFORMATION

This release includes information regarding certain of our tenants that lease properties from us and our borrowers, most of which are not subject to SEC reporting requirements. The information related to our tenants and borrowers that is provided in this release has been provided by, or derived from information provided by, such tenants and borrowers. We have not independently verified this information. We have no reason to believe that such information is inaccurate in any material respect. We are providing this data for informational purposes only.

NOTE REGARDING NON-GAAP FINANCIAL MEASURES

This release includes the following financial measures defined as non-GAAP financial measures by the SEC: net operating income (“NOI”), Cash NOI, funds from operations attributable to common stockholders (“FFO”), Normalized FFO, Adjusted FFO (“AFFO”), Normalized AFFO, FFO per diluted common share, Normalized FFO per diluted common share, AFFO per diluted common share and Normalized AFFO per diluted common share. These measures may be different than non-GAAP financial measures used by other companies, and the presentation of these measures is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with U.S. generally accepted accounting principles. An explanation of these non-GAAP financial measures is included under “Reporting Definitions” in this release, and reconciliations of these non-GAAP financial measures to the GAAP financial measures we consider most comparable are included on the Investors section of our website at http://www.sabrahealth.com/investors/financials/reports-presentations/non-gaap.

 

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME

(dollars in thousands, except per share data)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

Revenues:

 

 

 

 

 

 

 

Rental and related revenues

$

 

112,800

 

 

$

 

144,229

 

 

$

 

229,187

 

 

$

 

288,484

 

Interest and other income

 

70,495

 

 

 

4,553

 

 

 

73,820

 

 

 

8,891

 

Resident fees and services

 

36,071

 

 

 

17,530

 

 

 

53,132

 

 

 

35,023

 

 

 

 

 

 

 

 

 

Total revenues

 

219,366

 

 

 

166,312

 

 

 

356,139

 

 

 

332,398

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Depreciation and amortization

 

49,476

 

 

 

46,828

 

 

 

94,425

 

 

 

94,833

 

Interest

 

33,608

 

 

 

36,757

 

 

 

69,926

 

 

 

72,575

 

Triple-net portfolio operating expenses

 

6,240

 

 

 

 

 

11,529

 

 

 

Senior housing – managed portfolio operating expenses

 

24,239

 

 

 

12,299

 

 

 

36,279

 

 

 

24,423

 

General and administrative

 

8,059

 

 

 

9,383

 

 

 

16,243

 

 

 

17,580

 

Provision for (recovery of) doubtful accounts, straight-line rental income and loan losses

 

193

 

 

 

(674

)

 

 

1,400

 

 

 

539

 

Impairment of real estate

 

2,002

 

 

 

881

 

 

 

105,136

 

 

 

1,413

 

 

 

 

 

 

 

 

 

Total expenses

 

123,817

 

 

 

105,474

 

 

 

334,938

 

 

 

211,363

 

 

 

 

 

 

 

 

 

Other (expense) income:

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

(10,119

)

 

 

 

 

(10,119

)

 

 

Other (expense) income

 

(1

)

 

 

 

 

170

 

 

 

2,820

 

Net gain on sales of real estate

 

2,755

 

 

 

142,903

 

 

 

1,235

 

 

 

142,431

 

 

 

 

 

 

 

 

 

Total other (expense) income

 

(7,365

)

 

 

142,903

 

 

 

(8,714

)

 

 

145,251

 

 

 

 

 

 

 

 

 

Income before loss from unconsolidated joint venture and income tax expense

 

88,184

 

 

 

203,741

 

 

 

12,487

 

 

 

266,286

 

 

 

 

 

 

 

 

 

Loss from unconsolidated joint venture

 

(3,647

)

 

 

(2,347

)

 

 

(5,030

)

 

 

(1,901

)

Income tax expense

 

(854

)

 

 

(605

)

 

 

(1,466

)

 

 

(1,115

)

 

 

 

 

 

 

 

 

Net income

 

83,683

 

 

 

200,789

 

 

 

5,991

 

 

 

263,270

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling interests

 

(6

)

 

 

(2

)

 

 

(18

)

 

 

(12

)

 

 

 

 

 

 

 

 

Net income attributable to Sabra Health Care REIT, Inc.

 

83,677

 

 

 

200,787

 

 

 

5,973

 

 

 

263,258

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 

(7,207

)

 

 

 

 

(9,768

)

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

$

 

83,677

 

 

$

 

193,580

 

 

$

 

5,973

 

 

$

 

253,490

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders, per:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic common share

$

 

0.46

 

 

$

 

1.09

 

 

$

 

0.03

 

 

$

 

1.42

 

 

 

 

 

 

 

 

 

Diluted common share

$

 

0.46

 

 

$

 

1.08

 

 

$

 

0.03

 

 

$

 

1.42

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding, basic

 

181,567,464

 

 

 

178,314,750

 

 

 

179,984,959

 

 

 

178,304,733

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding, diluted

 

182,254,100

 

 

 

178,684,024

 

 

 

180,637,059

 

 

 

178,600,789

 

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

 

 

June 30, 2019

 

December 31, 2018

 

(unaudited)

 

 

Assets

 

 

 

Real estate investments, net of accumulated depreciation of $464,970 and $402,338 as of June 30, 2019 and December 31, 2018, respectively

$

 

5,378,874

 

 

$

 

5,853,545

 

Loans receivable and other investments, net

 

111,203

 

 

 

113,722

 

Investment in unconsolidated joint venture

 

328,207

 

 

 

340,120

 

Cash and cash equivalents

 

