UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 20192020
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-34950
SABRA HEALTH CARE REIT, INC.
(Exact Name of Registrant as Specified in Its Charter)
| | 27-2560479 | | | | | | |
Maryland | | 27-2560479 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
18500 Von Karman Avenue, Suite 550
Irvine,, CA92612
(888) (888) 393-8248
(Address, zip code and telephone number of Registrant)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, $.01 par value | SBRA | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 24, 2019,29, 2020, there were 193,696,901206,928,325 shares of the registrant’s $0.01 par value Common Stock outstanding.
SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES
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Item 1. | | |
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References throughout this document to “Sabra,” “we,” “our,” “ours” and “us” refer to Sabra Health Care REIT, Inc. and its direct and indirect consolidated subsidiaries and not any other person.
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q (this “10-Q”) contain “forward-looking” information as that term is defined by 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. Examples of forward-looking statements include all statements regarding our expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, tenants, the expected amounts and timing of dividends and other distributions, projected expenses and capital expenditures, competitive position, growth opportunities, potential investments, potential dispositions, plans and objectives for future operations, and compliance with and changes in governmental regulations. You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.
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:
•the ongoing COVID-19 pandemic and measures intended to prevent its spread, including the impact on our tenants, operators and Senior Housing - Managed communities (as defined below);
•our dependence on the operating success of our tenants;
•the potential variability of our reported rental and related revenues following the adoption of Topic 842 (as defined below) on January 1, 2019;
•operational risks with respect to our Senior Housing - Managed communities (as defined below);communities;
•the effect of our tenants 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 possibility that Sabra may not acquire the remaining majority interest in the Enlivant Joint Venture (as defined below);
•risks associated with our investments in joint ventures;
•changes in healthcare regulation and political or economic conditions;
•the impact of required regulatory approvals of transfers of healthcare properties;
•competitive conditions in our industry;
•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;
•increases in market interest rates;
•the potential phasing out of the London Interbank Offered Rate (“LIBOR”) benchmark after 2021;
•our ability to raise capital through equity and debt financings;
•changes in foreign currency exchange rates;
•the relatively illiquid nature of real estate investments;
•the loss of key management personnel;
•uninsured or underinsured losses affecting our properties and the possibility of environmental compliance costs and liabilities;
•the impact of a failure or security breach of information technology in our operations;
•our ability to maintain our status as a real estate investment trust (“REIT”); under the federal tax laws;
•changes in tax laws and regulations affecting REITs (including the potential effects of the Tax Cuts and Jobs Act);
•compliance with REIT requirements and certain tax and tax regulatory matters related to our status as a REIT; and
•the ownership limits and takeover defenses in our governing documents and under Maryland law, which may restrict change of control or business combination opportunities.
We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors that may materially affect the outcome of our forward-looking statements and our future business and operating results, including those made in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 20182019 (our “2018“2019 Annual Report on Form 10-K”) and in Part II, Item 1A, “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019,2020, as such risk factors may be amended, supplemented or superseded from time to time
by other reports we file with the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. We caution you that any forward-looking statements made in this 10-Q are
not guarantees of future performance, events or results, and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. 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 10-Q or to reflect the occurrence of unanticipated events, unless required by law to do so.
PART I. FINANCIAL INFORMATION
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ITEM 1. | FINANCIAL STATEMENTS |
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
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| September 30, 2020 | | December 31, 2019 |
| (unaudited) | | |
Assets | | | |
Real estate investments, net of accumulated depreciation of $640,214 and $539,213 as of September 30, 2020 and December 31, 2019, respectively | $ | 5,306,272 | | | $ | 5,341,370 | |
Loans receivable and other investments, net | 103,820 | | | 107,374 | |
Investment in unconsolidated joint venture | 293,801 | | | 319,460 | |
Cash and cash equivalents | 35,034 | | | 39,097 | |
Restricted cash | 6,815 | | | 10,046 | |
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Lease intangible assets, net | 85,943 | | | 101,509 | |
Accounts receivable, prepaid expenses and other assets, net | 159,933 | | | 150,443 | |
Total assets | $ | 5,991,618 | | | $ | 6,069,299 | |
