Fitch Ratings has affirmed the Long-Term Issuer Default Ratings (IDR) of
The Rating Outlook is Stable.
The affirmation and Stable Outlook reflect Fitch's view that SBRA's long-term credit profile remains sufficient to support the current capitalization.
Though leverage is slightly outside of Fitch's sensitivities as of
Key Rating Drivers
Compressed Leverage Headroom: SBRA's leverage has increased in the aftermath of the pandemic and the company ended 2023 with REIT leverage at 5.7x, which is above Fitch's negative sensitivity for Sabra at a 'BBB-' IDR. The company has exhibited flat to declining EBITDA and declining EBITDA margins over the past four years even as revenue has increased primarily as a result of increased operating expenses from its senior housing managed portfolio.
However, Fitch believes that SBRA can return leverage within its sensitivities through organic growth and improved operating leverage, though additional capital allocation could delay or expedite deleveraging. If rent relief or capital allocation causes leverage to sustain above Fitch's negative sensitivities without any offsetting steps by the issuer, Fitch may revise the ratings and/or Outlook. SBRA's financial policy is leverage sustaining below 5.5x, with an average long-term target leverage of 5.0x.
Stable Portfolio-Level Lease Coverage: SBRA's lease coverage (EBITDARM coverage), which Fitch views as a key indicator of lease defaults/renewal risk, has exhibited recovery from its weakest levels. As of the TTM period ended 12/31/2023, the company's Skilled Nursing Coverage was 1.79x (up from 1.63x a year prior);
Fitch believes that the probability of material rent deferrals for most of SBRA's additional tenants is low, particularly as
Senior Housing Poised for Strong Recovery: Fitch assumes SHOP NOI margins will return towards pre-pandemic levels in the intermediate term, driven by a combination of improving occupancy rates and strong rent growth. Fitch also assumes occupancy rates will return to pre-pandemic levels due to a combination of healthy demographic trends and a favorable supply backdrop. The 80+ age cohort is expected to grow at a faster rate than the overall population over the next decade.
Senior housing new starts remain depressed and significantly lower than 2017 peak levels due to rising construction costs and stricter bank-lending standards. Senior housing rent growth, both asking and in-place, has accelerated, and improving occupancy rates should help rent growth outplace inflationary cost pressures.
Long-Run SNF Rental Income Risk Profile Generally Intact: Fitch views the long-term rental income risk profile of SBRA's skilled nursing portfolio to be relatively unchanged by the pandemic. Fitch believes skilled nursing facilities (SNFs) will continue to retain their place in the
Derivation Summary
SBRA's ratings reflects the issuer's ability to proactively manage its skilled nursing and SH portfolio through secular headwinds while maintaining leverage below 5.5x through the cycle. Though leverage is currently above this level, Fitch expects the company to be able to delever in the near term. The ratings also reflect the issuer's strong liquidity due to no near-term debt maturities, portfolio quality and diversification, improving access to capital and average operator lease coverage. The ratings are constrained, however, by tenant concentration and by the issuer's focus on skilled nursing, SH facilities and hospitals.
Compared to its SNF-focused peer,
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