SABRA HEALTH CARE REIT, INC. The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the "Risk Factors" section in Part I, Item 1A of our 2022 Annual Report on Form 10-K. Also see "Statement Regarding Forward-Looking Statements" preceding Part I.
The following discussion and analysis should be read in conjunction with our accompanying consolidated financial statements and the notes thereto.
Our Management's Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:
•Overview
•Critical Accounting Policies and Estimates
•Recently Issued Accounting Standards Update
•Results of Operations
•Liquidity and Capital Resources
•Concentration of Credit Risk
•Skilled Nursing Facility Reimbursement Rates
Overview
We operate as a self-administered, self-managed REIT that, through our subsidiaries, owns and invests in real estate serving the healthcare industry.
Our primary business consists of acquiring, financing and owning real estate
property to be leased to third party tenants in the healthcare sector. We
primarily generate revenues by leasing properties to tenants and owning
properties operated by third-party property managers throughout
Our 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.
We expect to grow our investment portfolio while diversifying our portfolio by
tenant, facility type and geography within the healthcare sector. We plan to
achieve these objectives primarily through making investments directly or
indirectly in healthcare real estate, including the development of purpose-built
healthcare facilities with select developers. We also intend to achieve our
objective of diversifying our portfolio by tenant and facility type through
select asset sales and other arrangements with our tenants.
We employ a disciplined approach in our healthcare real estate investment strategy by investing in assets that provide attractive opportunities for dividend growth and appreciation of asset values, while maintaining balance sheet strength and liquidity, thereby creating long-term stockholder value.
We elected to be treated as a REIT with the filing of ourU.S. federal income tax return for the taxable year beginningJanuary 1, 2011 . We believe that we have been organized and have operated, and we intend to continue to operate, in a manner to qualify as a REIT. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held bySabra Health Care Limited Partnership , aDelaware limited partnership (the "Operating Partnership"), of which we are the sole general partner and a wholly owned subsidiary of ours is currently the only limited partner, or by subsidiaries of theOperating Partnership .
Market Trends and Uncertainties
Our operations have been and are expected to continue to be impacted by economic and market conditions. Together with the ongoing impact of COVID-19, increases in interest rates, labor shortages, supply chain disruptions, high inflation and increased volatility in public equity and fixed income markets have led to increased costs and limited the availability of capital. If our tenants, borrowers andSenior Housing - Managed communities experience increased costs or financing difficulties due to 26
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these macroeconomic conditions, our tenants and borrowers may be unable to meet their financial obligations to us and our results of operations may be adversely affected. The above factors have resulted in decreased occupancy and increased operating costs for our tenants and borrowers, which have negatively impacted their operating results and may adversely impact their ability to make full and timely rental payments and debt service payments, respectively, to us. OurSenior Housing - Managed portfolio has been similarly impacted, and we expect that decreased occupancy and increased operating costs will continue to negatively impact the operating results of these investments. While our tenants, borrowers andSenior Housing - Managed portfolio have experienced some recent increases in occupancy, those occupancy rates are still below pre-pandemic levels. Similarly, while our tenants, borrowers andSenior Housing - Managed portfolio have more recently experienced small, incremental improvements in both labor availability and overall labor costs, labor supply remains lower and costs remain higher than pre-pandemic levels. In some cases, we may have to restructure or temporarily defer tenants' long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. Reduced or modified rental and debt service amounts could result in the determination that the full amounts of our investments are not recoverable, which could result in an impairment charge. If our tenants and borrowers default on these obligations, such defaults could materially and adversely affect our results of operations and liquidity, in addition to resulting in potential impairment charges. Further, prolonged deterioration in the operating results for our investments in ourSenior Housing - Managed portfolio could result in the determination that the full amounts of our investments are not recoverable, which could result in an impairment charge. We regularly monitor the effects of economic and market conditions and COVID-19 on our operations and financial position, as well as on the operations and financial position of our tenants and borrowers, in order to respond and adapt to the ongoing changes in our operating environment.