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Liabilities | | | |
Secured debt, net | $ | 78,975 | | | $ | 113,070 | |
Revolving credit facility | 56,000 | | | 0 | |
Term loans, net | 1,039,685 | | | 1,040,258 | |
Senior unsecured notes, net | 1,248,324 | | | 1,248,773 | |
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Accounts payable and accrued liabilities | 143,742 | | | 108,792 | |
Lease intangible liabilities, net | 60,552 | | | 69,946 | |
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Total liabilities | 2,627,278 | | | 2,580,839 | |
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Commitments and contingencies (Note 12) | | | |
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Equity | | | |
Preferred stock, $0.01 par value; 10,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019 | 0 | | | 0 | |
Common stock, $0.01 par value; 500,000,000 shares authorized, 206,928,325 and 205,208,018 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively | 2,069 | | | 2,052 | |
Additional paid-in capital | 4,101,269 | | | 4,072,079 | |
Cumulative distributions in excess of net income | (689,828) | | | (573,283) | |
Accumulated other comprehensive loss | (49,170) | | | (12,388) | |
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Total equity | 3,364,340 | | | 3,488,460 | |
Total liabilities and equity | $ | 5,991,618 | | | $ | 6,069,299 | |
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| September 30, 2019 | | December 31, 2018 |
| (unaudited) | | |
Assets | | | |
Real estate investments, net of accumulated depreciation of $502,777 and $402,338 as of September 30, 2019 and December 31, 2018, respectively | $ | 5,344,997 |
| | $ | 5,853,545 |
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Loans receivable and other investments, net | 108,242 |
| | 113,722 |
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Investment in unconsolidated joint venture | 324,324 |
| | 340,120 |
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Cash and cash equivalents | 29,431 |
| | 50,230 |
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Restricted cash | 10,231 |
| | 9,428 |
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Lease intangible assets, net | 104,977 |
| | 131,097 |
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Accounts receivable, prepaid expenses and other assets, net | 145,801 |
| | 167,161 |
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Total assets | $ | 6,068,003 |
| | $ | 6,665,303 |
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Liabilities | | | |
Secured debt, net | $ | 113,644 |
| | $ | 115,679 |
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Revolving credit facility | 200,000 |
| | 624,000 |
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Term loans, net | 1,182,983 |
| | 1,184,930 |
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Senior unsecured notes, net | 1,106,484 |
| | 1,307,394 |
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Accounts payable and accrued liabilities | 109,401 |
| | 94,827 |
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Lease intangible liabilities, net | 73,074 |
| | 83,726 |
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Total liabilities | 2,785,586 |
| | 3,410,556 |
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Commitments and contingencies (Note 13) |
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Equity | | | |
Common stock, $.01 par value; 250,000,000 shares authorized, 193,696,901 and 178,306,528 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively | 1,937 |
| | 1,783 |
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Additional paid-in capital | 3,823,584 |
| | 3,507,925 |
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Cumulative distributions in excess of net income | (523,709 | ) | | (271,595 | ) |
Accumulated other comprehensive (loss) income | (19,395 | ) | | 12,301 |
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Total Sabra Health Care REIT, Inc. stockholders’ equity | 3,282,417 |
| | 3,250,414 |
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Noncontrolling interests | — |
| | 4,333 |
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Total equity | 3,282,417 |
| | 3,254,747 |
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Total liabilities and equity | $ | 6,068,003 |
| | $ | 6,665,303 |
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See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Revenues: | | | | | | | |
Rental and related revenues | $ | 100,612 | | | $ | 110,104 | | | $ | 319,851 | | | $ | 339,291 | |
Interest and other income | 3,299 | | | 3,325 | | | 8,756 | | | 77,145 | |
Resident fees and services | 39,341 | | | 36,405 | | | 117,908 | | | 89,537 | |
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Total revenues | 143,252 | | | 149,834 | | | 446,515 | | | 505,973 | |
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Expenses: | | | | | | | |
Depreciation and amortization | 44,209 | | | 43,092 | | | 132,579 | | | 137,517 | |
Interest | 24,904 | | | 29,255 | | | 75,900 | | | 99,181 | |
Triple-net portfolio operating expenses | 5,249 | | | 5,611 | | | 15,481 | | | 17,140 | |
Senior housing - managed portfolio operating expenses | 27,745 | | | 23,979 | | | 82,976 | | | 60,258 | |
General and administrative | 7,216 | | | 8,709 | | | 24,650 | | | 24,952 | |
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(Recovery of) provision for loan losses and other reserves | (90) | | | 57 | | | 706 | | | 1,457 | |
Impairment of real estate | 3,154 | | | 13,966 | | | 3,154 | | | 119,102 | |
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Total expenses | 112,387 | | | 124,669 | | | 335,446 | | | 459,607 | |
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Other income (expense): | | | | | | | |
