Sabra Health Care REIT, Inc. (“Sabra,” the “Company” or “we”)
(Nasdaq: SBRA) today announced its results of operations for the
second quarter of 2023.
SECOND QUARTER 2023 RESULTS AND RECENT
EVENTS
- Results per diluted common share for the second quarter of 2023
were as follows:
- Net Income: $0.09
- FFO: $0.32
- Normalized FFO: $0.33
- AFFO: $0.33
- Normalized AFFO: $0.34
- EBITDARM Coverage Summary:
- Skilled Nursing/Transitional Care: 1.65x (1.57x excluding
Provider Relief Funds)
- Senior Housing - Leased: 1.15x
- Behavioral Health: 1.87x
- Specialty Hospitals & Other: 6.68x
- During the second quarter of 2023, Sabra generated $18 million
of gross proceeds from the disposition of four skilled nursing
facilities.
- On July 6, 2023, Sabra successfully transitioned 11
wholly-owned managed senior housing properties formerly managed by
Enlivant to Inspirit Senior Living, an existing Sabra
operator.
- As illustrated in the Supplemental Information presentation we
issued today, we believe the Annualized Cash NOI upside opportunity
for Sabra’s portfolio is attractive. The upside is a result of the
Company's internal growth initiatives over the past several years,
as well as the benefits of the broader healthcare industry's
continued recovery from the pandemic.
- On August 7, 2023, Sabra’s Board of Directors declared a
quarterly cash dividend of $0.30 per share of common stock. The
dividend will be paid on August 31, 2023 to common stockholders of
record as of the close of business on August 17, 2023.
BUSINESS UPDATE
Update on Reimbursement Trends
Reimbursement trends continue to move in a positive direction.
In terms of Medicare Part A, which accounts for nearly 25% of
revenue for Sabra’s skilled nursing tenants, CMS recently finalized
a 4.0% rate increase that goes into effect on October 1, 2023.
In addition, and in recognition of skilled nursing’s vital role
of providing high-quality, high-acuity care at a relatively low
cost, many states have also increased support for the industry
through various means, including Medicaid base rate increases,
Federal Medical Assistance Percentage (“FMAP”) add-on extensions,
and rebasing cost measures to better capture inflationary
pressures. Notable examples include Texas, which increased its
Medicaid rate to more than offset the expiration of FMAP, while
Kentucky recently passed an 8% rate increase, which will have a
significant positive impact on Sabra’s largest tenant, Signature
Healthcare. In addition, Avamere (Sabra’s third largest tenant)
will benefit from a blended 6% base rate increase in Oregon and
Washington. Medicaid accounts for nearly half of the revenue
received by Sabra’s skilled nursing tenants, and while not all
states have finalized rates for the upcoming year, we estimate the
increase in Medicaid rates across Sabra’s portfolio will average
over 5%.
Commenting on the second quarter’s results, Rick Matros, CEO and
Chair, said, “Sabra's portfolio continues to strengthen as
occupancy gains and easing labor pressures drive improved rent
coverages. Reimbursement trends also remain encouraging,
highlighted by Medicaid rate increases that are trending higher
than they have been in many years. We recently held an operators’
conference and while our operators are not yet where they want to
be, these encouraging operating trends underpinned a sense of
optimism among attendees that was evident and appreciated.
Additionally, we are pleased we were able to expeditiously
transition the 11 wholly-owned properties that were formerly
managed by Enlivant to an existing operator. Our progress this year
gives us increased confidence that we are moving past the pandemic,
and have greater clarity on future earnings growth as illustrated
in the Supplemental Information presentation we issued today.”
LIQUIDITY
As of June 30, 2023, we had approximately $926.7 million of
liquidity, consisting of unrestricted cash and cash equivalents of
$27.2 million and available borrowings of $899.5 million under our
revolving credit facility. As of June 30, 2023, we also had $500.0
million available under the ATM program.