Investment in Unconsolidated Joint Venture
During the three months endedMarch 31, 2023 , our joint venture withMarlin Spring (the "Marlin Spring Joint Venture") completed the acquisition of one additional senior housing community with a gross investment of CAD$30.0 million , excluding acquisition costs. In addition, the Marlin Spring Joint Venture assumed and financed an aggregate CAD$23.6 million of debt associated with the additional acquisition. Our equity investment in the additional acquisition was CAD$6.1 million . See Note 4, "Investment in Real Estate Properties-Investment inUnconsolidated Joint Ventures ," in the Notes to Consolidated Financial Statements for additional information regarding this investment.
Acquisitions
During the three months endedMarch 31, 2023 , we acquired oneSenior Housing - Leased community and oneSenior Housing - Managed community for aggregate consideration of$51.5 million , including acquisition costs. See Note 3, "Recent Real Estate Acquisitions," in the Notes to Consolidated Financial Statements for additional information regarding these acquisitions.
Dispositions
During the three months endedMarch 31, 2023 , we completed the sale of seven skilled nursing/transitional care facilities (including one leased to a tenant under a sales-type lease) and two senior housing communities for aggregate consideration, net of closing costs, of$185.8 million . The net carrying value of the assets and liabilities of these facilities was$207.3 million , which resulted in an aggregate$21.5 million net loss on sale. We continue to evaluate additional assets for sale as part of our initiative to recycle capital and further improve our portfolio quality.
Credit Agreement
Effective on
At-The-Market Common Stock Offering Program
OnFebruary 23, 2023 , we established the ATM Program (as defined below) pursuant to which shares of our common stock having an aggregate gross sales price of up to$500.0 million may be sold from time to time. See "-Liquidity and Capital Resources."
Critical Accounting Policies and Estimates
Our consolidated interim financial statements have been prepared in accordance withU.S. generally accepted accounting principles ("GAAP") and in conjunction with the rules and regulations of theSEC . The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These 27
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judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results is included in Part II, Item 7 of our 2022 Annual Report on Form 10-K filed with theSEC . There have been no significant changes to our critical accounting policies during the three months endedMarch 31, 2023 .
Recently Issued Accounting Standards Update
See Note 2, "Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements for information concerning recently issued accounting standards updates.
Results of Operations As ofMarch 31, 2023 , our investment portfolio consisted of 396 real estate properties held for investment, 13 investments in loans receivable, six preferred equity investments and three investments in unconsolidated joint ventures. As ofMarch 31, 2022 , our investment portfolio consisted of 416 real estate properties held for investment, one asset held for sale, one investment in a sales-type lease, 16 investments in loans receivable, seven preferred equity investments and one investment in an unconsolidated joint venture. In general, we expect that income and expenses related to our portfolio will fluctuate in future periods in comparison to the corresponding prior periods as a result of investment and disposition activity and anticipated future changes in our portfolio. The results of operations presented are not directly comparable due to ongoing acquisition and disposition activity, including our capital recycling initiative. 28
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Comparison of results of operations for the three months ended
Variance due to
Three Months Ended March 31, Acquisitions,
Increase / Percentage Originations and Remaining
2023 2022 (Decrease) Difference Dispositions (1) Variance (2)
Revenues:
Rental and related revenues $ 95,870 $ 109,886 $ (14,016) (13) % $ (5,704) $ (8,312)
Resident fees and services 56,721 42,227 14,494 34 % 6,239 8,255
Interest and other income 8,733 10,992 (2,259) (21) % (2,598) 339
Expenses:
Depreciation and amortization 52,827 45,256 7,571 17 % (1,180) 8,751 Interest 28,540 24,972 3,568 14 % - 3,568 Triple-net portfolio operating expenses 4,168 5,011 (843) (17) % (243) (600) Senior housing - managed portfolio operating expenses 43,637 33,104 10,533 32 % 4,096 6,437 General and administrative 10,502 10,396 106 1 % - 106 (Recovery of) provision for loan losses and other reserves (208) 475 (683) (144) % 48 (731) Impairment of real estate 7,064 - 7,064 100 % - 7,064 Other income (expense): Loss on extinguishment of debt (1,541) (271) (1,270) 469 % - (1,270) Other income 341 68 273 401 % - 273 Net loss on sales of real estate (21,515) - (21,515) 100 % (21,515)
-
Loss from unconsolidated joint ventures (838) (2,802) 1,964 (70) % (838) 2,802 Income tax expense (728) (284) (444) 156 % - (444) (1) Represents the dollar amount increase (decrease) for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 as a result of investments/dispositions made afterJanuary 1, 2022 . (2) Represents the dollar amount increase (decrease) for the three months endedMarch 31, 2023 compared to the three months endedMarch 31, 2022 that is not a direct result of investments/dispositions made afterJanuary 1, 2022 .