Loss on extinguishment of debt | (139) | | | (644) | | | (531) | | | (10,763) | |
Other income | 115 | | | 215 | | | 2,308 | | | 385 | |
Net gain (loss) on sales of real estate | 2,715 | | | (19) | | | 2,828 | | | 1,216 | |
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Total other income (expense) | 2,691 | | | (448) | | | 4,605 | | | (9,162) | |
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Income before income (loss) from unconsolidated joint venture and income tax benefit (expense) | 33,556 | | | 24,717 | | | 115,674 | | | 37,204 | |
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Income (loss) from unconsolidated joint venture | 2,766 | | | (605) | | | (13,037) | | | (5,635) | |
Income tax benefit (expense) | 138 | | | (826) | | | (1,337) | | | (2,292) | |
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Net income | 36,460 | | | 23,286 | | | 101,300 | | | 29,277 | |
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Net income attributable to noncontrolling interest | 0 | | | (4) | | | 0 | | | (22) | |
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Net income attributable to common stockholders | $ | 36,460 | | | $ | 23,282 | | | $ | 101,300 | | | $ | 29,255 | |
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Net income attributable to common stockholders, per: | | | | | | | |
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Basic common share | $ | 0.18 | | | $ | 0.12 | | | $ | 0.49 | | | $ | 0.16 | |
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Diluted common share | $ | 0.18 | | | $ | 0.12 | | | $ | 0.49 | | | $ | 0.16 | |
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Weighted-average number of common shares outstanding, basic | 205,791,699 | | | 190,650,400 | | | 205,592,806 | | | 183,578,254 | |
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Weighted-average number of common shares outstanding, diluted | 206,727,167 | | | 191,952,389 | | | 206,442,674 | | | 184,698,411 | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | |
Rental and related revenues | $ | 110,104 |
| | $ | 130,467 |
| | $ | 339,291 |
| | $ | 418,951 |
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Interest and other income | 3,325 |
| | 3,932 |
| | 77,145 |
| | 12,823 |
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Resident fees and services | 36,405 |
| | 17,403 |
| | 89,537 |
| | 52,426 |
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Total revenues | 149,834 |
| | 151,802 |
| | 505,973 |
| | 484,200 |
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Expenses: | | | | | | | |
Depreciation and amortization | 43,092 |
| | 48,468 |
| | 137,517 |
| | 143,301 |
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Interest | 29,255 |
| | 37,305 |
| | 99,181 |
| | 109,880 |
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Triple-net portfolio operating expenses | 5,611 |
| | — |
| | 17,140 |
| | — |
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Senior housing - managed portfolio operating expenses | 23,979 |
| | 12,611 |
| | 60,258 |
| | 37,034 |
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General and administrative | 8,709 |
| | 8,173 |
| | 24,952 |
| | 25,753 |
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Provision for doubtful accounts, straight-line rental income and loan losses | 57 |
| | 8,910 |
| | 1,457 |
| | 9,449 |
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Impairment of real estate | 13,966 |
| | — |
| | 119,102 |
| | 1,413 |
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Total expenses | 124,669 |
| | 115,467 |
| | 459,607 |
| | 326,830 |
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Other income (expense): | | | | | | | |
Loss on extinguishment of debt | (644 | ) | | — |
| | (10,763 | ) | | — |
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Other income | 215 |
| | 1,336 |
| | 385 |
| | 4,156 |
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Net (loss) gain on sales of real estate | (19 | ) | | 14 |
| | 1,216 |
| | 142,445 |
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Total other income (expense) | (448 | ) | | 1,350 |
| | (9,162 | ) | | 146,601 |
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Income before loss from unconsolidated joint venture and income tax expense | 24,717 |
| | 37,685 |
| | 37,204 |
| | 303,971 |
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Loss from unconsolidated joint venture | (605 | ) | | (1,725 | ) | | (5,635 | ) | | (3,626 | ) |
Income tax expense | (826 | ) | | (732 | ) | | (2,292 | ) | | (1,847 | ) |
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Net income | 23,286 |
| | 35,228 |
| | 29,277 |
| | 298,498 |
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Net income attributable to noncontrolling interests | (4 | ) | | (10 | ) | | (22 | ) | | (22 | ) |
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Net income attributable to Sabra Health Care REIT, Inc. | 23,282 |
| | 35,218 |
| | 29,255 |
| | 298,476 |
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Preferred stock dividends | — |
| | — |
| | — |
| | (9,768 | ) |
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Net income attributable to common stockholders | $ | 23,282 |
| | $ | 35,218 |
| | $ | 29,255 |
| | $ | 288,708 |
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Net income attributable to common stockholders, per: | | | | | | | |
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Basic common share | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.16 |
| | $ | 1.62 |
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Diluted common share | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.16 |
| | $ | 1.62 |
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Weighted-average number of common shares outstanding, basic | 190,650,400 |
