Business Overview
Sabra Health Care REIT, Inc. (SBRA) is a self-administered, self-managed real estate investment trust (REIT) that invests in healthcare-related properties in the United States and Canada. The company's portfolio consists primarily of skilled nursing/transitional care facilities, senior housing communities, behavioral health facilities, and specialty hospitals. Sabra's diversified strategy and focus on the healthcare sector have positioned the REIT as a key player in the rapidly evolving healthcare real estate market.
Sabra Health Care REIT, Inc. was incorporated on May 10, 2010, as a wholly-owned subsidiary of Sun Healthcare Group, Inc. The company commenced operations on November 15, 2010, following its separation from Sun. Sabra elected to be treated as a real estate investment trust (REIT) with the filing of its United States federal income tax return for the taxable year beginning January 1, 2011.
Sabra's primary business consists of acquiring, financing, and owning real estate property to be leased to third-party tenants in the healthcare sector. The company generates revenues primarily by leasing properties to tenants throughout the U.S. and Canada. Sabra owns substantially all of its assets and properties and conducts its operations through Sabra Health Care Limited Partnership, a Delaware limited partnership, of which Sabra is the sole general partner.
In 2017, Sabra merged with Care Capital Properties, Inc., which added significant scale to Sabra's portfolio and diversified its tenant base. This merger presented both opportunities and challenges, as Sabra worked to integrate the two businesses and optimize the combined portfolio. Since then, Sabra has focused on recycling capital, disposing of underperforming assets, and acquiring higher-quality properties to improve the overall health of its investment portfolio.
As of December 31, 2024, Sabra's investment portfolio consisted of 364 real estate properties held for investment, 14 investments in loans receivable, five preferred equity investments, and two investments in unconsolidated joint ventures. The company's properties are located across the United States and Canada, providing geographic diversification. Sabra's portfolio is primarily composed of skilled nursing/transitional care facilities (61.5% of total properties), senior housing communities (23.7%), behavioral health facilities (4.1%), and specialty hospitals (4.1%).
Sabra generates the majority of its revenue through triple-net leases with third-party operators, who are responsible for the day-to-day operations and maintenance of the leased properties. The company also has a growing presence in the senior housing sector, with 69 properties operated by third-party property managers under management agreements (Senior Housing - Managed).
Financial Performance
Sabra has demonstrated a track record of steady financial performance, with strong growth in key metrics over the past few years. In the fiscal year ended December 31, 2024, the company reported annual revenue of $703.24 million, up from $647.51 million in the prior year. Net income for the fiscal year 2024 was $126.71 million, compared to $13.76 million in 2023. Operating cash flow for 2024 was $310.54 million, which was also the free cash flow for the year.
The company's adjusted funds from operations (AFFO), a critical REIT performance metric, increased to $338.19 million in 2024, up from $311.33 million in 2023, representing a 7% year-over-year growth. Sabra's AFFO per diluted share grew from $1.33 in 2023 to $1.43 in 2024, also a 7% increase.
For the fourth quarter of 2024, Sabra reported revenue of $182.34 million and net income of $46.70 million. The company saw strong year-over-year revenue growth of 21% for the quarter, primarily driven by continued improvements in its managed senior housing portfolio, with same-store cash NOI increasing 17.9% year-over-year.
Liquidity
Sabra's balance sheet remains strong, with a net debt to adjusted EBITDA ratio of 5.27x as of December 31, 2024, down from 5.30x at the end of 2023. The company maintains ample liquidity, with $980 million available as of the end of 2024, consisting of $60.5 million in unrestricted cash, $893.4 million in available borrowings under its revolving credit facility, and $26.1 million in shares outstanding under its at-the-market (ATM) equity program.
As of December 31, 2024, Sabra had a debt-to-equity ratio of 0.64, a current ratio of 0.11, and a quick ratio of 0.11. The company's total assets were $5.3 billion, with total liabilities of $2.6 billion, resulting in a debt to total assets ratio of 48.3%.
Operational Highlights
Sabra's diversified portfolio and strategic focus on the healthcare sector have helped the company navigate the challenges posed by the COVID-19 pandemic and other industry headwinds. In 2024, the company continued to see strong performance across its portfolio, with notable achievements:
1. Senior Housing - Managed portfolio: Sabra's managed senior housing communities saw sequential revenue growth of 3.5% and cash NOI growth of 5.4% in the fourth quarter of 2024, with margin expansion of 50 basis points. The same-store managed senior housing portfolio reported a 7.4% year-over-year increase in revenue and a 17.9% jump in cash NOI.
2. Skilled Nursing/Transitional Care portfolio: Sabra's skilled nursing/transitional care facilities reported a 60-basis-point sequential increase in occupancy and a 30-basis-point rise in skilled mix in the fourth quarter of 2024. EBITDARM coverage for this segment reached an all-time high of 2.09x.