Rental and Related Revenues
During the three months endedMarch 31, 2023 , we recognized$95.9 million of rental income compared to$109.9 million for the three months endedMarch 31, 2022 . The$14.0 million net decrease in rental income is related to (i) a$6.9 million net decrease related to leases that are no longer accounted for on an accrual basis, (ii) a$5.8 million decrease from properties disposed of afterJanuary 1, 2022 , (iii) a$1.9 million decrease from properties that were transitioned to new operators and (iv) a$0.4 million decrease from properties transitioned from triple-net lease toSenior Housing - Managed communities. The$6.9 million net decrease related to leases that are not accounted for on an accrual basis includes (i) a$2.9 million decrease in earned cash rents primarily due to the Avamere lease amendment effectiveFebruary 1, 2022 , (ii) a$1.5 million decrease in Genesis excess rents in accordance with the terms of the memorandum of understanding entered into in 2017, (iii) a$1.1 million decrease in earned cash rents, (iv) a$0.8 million decrease in operating expense recoveries and (v) a$0.6 million decrease in non-cash rental revenue. These decreases are partially offset by a$0.6 million increase due to lease amendments and annual increases associated with a Consumer Price Index component. Our reported rental and related revenues may be subject to increased variability in the future as a result of lease accounting standards. If at any time we cannot determine that it is probable that substantially all rents over the life of a lease are collectible, rental revenue will be recognized only to the extent of payments received and all receivables associated with the lease will be written off, irrespective of amounts expected to be collectible. However, there can be no assurances regarding the timing and amount of these revenues. Amounts due under the terms of all of our lease agreements are subject to contractual increases, and contingent rental income may be derived from certain lease agreements. No material contingent rental income was derived during the three months endedMarch 31, 2023 and 2022. 29
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Resident Fees and Services
During the three months endedMarch 31, 2023 , we recognized$56.7 million of resident fees and services compared to$42.2 million for the three months endedMarch 31, 2022 . The$14.5 million increase is due to (i) a$6.3 million increase from fourSenior Housing - Managed communities acquired afterJanuary 1, 2022 , (ii) a$5.6 million increase related to seven facilities that were transitioned toSenior Housing - Managed communities afterJanuary 1, 2022 and (iii) a$2.6 million increase related to increased occupancy and an increase in rates.
Interest and Other Income
Interest and other income primarily consists of income earned on our loans receivable investments, preferred returns earned on our preferred equity investments and income on the sales-type lease. During the three months endedMarch 31, 2023 , we recognized$8.7 million of interest and other income compared to$11.0 million for the three months endedMarch 31, 2022 . The net decrease of$2.3 million is due to a$2.3 million lease termination payment related to one skilled nursing/transitional care facility that sold in 2022 and a$0.7 million decrease in income from investments repaid afterJanuary 1, 2022 , partially offset by a$0.5 million increase from investments made afterJanuary 1, 2022 .
Depreciation and Amortization
During the three months endedMarch 31, 2023 , we incurred$52.8 million of depreciation and amortization expense compared to$45.3 million for the three months endedMarch 31, 2022 . The net increase of$7.6 million is due to (i) an$8.0 million increase due to accelerating the remaining useful life of a facility that will be demolished, (ii) a$0.9 million increase due to the acceleration of lease intangible amortization related to facilities transitioned to new operators and lease terminations, (iii) a$1.6 million increase from properties acquired afterJanuary 1, 2022 and (iv) a$0.3 million increase from additions to real estate. These increases are partially offset by a$2.8 million decrease from properties disposed of afterJanuary 1, 2022 .
Interest Expense
We incur interest expense comprised of costs of borrowings plus the amortization of deferred financing costs related to our indebtedness. During the three months endedMarch 31, 2023 , we incurred$28.5 million of interest expense compared to$25.0 million for the three months endedMarch 31, 2022 . The$3.6 million net increase is primarily related to an increase in interest expense due to an increase in the borrowings outstanding under the Credit Agreement (as defined below) and an increase in interest rates.