| | 178,317,769 |
| | 183,578,254 |
| | 178,309,127 |
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Weighted-average number of common shares outstanding, diluted | 191,952,389 |
| | 178,941,213 |
| | 184,698,411 |
| | 178,729,853 |
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See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Net income | $ | 36,460 | | | $ | 23,286 | | | $ | 101,300 | | | $ | 29,277 | |
Other comprehensive income (loss): | | | | | | | |
Unrealized (loss) gain, net of tax: | | | | | | | |
Foreign currency translation (loss) gain | (359) | | | 917 | | | 814 | | | 924 | |
Unrealized gain (loss) on cash flow hedges | 6,830 | | | (9,376) | | | (37,596) | | | (32,620) | |
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Total other comprehensive income (loss) | 6,471 | | | (8,459) | | | (36,782) | | | (31,696) | |
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Comprehensive income (loss) | 42,931 | | | 14,827 | | | 64,518 | | | (2,419) | |
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Comprehensive income attributable to noncontrolling interest | 0 | | | (4) | | | 0 | | | (22) | |
| | | | | | | |
Comprehensive income (loss) attributable to Sabra Health Care REIT, Inc. | $ | 42,931 | | | $ | 14,823 | | | $ | 64,518 | | | $ | (2,441) | |
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Net income | $ | 23,286 |
| | $ | 35,228 |
| | $ | 29,277 |
| | $ | 298,498 |
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Other comprehensive income (loss): | | | | | | | |
Unrealized gain (loss), net of tax: | | | | | | | |
Foreign currency translation gain (loss) | 917 |
| | (65 | ) | | 924 |
| | (178 | ) |
Unrealized (loss) gain on cash flow hedges | (9,376 | ) | | 2,010 |
| | (32,620 | ) | | 15,246 |
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Total other comprehensive (loss) income | (8,459 | ) | | 1,945 |
| | (31,696 | ) | | 15,068 |
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| | | | | | | |
Comprehensive income | 14,827 |
| | 37,173 |
| | (2,419 | ) | | 313,566 |
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Comprehensive income attributable to noncontrolling interests | (4 | ) | | (10 | ) | | (22 | ) | | (22 | ) |
| | | | | | | |
Comprehensive income attributable to Sabra Health Care REIT, Inc. | $ | 14,823 |
| | $ | 37,163 |
| | $ | (2,441 | ) | | $ | 313,544 |
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See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended September 30, 2019 |
| | | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| | | | | | Shares | | Amounts | | | | | | |
Balance, June 30, 2019 | | | | | | 189,515,024 | | | $ | 1,895 | | | $ | 3,725,971 | | | $ | (460,832) | | | $ | (10,936) | | | $ | 3,256,098 | | | $ | 4,278 | | | $ | 3,260,376 | |
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Net income | | | | | | — | | | — | | | — | | | 23,282 | | | — | | | 23,282 | | | 4 | | | 23,286 | |
Other comprehensive loss | | | | | | — | | | — | | | — | | | — | | | (8,459) | | | (8,459) | | | — | | | (8,459) | |
Buyout of noncontrolling interest | | | | | | — | | | — | | | 4,039 | | | — | | | — | | | 4,039 | | | (4,239) | | | (200) | |
Distributions to noncontrolling interest | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (43) | | | (43) | |
Amortization of stock-based compensation | | | | | | — | | | — | | | 3,930 | | | — | | | — | | | 3,930 | | | — | | | 3,930 | |
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Common stock issuance, net | | | | | | 4,181,877 | | | 42 | | | 89,644 | | | — | | | — | | | 89,686 | | | — | | | 89,686 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Common dividends ($0.45 per share) | | | | | | — | | | — | | | — | | | (86,159) | | | — | | | (86,159) | | | — | | | (86,159) | |
Balance, September 30, 2019 | | | | | | 193,696,901 | | | $ | 1,937 | | | $ | 3,823,584 | | | $ | (523,709) | | | $ | (19,395) | | | $ | 3,282,417 | | | $ | 0 | | | $ | 3,282,417 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended September 30, 2020 |
| | | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| | | | | | Shares | | Amounts | | | | | | |
Balance, June 30, 2020 | | | | | | 205,560,680 | | | $ | 2,056 | | | $ | 4,078,737 | | | $ | (663,901) | | | $ | (55,641) | | | $ | 3,361,251 | | | $ | 0 | | | $ | 3,361,251 | |
| | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | — | | | — | | | — | | | 36,460 | | | — | | | 36,460 | | | — | | | 36,460 | |
Other comprehensive income | | | | | | — | | | — | | | — | | | — | | | 6,471 | | | 6,471 | | | — | | | 6,471 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Amortization of stock-based compensation | | | | | | — | | | — | | | 1,625 | | | — | | | — | | | 1,625 | | | — | | | 1,625 | |
| | | | | | | | | | | | | | | | | | | | |
Common stock issuance, net | | | | | | 1,367,645 | | | 13 | | | 20,907 | | | — | | | — | | | 20,920 | | | — | | | 20,920 | |
| | | | | | | | | | | | | | | | | | | | |
Common dividends ($0.30 per share) | | | | | | — | | | — | | | — | | | (62,387) | | | — | | | (62,387) | | | — | | | (62,387) | |
Balance, September 30, 2020 | | | | | | 206,928,325 | | | $ | 2,069 | | | $ | 4,101,269 | | | $ | (689,828) | | | $ | (49,170) | | | $ | 3,364,340 | | | $ | 0 | | | $ | 3,364,340 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2018 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Amounts | | Shares | | Amounts | | | | | | |
Balance, June 30, 2018 | | — |
| | $ | — |
| | 178,283,590 |
| | $ | 1,783 |
| | $ | 3,502,954 |
| | $ | (125,606 | ) | | $ | 24,412 |
| | $ | 3,403,543 |
| | $ | 4,382 |
| | $ | 3,407,925 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 35,218 |
| | — |
| | 35,218 |
| | 10 |