3. Senior Housing - Leased portfolio: The company's triple-net senior housing portfolio maintained a strong rent coverage ratio of 1.36x in the fourth quarter of 2024, reflecting the continued operational recovery in this segment.
Portfolio Composition
Sabra's investment portfolio is focused on income-producing healthcare properties, with the following breakdown as of December 31, 2024:
1. Skilled Nursing/Transitional Care Facilities: This segment represents Sabra's core investment portfolio, with 224 properties accounting for 61.5% of the total properties and 52.1% of the undepreciated book value. These facilities provide daily nursing, therapeutic rehabilitation, and other essential services for individuals requiring assistance with activities of daily living.
2. Senior Housing: The senior housing portfolio comprises 108 properties, including 39 Senior Housing - Leased communities and 69 Senior Housing - Managed communities. This segment represents 19% of Sabra's properties and 26.3% of its total undepreciated book value. The portfolio includes independent living, assisted living, memory care, and continuing care retirement communities.
3. Behavioral Health and Specialty Hospitals: Sabra owns 17 behavioral health facilities and 15 specialty hospital properties, representing 4.1% of total properties and 12.5% of undepreciated book value. These facilities include addiction treatment centers, behavioral hospitals, acute care, long-term acute care, rehabilitation, and other specialty facilities.
Geographic Diversification
Sabra's real estate investments are located across the United States and Canada, providing geographic diversification to the portfolio. As of December 31, 2024, 40.9% of the company's total real estate investments were located in Canada, highlighting the significant presence in the Canadian healthcare real estate market.
Guidance and Outlook
For the full year 2025, Sabra provided the following guidance:
- Net income per diluted share: $0.67 to $0.70
- FFO per diluted share: $1.42 to $1.45
- Normalized FFO per diluted share: $1.43 to $1.46
- AFFO per diluted share: $1.47 to $1.50
- Normalized AFFO per diluted share: $1.48 to $1.51
At the midpoint, Sabra expects both normalized FFO per share and normalized AFFO per share to increase approximately 4% over 2024. This guidance assumes low-single-digit cash NOI growth in the triple-net portfolio, low-to-mid-teens cash NOI growth in the same-store managed senior housing portfolio, and general and administrative expenses of approximately $50 million, including $11 million in stock-based compensation. The company also expects a weighted average share count of approximately 240 million shares for normalized FFO and 241 million shares for normalized AFFO.
Industry Trends
The healthcare real estate sector, particularly nursing homes and senior housing, is expected to see continued growth driven by an aging population and longer life expectancies. According to the Centers for Medicare & Medicaid Services (CMS), nursing home expenditures are projected to grow at a 5.4% compound annual growth rate (CAGR) from 2023 to 2032, while hospital care expenditures are projected to grow at a 5.3% CAGR over the same period. These demographic and healthcare spending trends support the long-term demand for Sabra's portfolio of healthcare properties.
Risks and Challenges
Sabra, like other healthcare REITs, faces a variety of risks and challenges that could impact its business and financial performance:
1. Regulatory and reimbursement changes: The healthcare industry is heavily regulated, and changes in government reimbursement programs like Medicare and Medicaid could adversely affect Sabra's tenants and operators, thereby impacting the company's rental income and occupancy rates.
2. Competition for acquisitions: Sabra operates in a highly competitive environment, with other REITs, investment companies, and healthcare operators vying for attractive acquisition opportunities, which could drive up prices and make it more challenging for the company to find accretive investments.
3. Tenant and operator performance: Sabra's financial results are heavily dependent on the operational and financial strength of its tenants and operators. Any deterioration in their performance could lead to rent or interest payment defaults, impacting Sabra's revenue and cash flow.
4. Pandemic and economic risks: The COVID-19 pandemic and broader economic conditions, such as rising interest rates and inflation, could continue to put pressure on Sabra's tenants and operators, leading to increased operating costs, lower occupancy rates, and potentially higher credit risk.
Conclusion
Sabra Health Care REIT has established itself as a diversified and well-positioned healthcare REIT, with a focus on skilled nursing/transitional care facilities, senior housing communities, behavioral health facilities, and specialty hospitals. The company's strategic investments, disciplined capital allocation, and strong operational performance have enabled it to navigate the challenges of the healthcare industry and deliver consistent financial results.
As the healthcare real estate landscape continues to evolve, Sabra's diversified portfolio, experienced management team, and robust balance sheet position the REIT to capitalize on emerging opportunities and drive long-term value for its shareholders. With a strong presence in both the United States and Canada, Sabra is well-positioned to benefit from the growing demand for healthcare services and the projected increase in healthcare expenditures over the coming years.