CONFERENCE CALL AND COMPANY INFORMATION
A conference call with a simultaneous webcast to discuss the
2023 second quarter results will be held on Tuesday, August 8, 2023
at 10:00 am Pacific Time. The webcast URL is
https://events.q4inc.com/attendee/659208545. The dial-in number for
U.S. participants is (888) 880-4448. For participants outside the
U.S., the dial-in number is (646) 960-0572. The conference ID
number is 1382596. 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, 2023, Sabra’s investment portfolio included 392
real estate properties held for investment (consisting of (i) 253
Skilled Nursing/Transitional Care facilities, (ii) 45 senior
housing communities (“Senior Housing - Leased”), (iii) 61 senior
housing communities operated by third-party property managers
pursuant to property management agreements (“Senior Housing -
Managed”), (iv) 18 Behavioral Health facilities and (v) 15
Specialty Hospitals and Other facilities), 13 investments in loans
receivable (consisting of two mortgage loans and 11 other loans),
five preferred equity investments and two investments in
unconsolidated joint ventures. As of June 30, 2023, Sabra’s real
estate properties held for investment included 38,899 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. Any
statements that do not relate to historical or current facts or
matters are forward-looking statements. 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 expectations regarding reimbursement rates
and trends; our expectations regarding the upside opportunity for
Sabra’s portfolio; our expectations regarding labor and occupancy
trends; our expectations regarding the transition of the Enlivant
facilities; our expectations regarding continued recovery from the
pandemic; and our other expectations regarding our future financial
position, results of operations, cash flows, liquidity, business
strategy, growth opportunities, potential investments and
dispositions, and plans and objectives for future operations and
capital raising activity.
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: pandemics
or epidemics, including COVID-19, and the related impact on our
tenants, borrowers and Senior Housing - Managed communities;
increased labor costs and historically low unemployment; increases
in market interest rates and inflation; operational risks with
respect to our Senior Housing - Managed communities; competitive
conditions in our industry; the loss of key management personnel;
uninsured or underinsured losses affecting our properties;
potential impairment charges and adjustments related to the
accounting of our assets; the potential variability of our reported
rental and related revenues as a result of Accounting Standards
Update (“ASU”) 2016-02, Leases, as amended by subsequent ASUs;
risks associated with our investment in our unconsolidated joint
ventures; catastrophic weather and other natural or man-made
disasters, the effects of climate change on our properties and a
failure to implement sustainable and energy-efficient measures;
increased operating costs and competition for our tenants,
borrowers and Senior Housing - Managed communities; increased
healthcare regulation and enforcement; our tenants’ dependency on
reimbursement from governmental and other third-party payor
programs; the effect of our tenants, operators or borrowers
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 impact of required regulatory
approvals of transfers of healthcare properties; environmental
compliance costs and liabilities associated with real estate
properties we own; our tenants’, borrowers’ or operators’ failure
to adhere to applicable privacy and data security laws, or a
material breach of our or our tenants’, borrowers’ or operators’
information technology; 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; adverse changes in our credit
ratings; our ability to make dividend distributions at expected
levels; our ability to raise capital through equity and debt
financings; changes and uncertainty in macroeconomic conditions and
disruptions in the financial markets; risks associated with our
ownership of property outside the U.S., including currency
fluctuations; the relatively illiquid nature of real estate
investments; our ability to maintain our status as a real estate
investment trust (“REIT”) under the federal tax laws; compliance
with REIT requirements and certain tax and tax regulatory matters
related to our status as a REIT; changes in tax laws and
regulations affecting REITs; the ownership limits and takeover
defenses in our governing documents and under Maryland law, which
may restrict change of control or business combination
opportunities; and the exclusive forum provisions in our
bylaws.
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, 2022. 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: Annualized Cash NOI,
funds from operations (“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
https://ir.sabrahealth.com/investors/financials/quarterly-results.
SABRA HEALTH CARE REIT,
INC.