| | 35,228 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,945 |
| | 1,945 |
| | — |
| | 1,945 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (35 | ) | | (35 | ) |
Amortization of stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 2,923 |
| | — |
| | — |
| | 2,923 |
| | — |
| | 2,923 |
|
Common stock issuance, net | | — |
| | — |
| | 1,385 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Common dividends ($0.45 per share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (80,728 | ) | | — |
| | (80,728 | ) | | — |
| | (80,728 | ) |
Balance, September 30, 2018 | | — |
| | $ | — |
| | 178,284,975 |
| | $ | 1,783 |
| | $ | 3,505,877 |
| | $ | (171,116 | ) | | $ | 26,357 |
| | $ | 3,362,901 |
| | $ | 4,357 |
| | $ | 3,367,258 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Amounts | | Shares | | Amounts | | | | | | |
Balance, June 30, 2019 | | — |
| | $ | — |
| | 189,515,024 |
| | $ | 1,895 |
| | $ | 3,725,971 |
| | $ | (460,832 | ) | | $ | (10,936 | ) | | $ | 3,256,098 |
| | $ | 4,278 |
| | $ | 3,260,376 |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 23,282 |
| | — |
| | 23,282 |
| | 4 |
| | 23,286 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8,459 | ) | | (8,459 | ) | | — |
| | (8,459 | ) |
Buyout of noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | 4,039 |
| | — |
| | — |
| | 4,039 |
| | (4,239 | ) | | (200 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (43 | ) | | (43 | ) |
Amortization of stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 3,930 |
| | — |
| | — |
| | 3,930 |
| | — |
| | 3,930 |
|
Common stock issuance, net | | — |
| | — |
| | 4,181,877 |
| | 42 |
| | 89,644 |
| | — |
| | — |
| | 89,686 |
| | — |
| | 89,686 |
|
Common dividends ($0.45 per share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (86,159 | ) | | — |
| | (86,159 | ) | | — |
| | (86,159 | ) |
Balance, September 30, 2019 | | — |
| | $ | — |
| | 193,696,901 |
| | $ | 1,937 |
| | $ | 3,823,584 |
| | $ | (523,709 | ) | | $ | (19,395 | ) | | $ | 3,282,417 |
| | $ | — |
| | $ | 3,282,417 |
|
| | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
(dollars in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Nine Months Ended September 30, 2019 |
| | | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| | | | | | Shares | | Amounts | | | | | | |
Balance, December 31, 2018 | | | | | | 178,306,528 | | | $ | 1,783 | | | $ | 3,507,925 | | | $ | (271,595) | | | $ | 12,301 | | | $ | 3,250,414 | | | $ | 4,333 | | | $ | 3,254,747 | |
Cumulative effect of Topic 842 adoption | | | | | | — | | | — | | | — | | | (32,502) | | | — | | | (32,502) | | | — | | | (32,502) | |
Net income | | | | | | — | | | — | | | — | | | 29,255 | | | — | | | 29,255 | | | 22 | | | 29,277 | |
Other comprehensive loss | | | | | | — | | | — | | | — | | | — | | | (31,696) | | | (31,696) | | | — | | | (31,696) | |
Buyout of noncontrolling interest | | | | | | — | | | — | | | 4,039 | | | — | | | — | | | 4,039 | | | (4,239) | | | (200) | |
Distributions to noncontrolling interest | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | (116) | | | (116) | |
Amortization of stock-based compensation | | | | | | — | | | — | | | 10,474 | | | — | | | — | | | 10,474 | | | — | | | 10,474 | |
| | | | | | | | | | | | | | | | | | | | |
Common stock issuance, net | | | | | | 15,390,373 | | | 154 | | | 301,146 | | | — | | | — | | | 301,300 | | | — | | | 301,300 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Common dividends ($1.35 per share) | | | | | | — | | | — | | | — | | | (248,867) | | | — | | | (248,867) | | | — | | | (248,867) | |
Balance, September 30, 2019 | | | | | | 193,696,901 | | | $ | 1,937 | | | $ | 3,823,584 | | | $ | (523,709) | | | $ | (19,395) | | | $ | 3,282,417 | | | $ | 0 | | | $ | 3,282,417 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Nine Months Ended September 30, 2020 |
| | | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
| | | | | | Shares | | Amounts | | | | | | |
Balance, December 31, 2019 | | | | | | 205,208,018 | | | $ | 2,052 | | | $ | 4,072,079 | | | $ | (573,283) | | | $ | (12,388) | | | $ | 3,488,460 | | | $ | 0 | | | $ | 3,488,460 | |
Cumulative effect of Topic 326 adoption | | | | | | — | | | — | | | — | | | (167) | | | — | | | (167) | | | — | | | (167) | |
Net income | | | | | | — | | | — | | | — | | | 101,300 | | | — | | | 101,300 | | | — | | | 101,300 | |
Other comprehensive loss | | | | | | — | | | — | | | — | | | — | | | (36,782) | | | (36,782) | | | — | | | (36,782) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Amortization of stock-based compensation | | | | | | — | | | — | | | 7,582 | | | — | | | — | | | 7,582 | | | — | | | 7,582 | |
| | | | | | | | | | | | | | | | | | | | |
Common stock issuance, net | | | | | | 1,720,307 | | | 17 | | | 21,608 | | | — | | | — | | | 21,625 | | | — | | | 21,625 | |
| | | | | | | | | | | | | | | | | | | | |
Common dividends ($1.05 per share) | | | | | | — | | | — | | | — | | | (217,678) | | | — | | | (217,678) | | | — | | | (217,678) | |
Balance, September 30, 2020 | | | | | | 206,928,325 | | | $ | 2,069 | | | $ | 4,101,269 | | | $ | (689,828) | | | $ | (49,170) | | | $ | 3,364,340 | | | $ | 0 | | | $ | 3,364,340 | |
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Amounts | | Shares | | Amounts | | | | | | |
Balance, December 31, 2017 | | 5,750,000 |
| | $ | 58 |
| | 178,255,843 |
| | $ | 1,783 |
| | $ | 3,636,913 |
| | $ | (217,236 | ) | | $ | 11,289 |
| | $ | 3,432,807 |
| | $ | 4,442 |
| | $ | 3,437,249 |
|
Cumulative effect of ASU 2017-12 adoption | | — |
| | — |
| | — |
| | — |
| | — |
| | (795 | ) | | 795 |
| | — |
| | — |
| | — |
|
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 298,476 |
| | — |
| | 298,476 |
| | 22 |
| | 298,498 |
|
Other comprehensive income | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,273 |