Triple-Net Portfolio Operating Expenses
During each of the three months endedMarch 31, 2023 , we recognized$4.2 million of triple-net portfolio operating expenses compared to$5.0 million during the three months endedMarch 31, 2022 . The$0.8 million net decrease is related to a$0.2 million decrease due to properties disposed of afterJanuary 1, 2022 and the remaining decrease is primarily due to facilities that have since been transitioned to new operators who are now paying the property taxes directly.
During the three months endedMarch 31, 2023 , we recognized$43.6 million ofSenior Housing - Managed portfolio operating expenses compared to$33.1 million for the three months endedMarch 31, 2022 . The$10.5 million net increase is due to (i) a$5.5 million increase related to seven facilities that were transitioned toSenior Housing - Managed communities afterJanuary 1, 2022 , (ii) a$4.3 million increase related to fourSenior Housing - Managed communities acquired afterJanuary 1, 2022 , (iii) a$0.7 million increase in employee compensation primarily due to increased labor rates and staffing and (iv) a$0.2 million increase in management fees and dining expenses due to increased occupancy. The increases are partially offset by a$0.2 million decrease related to oneSenior Housing - Managed community disposed of afterJanuary 1, 2022 .
General and Administrative Expenses
General and administrative expenses include compensation-related expenses as well as professional services, office costs, other costs associated with asset management, and merger and acquisition costs. During the three months endedMarch 31, 2023 , general and administrative expenses were$10.5 million compared to$10.4 million during the three months endedMarch 31, 2022 . The$0.1 million net increase is related to a$0.4 million increase in compensation for our team members as a result of increased staffing and annual salary adjustments, partially offset by a$0.3 million decrease in tax preparation fees due to adjusting our estimates. 30
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Recovery of (Provision for) Loan Losses and Other Reserves
During the three months ended
Impairment of Real Estate
During the three months endedMarch 31, 2023 , we recognized$7.1 million of impairment of real estate related to one skilled nursing/transitional care facility that is under contract to sell. See Note 5, "Impairment of Real Estate and Dispositions," in the Notes to Consolidated Financial Statements for additional information regarding this impairment. No impairment of real estate was recognized during the three months endedMarch 31, 2022 .
Loss on Extinguishment of Debt
During the three months endedMarch 31, 2023 , we recognized a$1.5 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with amending and restating the Prior Credit Agreement (as defined below). During the three months endedMarch 31, 2022 , we recognized a$0.3 million loss on extinguishment of debt related to write-offs of deferred financing costs in connection with the partial pay downs of theU.S. dollar Prior Term Loan (as defined below).
Other Income
During the three months ended
Net Loss on Sales of Real Estate
During the three months endedMarch 31, 2023 , we recognized an aggregate net loss on the sales of real estate of$21.5 million related to the disposition of six skilled nursing/transitional care facilities, oneSenior Housing - Leased community and oneSenior Housing - Managed community. We did not have any sales of real estate during the three months endedMarch 31, 2022 .
Loss from
During the three months ended
During the three months endedMarch 31, 2022 , we recognized$2.8 million of loss from our joint venture with affiliates ofTPG Real Estate , the real estate platform of TPG (the "Enlivant Joint Venture"), consisting primarily of$4.6 million of depreciation and amortization expense and$1.6 million of interest expense, partially offset by$3.5 million of net operating income. As ofDecember 31, 2022 , we concluded that the estimated fair value of our investment in the Enlivant Joint Venture had declined to zero and that the decline was other-than-temporary. As such, we have discontinued applying the equity method of accounting to the Enlivant Joint Venture and no loss was recognized during the three months endedMarch 31, 2023 . We will resume application if, during the period in which application of the equity method of accounting has been discontinued, our share of unrecognized net income exceeds our share of unrecognized net losses.
Income Tax Expense
During the three months endedMarch 31, 2023 , we recognized$0.7 million of income tax expense compared to$0.3 million for the three months endedMarch 31, 2022 . The$0.4 million increase is due to adjusting our estimates related to state income taxes.
