Sabra Health Care REIT, Inc. (NASDAQ:SBRA) is a self-administered, self-managed real estate investment trust (REIT) that owns and invests in real estate serving the healthcare industry. The company's primary business consists of acquiring, financing, and owning real estate property to be leased to third-party tenants in the healthcare sector. Sabra generates revenues by leasing properties to tenants and owning properties operated by third-party property managers throughout the United States and Canada.
Business Overview
Sabra's investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities ("Senior Housing - Leased"), behavioral health facilities, and specialty hospitals and other facilities, in each case leased to third-party operators; senior housing communities operated by third-party property managers pursuant to property management agreements ("Senior Housing - Managed"); investments in joint ventures; loans receivable; and preferred equity investments. As of March 31, 2023, the company's investment portfolio consisted of 374 real estate properties held for investment, four assets held for sale, 14 investments in loans receivable, five preferred equity investments, and two investments in unconsolidated joint ventures.
Sabra's portfolio is well-diversified across healthcare-related real estate and geographical locations, with no significant concentration of credit risks.
Financials
For the three months ended March 31, 2023, the company reported total revenues of $166.7 million, net income of $26.3 million, operating cash flow of $52.8 million, and free cash flow of $81.2 million. On an annual basis, Sabra reported total revenues of $655.8 million, net income of $13.8 million, operating cash flow of $301.1 million, and free cash flow of $306.4 million for the year ended December 31, 2023.
The company's skilled nursing/transitional care facilities, which accounted for 39.7% of total revenues for the three months ended March 31, 2023, have seen a significant improvement in their financial performance. Sabra's skilled nursing facility tenants have benefited from increased Medicare reimbursement rates, with the Centers for Medicare & Medicaid Services (CMS) implementing a 4.0% net increase in fiscal year 2024 and a proposed 4.1% net increase in fiscal year 2025. Additionally, the company's skilled nursing facility tenants have seen their EBITDAR and EBITDARM coverage ratios exceed pre-pandemic levels, indicating a strong recovery in the sector.
Sabra's Senior Housing - Leased portfolio has also performed well, with occupancy levels above pre-pandemic levels and steadily improving rent coverage. The company's Senior Housing - Managed portfolio, which includes joint ventures, has seen significant growth, with a 16.5% increase in quarterly revenue and a 26% increase in quarterly cash net operating income on a year-over-year basis. This growth has been driven by increasing demand, occupancy gains, and moderating expenses, particularly in the area of labor costs.
The company's behavioral health and specialty hospital investments have remained relatively stable, contributing approximately 10.5% of Sabra's net operating income as of March 31, 2023. Sabra has combined these two categories in its financial reporting due to their similar characteristics and contribution to the overall portfolio.
Liquidity
Sabra's balance sheet remains strong, with a net debt to adjusted EBITDA ratio of 5.55x as of March 31, 2023. The company has ample liquidity, with $914 million available, consisting of $60 million in unrestricted cash and cash equivalents and $854 million in available borrowings under its revolving credit facility. Sabra's credit agreement also contains an accordion feature that can increase the total available borrowings to $2.75 billion, subject to terms and conditions.
Outlook
The company's guidance for the full year 2024 includes net income per diluted share of $0.53 to $0.57, FFO per diluted share of $1.33 to $1.37, normalized FFO per diluted share of $1.34 to $1.38, AFFO per diluted share of $1.38 to $1.42, and normalized AFFO per diluted share of $1.39 to $1.43. Sabra's management has noted that the company's first-quarter performance came in slightly better than its initial 2024 guidance estimates, but the company has decided to maintain its full-year guidance ranges at this time, citing the early stage of the year.
Conclusion
Sabra's diversified portfolio, strong financial performance, and ample liquidity position the company well to navigate the current market environment and capitalize on growth opportunities. The company's focus on acquiring high-quality healthcare real estate assets, while maintaining a disciplined approach to its investment strategy, has enabled Sabra to deliver consistent performance and create long-term value for its shareholders.