| | 14,273 |
| | — |
| | 14,273 |
|
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (107 | ) | | (107 | ) |
Amortization of stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 7,357 |
| | — |
| | — |
| | 7,357 |
| | — |
| | 7,357 |
|
Preferred stock redemption | | (5,750,000 | ) | | (58 | ) | | — |
| | — |
| | (138,191 | ) | | (5,501 | ) | | — |
| | (143,750 | ) | | — |
| | (143,750 | ) |
Common stock issuance, net | | — |
| | — |
| | 29,132 |
| | — |
| | (202 | ) | | — |
| | — |
| | (202 | ) | | — |
| | (202 | ) |
Preferred dividends | | — |
| | — |
| | — |
| | — |
| | — |
| | (4,267 | ) | | — |
| | (4,267 | ) | | — |
| | (4,267 | ) |
Common dividends ($1.35 per share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (241,793 | ) | | — |
| | (241,793 | ) | | — |
| | (241,793 | ) |
Balance, September 30, 2018 | | — |
| | $ | — |
| | 178,284,975 |
| | $ | 1,783 |
| | $ | 3,505,877 |
| | $ | (171,116 | ) | | $ | 26,357 |
| | $ | 3,362,901 |
| | $ | 4,357 |
| | $ | 3,367,258 |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2019 |
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Cumulative Distributions in Excess of Net Income | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
| | Shares | | Amounts | | Shares | | Amounts | | | | | | |
Balance, December 31, 2018 | | — |
| | $ | — |
| | 178,306,528 |
| | $ | 1,783 |
| | $ | 3,507,925 |
| | $ | (271,595 | ) | | $ | 12,301 |
| | $ | 3,250,414 |
| | $ | 4,333 |
| | $ | 3,254,747 |
|
Cumulative effect of Topic 842 adoption | | — |
| | — |
| | — |
| | — |
| | — |
| | (32,502 | ) | | — |
| | (32,502 | ) | | — |
| | (32,502 | ) |
Net income | | — |
| | — |
| | — |
| | — |
| | — |
| | 29,255 |
| | — |
| | 29,255 |
| | 22 |
| | 29,277 |
|
Other comprehensive loss | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (31,696 | ) | | (31,696 | ) | | — |
| | (31,696 | ) |
Buyout of noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | 4,039 |
| | — |
| | — |
| | 4,039 |
| | (4,239 | ) | | (200 | ) |
Distributions to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (116 | ) | | (116 | ) |
Amortization of stock-based compensation | | — |
| | — |
| | — |
| | — |
| | 10,474 |
| | — |
| | — |
| | 10,474 |
| | — |
| | 10,474 |
|
Common stock issuance, net | | — |
| | — |
| | 15,390,373 |
| | 154 |
| | 301,146 |
| | — |
| | — |
| | 301,300 |
| | — |
| | 301,300 |
|
Common dividends ($1.35 per share) | | — |
| | — |
| | — |
| | — |
| | — |
| | (248,867 | ) | | — |
| | (248,867 | ) | | — |
| | (248,867 | ) |
Balance, September 30, 2019 | | — |
| | $ | — |
| | 193,696,901 |
| | $ | 1,937 |
| | $ | 3,823,584 |
| | $ | (523,709 | ) | | $ | (19,395 | ) | | $ | 3,282,417 |
| | $ | — |
| | $ | 3,282,417 |
|
| | | | | | | | | | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2020 | | 2019 |
Cash flows from operating activities: |
| |
| Cash flows from operating activities: | | | |
Net income | $ | 29,277 |
| | $ | 298,498 |
| Net income | $ | 101,300 | | | $ | 29,277 | |
Adjustments to reconcile net income to net cash provided by operating activities: |
| |
| Adjustments to reconcile net income to net cash provided by operating activities: | |
Depreciation and amortization | 137,517 |
| | 143,301 |
| Depreciation and amortization | 132,579 | | | 137,517 | |
Amortization of above and below market lease intangibles, net | 1,102 |
| | 4,193 |
| |
Non-cash interest income adjustments | (1,680 | ) | | (1,722 | ) | |
Non-cash rental and related revenues | | Non-cash rental and related revenues | 1,340 | | | (12,965) | |
Non-cash interest income | | Non-cash interest income | (1,743) | | | (1,680) | |
Non-cash interest expense | 7,846 |
| | 7,548 |
| Non-cash interest expense | 6,527 | | | 7,846 | |
Stock-based compensation expense | 8,829 |
| | 6,275 |
| Stock-based compensation expense | 5,651 | | | 8,829 | |
Non-cash lease termination income | (9,725 | ) | | — |
| Non-cash lease termination income | 0 | | | (9,725) | |
| Loss on extinguishment of debt | 10,763 |
| | — |
| Loss on extinguishment of debt | 531 | | | 10,763 | |
Straight-line rental income adjustments | (14,067 | ) | | (34,404 | ) | |
Provision for doubtful accounts, straight-line rental income and loan losses | 1,457 |
| | 9,449 |
| |
| Provision for loan losses and other reserves | | Provision for loan losses and other reserves | 706 | | | 1,457 | |
Net gain on sales of real estate | (1,216 | ) | | (142,445 | ) | Net gain on sales of real estate | (2,828) | | | (1,216) | |
Impairment of real estate | 119,102 |
| | 1,413 |
| Impairment of real estate | 3,154 | | | 119,102 | |
Loss from unconsolidated joint venture | 5,635 |
| | 3,626 |
| Loss from unconsolidated joint venture | 13,037 | | | 5,635 | |
Distributions of earnings from unconsolidated joint venture | 10,162 |
| | 6,494 |
| Distributions of earnings from unconsolidated joint venture | 11,318 | | | 10,162 | |
Changes in operating assets and liabilities: |
|
| |
|
| Changes in operating assets and liabilities: | |
Accounts receivable, prepaid expenses and other assets, net | (7,252 | ) | | (4,031 | ) | Accounts receivable, prepaid expenses and other assets, net | (3,523) | | | (7,252) | |
Accounts payable and accrued liabilities | (20,769 | ) | | (15,171 | ) | Accounts payable and accrued liabilities | (2,594) | | | (20,769) | |
| Net cash provided by operating activities | 276,981 |
| | 283,024 |
| Net cash provided by operating activities | 265,455 | | | 276,981 | |
Cash flows from investing activities: |
| |
| Cash flows from investing activities: | | | |
Acquisition of real estate | (14,977 | ) | | (239,001 | ) | Acquisition of real estate | (92,945) | | | (14,977) | |
| Origination and fundings of loans receivable | (9,441 | ) | | (41,448 | ) | Origination and fundings of loans receivable | (1,651) | | | (9,441) | |