47,595

 

 

 

50,230

 

Restricted cash

 

9,879

 

 

 

9,428

 

Lease intangible assets, net

 

108,877

 

 

 

131,097

 

Accounts receivable, prepaid expenses and other assets, net

 

138,544

 

 

 

167,161

 

Total assets

$

 

6,123,179

 

 

$

 

6,665,303

 

 

 

 

 

Liabilities

 

 

 

Secured debt, net

$

 

114,675

 

 

$

 

115,679

 

Revolving credit facility

 

275,000

 

 

 

624,000

 

Term loans, net

 

1,189,774

 

 

 

1,184,930

 

Senior unsecured notes, net

 

1,106,518

 

 

 

1,307,394

 

Accounts payable and accrued liabilities

 

100,635

 

 

 

94,827

 

Lease intangible liabilities, net

 

76,201

 

 

 

83,726

 

Total liabilities

 

2,862,803

 

 

 

3,410,556

 

 

 

 

 

Equity

 

 

 

Common stock, $.01 par value; 250,000,000 shares authorized, 189,515,024 and 178,306,528 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

1,895

 

 

 

1,783

 

Additional paid-in capital

 

3,725,971

 

 

 

3,507,925

 

Cumulative distributions in excess of net income

 

(460,832

)

 

 

(271,595

)

Accumulated other comprehensive (loss) income

 

(10,936

)

 

 

12,301

 

Total Sabra Health Care REIT, Inc. stockholders’ equity

 

3,256,098

 

 

 

3,250,414

 

Noncontrolling interests

 

4,278

 

 

 

4,333

 

Total equity

 

3,260,376

 

 

 

3,254,747

 

Total liabilities and equity

$

 

6,123,179

 

 

$

 

6,665,303

 

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

Six Months Ended June 30,

 

2019

 

2018

Cash flows from operating activities:

 

 

 

Net income

$

 

5,991

 

 

$

 

263,270

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

Depreciation and amortization

 

94,425

 

 

 

94,833

 

Amortization of above and below market lease intangibles, net

 

2,703

 

 

 

(1,368

)

Non-cash interest income adjustments

 

(1,125

)

 

 

(1,174

)

Non-cash interest expense

 

5,323

 

 

 

4,997

 

Stock-based compensation expense

 

5,570

 

 

 

3,839

 

Non-cash lease termination income

 

(9,725

)

 

 

Loss on extinguishment of debt

 

10,119

 

 

 

Straight-line rental income adjustments

 

(10,710

)

 

 

(23,752

)

Provision for doubtful accounts, straight-line rental income and loan losses

 

1,400

 

 

 

539

 

Net gain on sales of real estate

 

(1,235

)

 

 

(142,431

)

Impairment of real estate

 

105,136

 

 

 

1,413

 

Loss from unconsolidated joint venture

 

5,030

 

 

 

1,901

 

Distributions of earnings from unconsolidated joint venture

 

6,884

 

 

 

3,610

 

Changes in operating assets and liabilities:

 

 

 

Accounts receivable, prepaid expenses and other assets, net

 

(5,289

)

 

 

(2,130

)

Accounts payable and accrued liabilities

 

(22,619

)

 

 

8,006

 

Net cash provided by operating activities

 

191,878

 

 

 

211,553

 

Cash flows from investing activities:

 

 

 

Acquisition of real estate

 

 

 

(213,982

)

Origination and fundings of loans receivable

 

(8,823

)

 

 

(28,157

)

Origination and fundings of preferred equity investments

 

 

 

(945

)

Additions to real estate

 

(8,596

)

 

 

(16,817

)

Repayments of loans receivable

 

10,102

 

 

 

38,887

 

Repayments of preferred equity investments

 

2,463

 

 

 

375

 

Investment in unconsolidated joint venture

 

 

 

(354,461

)

Net proceeds from the sales of real estate

 

322,736

 

 

 

278,201

 

Net cash provided by (used in) investing activities

 

317,882

 

 

 

(296,899

)

Cash flows from financing activities:

 

 

 

Net (repayments of) borrowings from revolving credit facility

 

(349,000

)

 

 

35,000

 

Proceeds from issuance of senior unsecured notes

 

300,000

 

 

 

Principal payments on senior unsecured notes

 

(500,000

)

 

 

Principal payments on secured debt

 

(1,703

)

 

 

(2,128

)

Payments of deferred financing costs

 

(4,413

)

 

 

(12

)

Payments related to extinguishment of debt

 

(6,895

)

 

 

Distributions to noncontrolling interests

 

(73

)

 

 

(72

)

Preferred stock redemption

 

 

 

(143,750

)

Issuance of common stock, net

 

211,575

 

 

 

(499

)

Dividends paid on common and preferred stock

 

(161,735

)

 

 

(164,736

)

Net cash used in financing activities

 

(512,244

)

 

 

(276,197

)

Net decrease in cash, cash equivalents and restricted cash

 

(2,484

)

 

 

(361,543

)

Effect of foreign currency translation on cash, cash equivalents and restricted cash

 

300

 

 

 

(252

)

Cash, cash equivalents and restricted cash, beginning of period

 

59,658

 

 

 

587,449

 

Cash, cash equivalents and restricted cash, end of period

$

 

57,474

 

 

$

 

225,654

 

Supplemental disclosure of cash flow information:

 

 

 

Interest paid

$

 

74,631

 

 

$

 

67,793

 

Contacts

Investor & Media Inquiries:

(888) 393-8248 or investorinquiries@sabrahealth.com

Read full story here

Author: dmnnewswire