Funds from Operations and Adjusted Funds from Operations
We believe that net income as defined by GAAP is the most appropriate earnings
measure. We also believe that funds from operations ("FFO"), as defined in
accordance with the definition used by the National Association of Real Estate
Investment Trusts ("Nareit"), and adjusted funds from operations ("AFFO") (and
related per share amounts) are important non-GAAP supplemental measures of our
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 REIT that use historical cost accounting for
depreciation could be less informative. Thus, Nareit created FFO as a
supplemental measure of operating performance for REITs that excludes historical
cost depreciation and amortization, among other items, from net income, as
defined by GAAP. FFO is defined as net
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income, computed in accordance with GAAP, excluding gains or losses from real estate dispositions and our share of gains or losses from real estate dispositions related to our unconsolidated joint ventures, plus real estate depreciation and amortization, net of amounts related to noncontrolling interests, plus our share of depreciation and amortization related to our 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 the 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 our share of non-cash adjustments related to our unconsolidated joint ventures. We believe that the use of FFO and AFFO (and the related per share amounts), combined with the required GAAP presentations, improves the understanding of our operating results among investors and makes comparisons of operating results among REITs more meaningful. We consider 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 our operating performance between periods or as compared to other companies. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, 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 our liquidity or operating performance. FFO and AFFO also do not consider the costs associated with capital expenditures related to our real estate assets nor do they purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current Nareit definition or that interpret the current Nareit definition or define AFFO differently than we do. The following table reconciles our calculations of FFO and AFFO for the three months endedMarch 31, 2023 and 2022, to net income, the most directly comparable GAAP financial measure, for the same periods (in thousands, except share and per share amounts):
Three Months Ended
2023 2022
Net (loss) income $ (9,487) $ 40,602
Depreciation and amortization of real estate assets 52,827 45,256
Depreciation, amortization and impairment of real estate assets related to unconsolidated joint ventures
2,048 4,633
Net loss on sales of real estate 21,515 -
Impairment of real estate 7,064 -
FFO 73,967 90,491
Stock-based compensation expense 2,229 2,456
Non-cash rental and related revenues (2,398) (4,474)
Non-cash interest income (392) (547)
Non-cash interest expense 3,014 2,698
Non-cash portion of loss on extinguishment of debt 1,541 271
(Recovery of) provision for loan losses and other reserves (208) 475
Other adjustments related to unconsolidated joint ventures 69 (986)
Other adjustments 106 183
AFFO $ 77,928 $ 90,567
FFO per diluted common share $
0.32
AFFO per diluted common share $
0.33
Weighted average number of common shares outstanding, diluted:
FFO 231,892,769 231,564,970
AFFO 233,168,932 232,484,734
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The following table sets forth additional information related to certain other
items included in net income above, and the portions of each that are included
in FFO and AFFO, which may be helpful in assessing our operating results. Please
refer to "-Results of Operations" above for additional information regarding
these items (in millions):
Three Months Ended March 31,
2023 2022 2023 2022 2023 2022
Net (Loss) Income FFO AFFO
Rental and related revenues:
Non-cash rental and related revenue write-offs $ 0.5 $ (0.2) $ 0.5 $ (0.2) $ - $ -
Interest and other income:
Lease termination income - 2.3 - 2.3 - 2.3
(Recovery of) provision for loan losses and other
reserves (0.2) 0.5 (0.2) 0.5 - -
Loss on extinguishment of debt 1.5 0.3 1.5 0.3 - -
Other income 0.3 0.1 0.3 0.1 0.3 0.2
Loss from unconsolidated joint ventures:
Deferred income tax benefit - 0.1 - 0.1 - -
Liquidity and Capital Resources