Origination and fundings of preferred equity investments | — |
| | (5,285 | ) | Origination and fundings of preferred equity investments | (20,059) | | | 0 | |
Additions to real estate | (15,985 | ) | | (21,695 | ) | Additions to real estate | (32,416) | | | (15,985) | |
Repayments of loans receivable | 13,761 |
| | 48,282 |
| Repayments of loans receivable | 3,095 | | | 13,761 | |
Repayments of preferred equity investments | 3,672 |
| | 6,491 |
| Repayments of preferred equity investments | 3,399 | | | 3,672 | |
Investment in unconsolidated joint venture | — |
| | (354,461 | ) | |
| Net proceeds from the sales of real estate | 321,715 |
| | 290,864 |
| Net proceeds from the sales of real estate | 8,754 | | | 321,715 | |
Distributions in excess of earnings from unconsolidated joint venture | | Distributions in excess of earnings from unconsolidated joint venture | 1,305 | | | 0 | |
Buyout of noncontrolling interests | (200 | ) | | — |
| Buyout of noncontrolling interests | 0 | | | (200) | |
Net cash provided by (used in) investing activities | 298,545 |
| | (316,253 | ) | |
Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | (130,518) | | | 298,545 | |
Cash flows from financing activities: |
| |
| Cash flows from financing activities: | | | |
Net repayments of revolving credit facility | (424,000 | ) | | (22,000 | ) | |
Net borrowings from (repayments of) revolving credit facility | | Net borrowings from (repayments of) revolving credit facility | 56,000 | | | (424,000) | |
Proceeds from issuance of senior unsecured notes | 297,039 |
| | — |
| Proceeds from issuance of senior unsecured notes | 0 | | | 297,039 | |
Principal payments on senior unsecured notes | (500,000 | ) | | — |
| Principal payments on senior unsecured notes | 0 | | | (500,000) | |
Principal payments on secured debt | (2,566 | ) | | (3,202 | ) | Principal payments on secured debt | (2,396) | | | (2,566) | |
Payments of deferred financing costs | (14,001 | ) | | (12 | ) | Payments of deferred financing costs | (819) | | | (14,001) | |
Payments related to extinguishment of debt | (6,897 | ) | | — |
| Payments related to extinguishment of debt | 0 | | | (6,897) | |
Distributions to noncontrolling interests | (116 | ) | | (107 | ) | |
Preferred stock redemption | — |
| | (143,750 | ) | |
Distributions to noncontrolling interest | | Distributions to noncontrolling interest | 0 | | | (116) | |
| Issuance of common stock, net | 302,030 |
| | (499 | ) | Issuance of common stock, net | 20,961 | | | 302,030 | |
Dividends paid on common and preferred stock | (247,222 | ) | | (244,978 | ) | |
Dividends paid on common stock | | Dividends paid on common stock | (215,747) | | | (247,222) | |
| Net cash used in financing activities | (595,733 | ) | | (414,548 | ) | Net cash used in financing activities | (142,001) | | | (595,733) | |
| Net decrease in cash, cash equivalents and restricted cash | (20,207 | ) | | (447,777 | ) | Net decrease in cash, cash equivalents and restricted cash | (7,064) | | | (20,207) | |
Effect of foreign currency translation on cash, cash equivalents and restricted cash | 211 |
| | (156 | ) | Effect of foreign currency translation on cash, cash equivalents and restricted cash | (230) | | | 211 | |
Cash, cash equivalents and restricted cash, beginning of period | 59,658 |
| | 587,449 |
| Cash, cash equivalents and restricted cash, beginning of period | 49,143 | | | 59,658 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 39,662 |
| | $ | 139,516 |
| Cash, cash equivalents and restricted cash, end of period | $ | 41,849 | | | $ | 39,662 | |
Supplemental disclosure of cash flow information: |
| |
| Supplemental disclosure of cash flow information: | | | |
Interest paid | $ | 100,230 |
| | $ | 111,519 |
| Interest paid | $ | 67,995 | | | $ | 100,230 | |
| Supplemental disclosure of non-cash investing activities: | | Supplemental disclosure of non-cash investing activities: | | | |
| Decrease in loans receivable and other investments due to acquisition of real estate | | Decrease in loans receivable and other investments due to acquisition of real estate | $ | 20,731 | | | $ | 0 | |
Secured debt assumed by buyers in connection with sales of real estate | | Secured debt assumed by buyers in connection with sales of real estate | $ | 31,830 | | | $ | 0 | |
See accompanying notes to condensed consolidated financial statements.
SABRA HEALTH CARE REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BUSINESS
Overview
Sabra Health Care REIT, Inc. (“Sabra” or the “Company”) was incorporated on May 10, 2010 as a wholly owned subsidiary of Sun Healthcare Group, Inc. (“Sun”) and commenced operations on November 15, 2010 following Sabra’s separation from Sun. Sabra elected to be treated as a real estate investment trust (“REIT”) with the filing of its United States (“U.S.”) federal income tax return for the taxable year beginning January 1, 2011. Sabra believes that it has been organized and operated, and it intends to continue to operate, in a manner to qualify as a REIT. Sabra’s primary business consists of acquiring, financing and owning real estate property to be leased to third-party tenants in the healthcare sector. Sabra primarily generates revenues by leasing properties to tenants and operators 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 (the “Operating Partnership”), of which Sabra is the sole general partner and a wholly owned subsidiary of Sabra is currently the only limited partner, or by subsidiaries of the Operating Partnership. The Company’s investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities (“Senior Housing - Leased”) 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 loans receivable; preferred equity investments; and an investment in an unconsolidated joint venture.