CONSOLIDATED STATEMENTS OF
INCOME
(dollars in thousands, except per
share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Revenues:
Rental and related revenues (1)
$
94,274
$
103,168
$
190,144
$
213,054
Resident fees and services
58,428
44,136
115,149
86,363
Interest and other income
8,464
8,653
17,197
19,645
Total revenues
161,166
155,957
322,490
319,062
Expenses:
Depreciation and amortization
44,142
45,172
96,969
90,428
Interest
28,328
25,530
56,868
50,502
Triple-net portfolio operating
expenses
4,771
4,852
8,939
9,863
Senior housing - managed portfolio
operating expenses
43,964
34,026
87,601
67,130
General and administrative
9,532
8,649
20,034
19,045
Provision for (recovery of) loan losses
and other reserves
429
(270
)
221
205
Impairment of real estate
—
11,745
7,064
11,745
Total expenses
131,166
129,704
277,696
248,918
Other (expense) income:
Loss on extinguishment of debt
—
—
(1,541
)
(271
)
Other (expense) income
—
(2,163
)
341
(2,095
)
Net loss on sales of real estate
(7,833
)
(4,501
)
(29,348
)
(4,501
)
Total other expense
(7,833
)
(6,664
)
(30,548
)
(6,867
)
Income before loss from unconsolidated
joint ventures and income tax expense
22,167
19,589
14,246
63,277
Loss from unconsolidated joint
ventures
(653
)
(2,529
)
(1,491
)
(5,331
)
Income tax expense
(326
)
(255
)
(1,054
)
(539
)
Net income
$
21,188
$
16,805
$
11,701
$
57,407
Net income, per:
Basic common share
$
0.09
$
0.07
$
0.05
$
0.25
Diluted common share
$
0.09
$
0.07
$
0.05
$
0.25
Weighted average number of common shares
outstanding, basic
231,204,531
230,967,163
231,184,355
230,913,462
Weighted average number of common shares
outstanding, diluted
232,244,588
231,681,536
232,214,443
231,641,958
(1)
See page 6 for additional details
regarding Rental and related revenues.
SABRA HEALTH CARE REIT,
INC.
CONSOLIDATED STATEMENTS OF
INCOME - SUPPLEMENTAL INFORMATION
(in thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Cash rental income
$
87,381
$
95,209
$
177,038
$
195,566
Straight-line rental income
1,503
2,342
2,850
5,036
Straight-line rental income receivable
write-offs
—
(323
)
(518
)
(462
)
Above/below market lease amortization
1,568
1,568
3,136
3,161
Above/below market lease intangible
write-offs
—
—
—
326
Operating expense recoveries
3,822
4,372
7,638
9,427
Rental and related revenues
$
94,274
$
103,168
$
190,144
$
213,054
SABRA HEALTH CARE REIT,
INC.
CONSOLIDATED BALANCE
SHEETS
(dollars in thousands, except per
share data)
June 30, 2023
December 31, 2022
Assets
Real estate investments, net of
accumulated depreciation of $992,222 and $913,345 as of June 30,
2023 and December 31, 2022, respectively
$
4,751,898
$
4,959,343
Loans receivable and other investments,
net
417,019
411,396
Investment in unconsolidated joint
ventures
140,402
134,962
Cash and cash equivalents
27,234
49,308
Restricted cash
5,146
4,624
Lease intangible assets, net
35,990
40,131
Accounts receivable, prepaid expenses and
other assets, net
146,641
147,908
Total assets
$
5,524,330
$
5,747,672
Liabilities
Secured debt, net
$
48,273
$
49,232
Revolving credit facility
100,517
196,982
Term loans, net
536,391
526,129
Senior unsecured notes, net
1,734,855
1,734,431
Accounts payable and accrued
liabilities
121,865
142,259
Lease intangible liabilities, net
38,685
42,244
Total liabilities
2,580,586
2,691,277
Equity
Preferred stock, $0.01 par value;