As ofMarch 31, 2023 , we had approximately$954.0 million in liquidity, consisting of unrestricted cash and cash equivalents of$33.5 million and available borrowings under our Revolving Credit Facility (as defined below) of$920.4 million . The Credit Agreement also contains an accordion feature that can increase the total available borrowings to$2.75 billion (fromU.S. $1.4 billion plus CAD$150.0 million ), subject to terms and conditions. We have filed a shelf registration statement with theSEC that expires inNovember 2025 , which allows us to offer and sell shares of common stock, preferred stock, warrants, rights, units, and certain of our subsidiaries to offer and sell debt securities, through underwriters, dealers or agents or directly to purchasers, on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering, subject to market conditions. OnFebruary 23, 2023 , we established an at-the-market equity offering program (the "ATM Program") pursuant to which shares of our common stock having an aggregate gross sales price of up to$500.0 million may be sold from time to time (i) by us through a consortium of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement. During the three months endedMarch 31, 2023 , no shares were sold under the ATM Program and we did not utilize the forward feature of the ATM Program. As ofMarch 31, 2023 , we had$500.0 million available under the ATM Program. Our short-term liquidity requirements consist primarily of operating expenses, including our planned capital expenditures and funding commitments, interest expense, scheduled debt service payments under our loan agreements, dividend requirements, general and administrative expenses and other requirements described under "Material Cash Requirements" below. Based on our current assessment, we believe that our available cash, operating cash flows and borrowings available to us under our Revolving Credit Facility provide sufficient funds for such requirements for the next twelve months. In addition, we do not believe that the restrictions under our Senior Notes Indentures (as defined below) or Credit Agreement significantly limit our ability to use our available liquidity for these purposes. Our long-term liquidity requirements consist primarily of future investments in properties, including any improvements or renovations of current or newly-acquired properties, as well as scheduled debt maturities. We expect to meet these liquidity needs using the sources above as well as the proceeds from issuances of common stock, preferred stock, debt or other securities, additional borrowings, including mortgage debt or a new or refinanced credit facility, and proceeds from the sale of properties. In addition, we may seek financing fromU.S. government agencies, including through Fannie Mae, Freddie Mac and theU.S. Department of Housing and Urban Development , in appropriate circumstances in connection with acquisitions.
Cash Flows from Operating Activities
Net cash provided by operating activities was$68.3 million for the three months endedMarch 31, 2023 . Operating cash inflows were derived primarily from the rental payments received under our lease agreements, resident fees and services net of the corresponding operating expenses and interest payments from borrowers under our loan and preferred equity investments. Operating cash outflows consisted primarily of interest payments on borrowings and payment of general and administrative expenses, including corporate overhead. Increases to operating cash flows primarily relate to completed investment activity, and 33
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decreases to operating cash flows primarily relate to disposition activity and interest expense from increased borrowing activity and higher interest rates. In addition, the change in operating cash flows was impacted by the timing of collections from our tenants and borrowers and fluctuations in the operating results of ourSenior Housing - Managed communities. We expect our annualized cash flows provided by operating activities to fluctuate as a result of such activity.
Cash Flows from Investing Activities
During the three months endedMarch 31, 2023 , net cash provided by investing activities was$113.2 million and included$152.3 million of net proceeds from the sales of real estate,$25.5 million of net proceeds from the sale of a facility under a sales-type lease,$6.1 million in repayments of loans receivable and$1.4 million in repayments of preferred equity investments, partially offset by$39.6 million used for the acquisition of two facilities,$19.5 million used for additions to real estate,$6.4 million used to provide funding for preferred equity investments,$4.8 million used for the investment in an unconsolidated joint venture and$1.8 million used to provide funding for loans receivable.
Cash Flows from Financing Activities
During the three months endedMarch 31, 2023 , net cash used in financing activities was$196.1 million and included$118.4 million of net repayments of our Revolving Credit Facility,$69.4 million of dividends paid to stockholders,$18.1 million of payments of deferred financing costs related to the Credit Agreement,$1.8 million of net costs related to payroll tax payments related to the issuance of common stock pursuant to equity compensation arrangements and our ATM Program, and$0.5 million of principal repayments on secured debt, partially offset by$12.2 million of proceeds from Term Loans (as defined below).
Please see the accompanying consolidated statements of cash flows for details of our operating, investing and financing cash activities.
Material Cash Requirements
Our material cash requirements include the following contractual and other obligations.