10,000,000 shares authorized, zero shares issued and outstanding as
of June 30, 2023 and December 31, 2022
—
—
Common stock, $0.01 par value; 500,000,000
shares authorized, 231,218,658 and 231,009,295 shares issued and
outstanding as of June 30, 2023 and December 31, 2022,
respectively
2,312
2,310
Additional paid-in capital
4,489,107
4,486,967
Cumulative distributions in excess of net
income
(1,579,914
)
(1,451,945
)
Accumulated other comprehensive income
32,239
19,063
Total equity
2,943,744
3,056,395
Total liabilities and equity
$
5,524,330
$
5,747,672
SABRA HEALTH CARE REIT,
INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)
Six Months Ended June 30,
2023
2022
Cash flows from operating activities:
Net income
$
11,701
$
57,407
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
96,969
90,428
Non-cash rental and related revenues
(5,469
)
(8,061
)
Non-cash interest income
(388
)
(1,094
)
Non-cash interest expense
6,091
5,502
Stock-based compensation expense
3,233
3,250
Loss on extinguishment of debt
1,541
271
Provision for loan losses and other
reserves
221
205
Net loss on sales of real estate
29,348
4,501
Impairment of real estate
7,064
11,745
Loss from unconsolidated joint
ventures
1,491
5,331
Distributions of earnings from
unconsolidated joint ventures
1,112
—
Other non-cash items
—
2,167
Changes in operating assets and
liabilities:
Accounts receivable, prepaid expenses and
other assets, net
(6,277
)
(6,074
)
Accounts payable and accrued
liabilities
(8,019
)
(25,895
)
Net cash provided by operating
activities
138,618
139,683
Cash flows from investing activities:
Acquisition of real estate
(39,630
)
(20,573
)
Origination and fundings of loans
receivable
(9,050
)
—
Origination and fundings of preferred
equity investments
(10,676
)
(4,990
)
Additions to real estate
(37,995
)
(19,495
)
Escrow deposits for potential
investments
—
(836
)
Repayments of loans receivable
8,062
4,466
Repayments of preferred equity
investments
4,130
1,333
Investment in unconsolidated joint
ventures
(4,797
)
(128,007
)
Net proceeds from the sales of real
estate
168,904
40,003
Net proceeds from sales-type lease
25,490
—
Distributions in excess of earnings from
unconsolidated joint ventures
544
—
Net cash provided by (used in) investing
activities
104,982
(128,099
)
Cash flows from financing activities:
Net (repayments of) borrowings from
revolving credit facility
(98,857
)
142,353
Proceeds from term loans
12,188
—
Principal payments on term loans
—
(40,000
)
Principal payments on secured debt
(983
)
(16,547
)
Payments of deferred financing costs
(18,128
)
(6
)
Payment of contingent consideration
(17,900
)
—
Issuance of common stock, net
(2,153
)
(3,803
)
Dividends paid on common stock
(138,711
)
(138,565
)
Net cash used in financing activities
(264,544
)
(56,568
)
Net decrease in cash, cash equivalents and
restricted cash
(20,944
)
(44,984
)
Effect of foreign currency translation on
cash, cash equivalents and restricted cash
(608
)
619
Cash, cash equivalents and restricted
cash, beginning of period
53,932
115,886
Cash, cash equivalents and restricted
cash, end of period
$
32,380
$
71,521
Supplemental disclosure of cash flow
information:
Interest paid
$
52,591
$
49,968
Supplemental disclosure of non-cash
investing activities:
Decrease in loans receivable and other
investments due to acquisition of real estate
$
4,644
$
5,623
SABRA HEALTH CARE REIT,
INC.
FUNDS FROM OPERATIONS (FFO),
NORMALIZED FFO,
ADJUSTED FUNDS FROM OPERATIONS
(AFFO) AND NORMALIZED AFFO
(dollars in thousands, except per
share data)
Three Months Ended June 30,
Six Months Ended June 30,
2023
2022
2023
2022
Net income
$
21,188
$
16,805
$
11,701
$
57,407
Add:
Depreciation and amortization of real
estate assets
44,142
45,172
96,969
90,428
Depreciation, amortization and impairment
of real estate assets related to unconsolidated joint ventures
2,202
5,133
4,250
9,766
Net loss on sales of real estate
7,833
4,501
29,348
4,501
Net gain on sales of real estate related
to unconsolidated joint ventures
—
(220
)
—
(220
)
Impairment of real estate
—
11,745
7,064
11,745
FFO
$
75,365
$
83,136
$
149,332
$
173,627
Write-offs of cash and straight-line
rental income receivable and lease intangibles
—
709
540
180
Lease termination income
—
—
—
(2,338
)
Loss on extinguishment of debt
—
—
1,541
271
Provision for (recovery of) loan losses
and other reserves
429
(270
)
221
205
Support payments paid to joint venture
manager (1)
—
3,626
—
3,626
Other normalizing items (2)
1,301
2,699
2,069
2,651
Normalized FFO
$
77,095
$
89,900
$
153,703
$
178,222
FFO
$
75,365
$
83,136
$
149,332
$
173,627
Stock-based compensation expense
1,004
794
3,233
3,250
Non-cash rental and related revenues
(3,071
)
(3,587
)
(5,469
)
(8,061
)
Non-cash interest income
4
(547
)
(388
)
(1,094
)
Non-cash interest expense
3,077
2,804
6,091
5,502
Non-cash portion of loss on extinguishment
of debt
—
—
1,541
271
Provision for (recovery of) loan losses
and other reserves
429
(270
)
221
205
Other adjustments related to
unconsolidated joint ventures
169
(692
)
238
(1,678
)
Other adjustments (3)
57
2,211
163
2,394
AFFO
$
77,034
$
83,849
$
154,962
$
174,416
Cash portion of lease termination
income
—
—
—
(2,338
)
Write-off of cash rental income
—
404
—
71
Support payments paid to joint venture
manager (1)
—
3,626
—
3,626
Other normalizing items (2)
1,286
516
2,038
330
Normalized AFFO
$
78,320
$
88,395
$
157,000
$
176,105
Amounts per diluted common share:
Net income
$
0.09
$
0.07
$
0.05
$
0.25
FFO
$
0.32
$
0.36
$
0.64
$
0.75
Normalized FFO
$
0.33
$
0.39
$
0.66
$
0.77
AFFO
$
0.33
$
0.36
$
0.66
$
0.75
Normalized AFFO
$
0.34
$
0.38
$
0.67
$
0.76
Weighted average number of common shares
outstanding, diluted:
Net income, FFO and Normalized FFO
232,244,588
231,681,536
232,214,443
231,641,958
AFFO and Normalized AFFO
233,586,255
232,708,975
233,560,237
232,713,843
(1)
Funding for support payments did not
require capital contributions from Sabra but rather were funded
with proceeds received by our Enlivant unconsolidated joint venture
from TPG for the issuance of senior preferred interests.
(2)
Other normalizing items for FFO for the
three and six months ended June 30, 2022 includes $2.2 million of
foreign currency transaction loss related to our Canadian
borrowings. In addition, other normalizing items for FFO and AFFO
include triple-net operating expenses, net of recoveries and
certain adjustments for amounts recorded in the current period that
relate to a prior period.
(3)
Other adjustments for the three and six
months ended June 30, 2022 includes $2.2 million of foreign
currency transaction loss related to our Canadian borrowings.
REPORTING DEFINITIONS
Annualized Cash Net Operating Income (“Annualized Cash
NOI”)*
The Company believes that net income as defined by GAAP is the
most appropriate earnings measure. The Company considers Annualized
Cash NOI an important supplemental measure because it allows
investors, analysts and its management to evaluate the operating
performance of its investments. The Company defines Annualized Cash
NOI as Annualized Revenues less operating expenses and non-cash
revenues and expenses. Annualized Cash NOI excludes all other
financial statement amounts included in net income.
Annualized Revenues
The annual contractual rental revenues under leases and interest
and other income generated by the Company’s loans receivable and
other investments based on amounts invested and applicable terms as
of the end of the period presented. Annualized Revenues do not
include tenant recoveries or additional rents and are adjusted to
(i) reflect actual payments received related to the twelve months
ended at the end of the respective period for leases no longer
accounted for on an accrual basis, (ii) exclude residual rents due
to Sabra from prior asset sales under the Company’s 2017 memorandum
of understanding with Genesis and (iii) reflect the February 1,
2023 transition of four real estate properties formerly operated by
North American Health Care to Avamere.