Senior Unsecured Notes. Our senior unsecured notes consisted of the following
(collectively, the "Senior Notes") as of
Title Maturity Date Principal Balance (1)
5.125% senior unsecured notes due 2026 (the
"2026 Notes") August 15, 2026 $ 500,000
5.88% senior unsecured notes due 2027 (the "2027
Notes") May 17, 2027 100,000
3.90% senior unsecured notes due 2029 (the "2029
Notes") October 15, 2029 350,000
3.20% senior unsecured notes due 2031 (the "2031
Notes") December 1, 2031 800,000
$ 1,750,000
(1) Principal balance does not include discount, net of
See Note 7, "Debt," in the Notes to Consolidated Financial Statements and "Subsidiary Issuer and Guarantor Financial Information" below for additional information concerning the Senior Notes, including information regarding the indentures and agreements governing the Senior Notes (the "Senior Notes Indentures"). As ofMarch 31, 2023 , we were in compliance with all applicable covenants under the Senior Notes Indentures. Credit Agreement. EffectiveJanuary 4, 2023 , theOperating Partnership andSabra Canadian Holdings, LLC (together, the "Borrowers"), and the other parties thereto entered into a sixth amended and restated unsecured credit agreement (the "Credit Agreement"). The Credit Agreement includes a$1.0 billion revolving credit facility (the "Revolving Credit Facility"), a$430.0 million U.S. dollar term loan and a CAD$150.0 million Canadian dollar term loan (collectively, the "Term Loans"). Further, up to$350.0 million of the Revolving Credit Facility may be used for borrowings in certain foreign currencies. The Credit Agreement also contains an accordion feature that can increase the total available borrowings to$2.75 billion , subject to terms and conditions.
The Revolving Credit Facility has a maturity date of
The obligations of the Borrowers under the Credit Agreement are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by us and one of our non-operating subsidiaries, subject to release under certain customary circumstances.
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See Note 7, "Debt," in the Notes to Consolidated Financial Statements for additional information concerning the Credit Agreement, including information regarding covenants contained in the Credit Agreement. As ofMarch 31, 2023 , we were in compliance with all applicable covenants under the Credit Agreement.
Secured Indebtedness. As of
Weighted Average
Interest Rate Type Principal Balance (1) Interest Rate Maturity Date
May 2031 -
Fixed Rate $ 49,633 2.84 % August 2051
(1) Principal balance does not include deferred financing costs, net of
Interest. Our estimated interest and facility fee payments based on principal amounts of debt outstanding as ofMarch 31, 2023 , applicable interest rates in effect as ofMarch 31, 2023 , and including the impact of interest rate swaps and collars are$79.7 million for the remainder of 2023,$100.4 million in 2024,$102.0 million in 2025,$102.0 million in 2026,$66.0 million in 2027 and$141.5 million thereafter. Capital and Other Expenditures and Funding Commitments. For the three months endedMarch 31, 2023 and 2022, our aggregate capital expenditures were$19.5 million and$10.8 million , respectively. As ofMarch 31, 2023 , our aggregate commitment for future capital and other expenditures related to facilities leased under triple-net operating leases was approximately$65 million , of which$57 million will directly result in incremental rental income, and approximately$45 million will be spent over the next 12 months. Additionally, as ofMarch 31, 2023 , anticipated capital expenditures related to ourSenior Housing - Managed communities was approximately$54 million , of which we expect to spend approximately$36 million over the next 12 months.