Behavioral Health
Includes behavioral hospitals that provide inpatient and
outpatient care for patients with mental health conditions,
chemical dependence or substance addictions and addiction treatment
centers that provide treatment services for chemical dependence and
substance addictions, which may include inpatient care, outpatient
care, medical detoxification, therapy and counseling.
EBITDARM
Earnings before interest, taxes, depreciation, amortization,
rent and management fees (“EBITDARM”) for a particular facility
accruing to the operator/tenant of the property (not the Company),
for the period presented. The Company uses EBITDARM in determining
EBITDARM Coverage. EBITDARM has limitations as an analytical tool.
EBITDARM does not reflect historical cash expenditures or future
cash requirements for facility capital expenditures or contractual
commitments. In addition, EBITDARM does not represent a property’s
net income or cash flows from operations and should not be
considered an alternative to those indicators. The Company utilizes
EBITDARM to evaluate the core operations of the properties by
eliminating management fees, which may vary by operator/tenant and
operating structure, and as a supplemental measure of the ability
of the Company’s operators/tenants and relevant guarantors to
generate sufficient liquidity to meet related obligations to the
Company.
EBITDARM Coverage
Represents the ratio of EBITDARM to cash rent for owned
facilities (excluding Senior Housing - Managed communities) for the
period presented. EBITDARM Coverage is a supplemental measure of a
property’s ability to generate cash flows for the operator/tenant
(not the Company) to meet the operator’s/tenant’s related cash rent
and other obligations to the Company. However, its usefulness is
limited by, among other things, the same factors that limit the
usefulness of EBITDARM. EBITDARM Coverage includes only Stabilized
Facilities and excludes facilities for which data is not available
or meaningful.
Funds From Operations (“FFO”) and Adjusted Funds from
Operations (“AFFO”)*
The Company believes that net income as defined by GAAP is the
most appropriate earnings measure. The Company also believes that
funds from operations, or FFO, as defined in accordance with the
definition used by the National Association of Real Estate
Investment Trusts (“Nareit”), and adjusted funds from operations,
or AFFO (and related per share amounts) are important non-GAAP
supplemental measures of the Company’s operating performance.
Because the historical cost accounting convention used for real
estate assets requires straight-line depreciation (except on land),
such accounting presentation implies that the value of real estate
assets diminishes predictably over time. However, since real estate
values have historically risen or fallen with market and other
conditions, presentations of operating results for a real estate
investment trust that uses historical cost accounting for
depreciation could be less informative. Thus, Nareit created FFO as
a supplemental measure of operating performance for real estate
investment trusts that excludes historical cost depreciation and
amortization, among other items, from net income, as defined by
GAAP. FFO is defined as net income, computed in accordance with
GAAP, excluding gains or losses from real estate dispositions and
the Company’s share of gains or losses from real estate
dispositions related to its unconsolidated joint ventures, plus
real estate depreciation and amortization, net of amounts related
to noncontrolling interests, plus the Company’s share of
depreciation and amortization related to its unconsolidated joint
ventures, and real estate impairment charges of both consolidated
and unconsolidated entities when the impairment is directly
attributable to decreases in the value of depreciable real estate
held by the entity. AFFO is defined as FFO excluding merger and
acquisition costs, stock-based compensation expense, non-cash
rental and related revenues, non-cash interest income, non-cash
interest expense, non-cash portion of loss on extinguishment of
debt, provision for loan losses and other reserves, non-cash lease
termination income and deferred income taxes, as well as other
non-cash revenue and expense items (including ineffectiveness
gain/loss on derivative instruments, and non-cash revenue and
expense amounts related to noncontrolling interests) and the
Company’s share of non-cash adjustments related to its
unconsolidated joint ventures. The Company believes that the use of
FFO and AFFO (and the related per share amounts), combined with the
required GAAP presentations, improves the understanding of the
Company’s operating results among investors and makes comparisons
of operating results among real estate investment trusts more
meaningful. The Company considers FFO and AFFO to be useful
measures for reviewing comparative operating and financial
performance because, by excluding the applicable items listed
above, FFO and AFFO can help investors compare the operating
performance of the Company between periods or as compared to other
companies. While FFO and AFFO are relevant and widely used measures
of operating performance of real estate investment trusts, they do
not represent cash flows from operations or net income as defined
by GAAP and should not be considered an alternative to those
measures in evaluating the Company’s liquidity or operating
performance. FFO and AFFO also do not consider the costs associated
with capital expenditures related to the Company’s real estate
assets nor do they purport to be indicative of cash available to
fund the Company’s future cash requirements. Further, the Company’s
computation of FFO and AFFO may not be comparable to FFO and AFFO
reported by other real estate investment trusts that do not define
FFO in accordance with the current Nareit definition or that
interpret the current Nareit definition or define AFFO differently
than the Company does.
Normalized FFO and Normalized AFFO*
Normalized FFO and Normalized AFFO represent FFO and AFFO,
respectively, adjusted for certain income and expense items that
the Company does not believe are indicative of its ongoing
operating results. The Company considers Normalized FFO and
Normalized AFFO to be useful measures to evaluate the Company’s
operating results excluding these income and expense items to help
investors compare the operating performance of the Company between
periods or as compared to other companies. Normalized FFO and
Normalized AFFO do not represent cash flows from operations or net
income as defined by GAAP and should not be considered an
alternative to those measures in evaluating the Company’s liquidity
or operating performance. Normalized FFO and Normalized AFFO also
do not consider the costs associated with capital expenditures
related to the Company’s real estate assets nor do they purport to
be indicative of cash available to fund the Company’s future cash
requirements. Further, the Company’s computation of Normalized FFO
and Normalized AFFO may not be comparable to Normalized FFO and
Normalized AFFO reported by other real estate investment trusts
that do not define FFO in accordance with the current Nareit
definition or that interpret the current Nareit definition or
define FFO and AFFO or Normalized FFO and Normalized AFFO
differently than the Company does.
Senior Housing
Senior Housing communities include independent living, assisted
living, continuing care retirement and memory care communities.
Senior Housing - Managed
Senior Housing communities operated by third-party property
managers pursuant to property management agreements.
Skilled Nursing/Transitional Care
Skilled Nursing/Transitional Care facilities include skilled
nursing, transitional care, multi-license designation and mental
health facilities.
Specialty Hospitals and Other
Includes acute care, long-term acute care and rehabilitation
hospitals, facilities that provide residential services, which may
include assistance with activities of daily living, and other
facilities not classified as Skilled Nursing/Transitional Care,
Senior Housing or Behavioral Health.
Stabilized Facility
At the time of acquisition, the Company classifies each facility
as either stabilized or non-stabilized. In addition, the Company
may classify a facility as non-stabilized after acquisition.
Circumstances that could result in a facility being classified as
non-stabilized include newly completed developments, facilities
undergoing major renovations or additions, facilities being
repositioned or transitioned to new operators, and significant
transitions within the tenants’ business model. Such facilities are
typically reclassified to stabilized upon the earlier of
maintaining consistent occupancy (85% for Skilled
Nursing/Transitional Care facilities and 90% for Senior Housing
communities) or 24 months after the date of classification as
non-stabilized. Stabilized Facilities exclude (i) facilities held
for sale, (ii) strategic disposition candidates, (iii) facilities
being transitioned to a new operator, (iv) facilities being
transitioned from being leased by the Company to being operated by
the Company and (v) leased facilities acquired during the three
months preceding the period presented.
*Non-GAAP Financial Measures
Reconciliations, definitions and important discussions regarding
the usefulness and limitations of the Non-GAAP Financial Measures
used in this release can be found at
https://ir.sabrahealth.com/investors/financials/quarterly-results.
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