In addition, as of
Dividends. To maintain REIT status, we are required each year to distribute to stockholders at least 90% of our annual REIT taxable income after certain adjustments. All distributions will be made by us at the discretion of our board of directors and will depend on our financial position, results of operations, cash flows, capital requirements, debt covenants (which include limits on distributions by us), applicable law, and other factors as our board of directors deems relevant. We paid dividends of$69.4 million on our common stock during the three months endedMarch 31, 2023 . OnMay 3, 2023 , our board of directors declared a quarterly cash dividend of$0.30 per share of common stock. The dividend will be paid onMay 31, 2023 to common stockholders of record as ofMay 16, 2023 . Subsidiary Issuer and Guarantor Financial Information. In connection with theOperating Partnership's assumption of the 2026 Notes, we have fully and unconditionally guaranteed the 2026 Notes. The 2029 Notes and 2031 Notes are issued by theOperating Partnership and guaranteed, fully and unconditionally, by us. These guarantees are subordinated to all existing and future senior debt and senior guarantees of us, as guarantor, and are unsecured. We conduct all of our business through and derive virtually all of our income from our subsidiaries. Therefore, our ability to make required payments with respect to our indebtedness (including the Senior Notes) and other obligations depends on the financial results and condition of our subsidiaries and our ability to receive funds from our subsidiaries. 35
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In accordance with Regulation S-X, the following aggregate summarized financial information is provided for Sabra and theOperating Partnership . This aggregate summarized financial information has been prepared from the books and records maintained by us and theOperating Partnership . The aggregate summarized financial information does not include the investments in, nor the earnings from, subsidiaries other than theOperating Partnership and therefore is not necessarily indicative of the results of operations or financial position had theOperating Partnership operated as an independent entity. Intercompany transactions have been eliminated. The aggregate summarized balance sheet information as ofMarch 31, 2023 andDecember 31, 2022 and aggregate summarized statement of loss information for the three months endedMarch 31, 2023 is as follows (in thousands): March 31, 2023 December 31, 2022 Total assets $ 68,745 $ 74,063 Total liabilities 2,227,420 2,275,511 Three Months Ended March 31, 2023 Total revenues $ 18 Total expenses 32,905 Net loss (35,020)
Concentration of Credit Risk
Concentrations of credit risk arise when a number of tenants or obligors related to our investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. We regularly monitor our portfolio to assess potential concentrations of risks. Management believes our current portfolio is reasonably diversified across healthcare related real estate and geographical location and does not contain any other significant concentration of credit risks. Our portfolio of 396 real estate properties held for investment as ofMarch 31, 2023 is diversified by location across theU.S. andCanada .
For the three months ended
Skilled Nursing Facility Reimbursement Rates
For the three months endedMarch 31, 2023 , 43.0% of our revenues was derived directly or indirectly from skilled nursing/transitional care facilities. Medicare reimburses skilled nursing facilities for Medicare Part A services under the Prospective Payment System ("PPS"), as implemented pursuant to the Balanced Budget Act of 1997 and modified pursuant to subsequent laws, most recently the Patient Protection and Affordable Care Act of 2010. PPS regulations predetermine a payment amount per patient, per day, based on a market basket index calculated for all covered costs. OnOctober 1, 2019 , a case-mix classification system called the skilled nursing facility Patient-Driven Payment Model ("PDPM") became effective pursuant to aCenters for Medicare & Medicaid Services ("CMS") final rule. PDPM focuses on clinically relevant factors, rather than volume-based service, for determining Medicare payment. PDPM adjusts Medicare payments based on each aspect of a resident's care, most notably for non-therapy ancillaries, which are items and services not related to the provision of therapy such as drugs and medical supplies, thereby more accurately addressing costs associated with medically complex patients. It further adjusts the skilled nursing facility per diem payments to reflect varying costs throughout the stay and incorporates safeguards against potential financial incentives to ensure that beneficiaries receive care consistent with their unique needs and goals. OnJuly 29, 2022 , CMS issued a final rule regarding fiscal year 2023 Medicare rates for skilled nursing facilities providing an estimated net increase of 2.7% compared to fiscal year 2022 comprised of an increase as a result of an update to the payment rates of 5.1% (which is based on (i) a market basket increase of 3.9% plus (ii) a market basket forecast error adjustment of 1.5% and less (iii) a productivity adjustment of 0.3%), partially offset by the recalibrated PDPM parity adjustment of 2.3% (the total PDPM parity adjustment is 4.6%, and it is being phased in over a two-year period). These figures do not incorporate any of the estimated value-based purchasing reductions for skilled nursing facilities. The new payment rates became effective onOctober 1, 2022 . OnApril 4, 2023 , CMS issued a proposed rule regarding fiscal year 2024 Medicare rates for skilled nursing facilities providing an estimated net increase of 3.7% compared to fiscal year 2023 comprised of an increase as a result of an update to the payment rates of 6.1% (which is based on (i) a market basket increase of 2.7% plus (ii) a market basket forecast error 36
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adjustment of 3.6% and less (iii) a productivity adjustment of 0.2%), partially offset by the second phase of the recalibrated PDPM parity adjustment of 2.3%. These figures do not incorporate any of the estimated value-based purchasing reductions for skilled nursing facilities. The proposed payment rates would become effective onOctober 1, 2023 .
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