On August 17, 2017, pursuantCOVID-19
In March 2020, the World Health Organization declared COVID-19 a pandemic, and the United States declared a national emergency with respect to COVID-19. In the intervening months, COVID-19 has spread globally and led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Although some of these governmental restrictions have since been lifted or scaled back, a recent surge of COVID-19 infections has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. These measures may remain in place for a significant amount of time. The COVID-19 pandemic and measures to prevent its spread have negatively impacted and are expected to continue to negatively impact the Company and its operations in a number of ways, including but not limited to:
•Decreased occupancy and increased operating costs for the Company’s tenants and borrowers, which has negatively impacted their operating results and may adversely impact their ability to make full and timely rental payments and debt service payments, respectively, to the Company. In some cases, the Company may have to restructure tenants’ long-term rent obligations and may not be able to do so on terms that are as favorable to the Company as those currently in place. Reduced or modified rental and debt service amounts could result in the determination that the full amounts of the Company’s investments are not recoverable, which could result in an Agreement and Planimpairment charge. To date, the impact of Merger (the “Merger Agreement”) entered intoCOVID-19 on the Company’s skilled nursing/transitional care facility operators has been partially mitigated by the Company,assistance they have received or expect to receive from state and federal assistance programs, including through the Operating Partnership, PR Sub, LLC, a Delaware limited liability companyCARES Act (as defined and wholly owned subsidiaryfurther described below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Skilled Nursing Facility Reimbursement Rates” in Part I, Item 2), although these benefits on an individual operator basis vary and may not provide enough relief to meet their rental obligations to the Company. Prior to September 1, 2020, few of these programs were available to the Company’s senior housing operators; as of September 1, 2020, eligible assisted living facility operators may apply for funding through the CARES Act, and the assistance received or expected to be received will partially mitigate the negative impact of COVID-19 on the Company’s eligible assisted living facility operators. As of September 30, 2020, the Company’s tenants and borrowers have continued to pay expected cash rents and debt service obligations consistent with past practice. However, the longer the duration of the Company (“Merger Sub”COVID-19 pandemic, the more likely that the Company’s tenants and borrowers will begin to default on these obligations. Such defaults could materially and adversely affect the Company’s results of operations and liquidity, in addition to resulting in potential impairment charges.
•Decreased occupancy and increased operating costs within the Company’s Senior Housing - Managed portfolio and in the Company’s 49% equity interest in a joint venture with affiliates of Enlivant and TPG Real Estate, the real estate platform of TPG, that owns senior housing communities managed by Enlivant (the “Enlivant Joint Venture”), Care Capital Properties, Inc., a Delaware corporation (“CCP”),which have negatively impacted and Care Capital Properties, L.P. (“CCPLP”), a Delaware limited partnershipare expected to continue to negatively impact the operating results of these
investments. As noted above, as of September 1, 2020, eligible assisted living facility operators may apply for funding through the CARES Act, and wholly owned subsidiarythe assistance received or expected to be received will partially mitigate the negative impact of CCP, CCP merged withCOVID-19 on the Company’s Senior Housing - Managed portfolio and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “CCP Merger”), following which Merger Sub merged withEnlivant Joint Venture. During each of the three and intonine months ended September 30, 2020, the Company withrecognized government grants under the Company continuingCARES Act of $4.2 million. In addition, on October 1, 2020, the Department of Health and Human Services announced $20 billion of new funding for assisted living facility operators that have already received funds and to those who were previously ineligible. Prolonged deterioration in the operating results for the Company’s investments in its Senior Housing - Managed portfolio and the Enlivant Joint Venture could result in the determination that the full amounts of the Company’s investments are not recoverable, which could result in an impairment charge.
The Company’s financial results as of and for the surviving entity (the “Subsequent Merger”),three and simultaneous withnine months ended September 30, 2020 reflect the Subsequent Merger, CCPLP merged withresults of the Company’s evaluation of the impact of COVID-19 on its business including, but not limited to, its evaluation of potential impairments of long-lived or other assets, measurement of credit losses on financial instruments, evaluation of any lease modifications, evaluation of lease accounting impact, estimates of fair value and into the Operating Partnership, with the Operating Partnership continuingCompany’s ability to continue as the surviving entity.a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Sabra and its wholly owned subsidiaries as of September 30, 20192020 and December 31, 20182019 and for the three and nine month periods ended September 30, 20192020 and 2018.2019. All significant intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results for such periods. Operating results for the three and nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.2020. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 20182019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the SEC.
GAAP requires the Company to identify entities for which control is achieved through voting rights or other means and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or
(c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. If the Company were determined to be the primary beneficiary of the VIE, the Company would consolidate investments in the VIE. The Company may change its original assessment of a VIE due to events such as modifications of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposal of all or a portion of an interest held by the primary beneficiary.
The Company identifies the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The Company performs this analysis on an ongoing basis. As of September 30, 2019,2020, the Company determined that it was not0t the primarilyprimary beneficiary of any VIEs.
As it relates to investments in loans, in addition to the Company’s assessment of VIEs and whether the Company is the primary beneficiary of those VIEs, the Company evaluates the loan terms and other pertinent facts to determine whether the loan investment should be accounted for as a loan or as a real estate joint venture. If an investment has the characteristics of a real estate joint venture, including if the Company participates in the majority of the borrower’s expected residual profit, the
Company would account for the investment as an investment in a real estate joint venture and not as a loan investment. Expected residual profit is defined as the amount of profit, whether called interest or another name, such as an equity kicker, above a reasonable amount of interest and fees expected to be earned by a lender. At September 30, 2019,2020, NaN of the Company’s investments in loans were accounted for as real estate joint ventures.
As it relates to investments in joint ventures, the Company assesses any limited partners’ rights and their impact on the presumption of control of the limited partnership by any single partner. The Company also applies this guidance to managing member interests in limited liability companies. The Company reassesses its determination of which entity controls the joint venture if: there is a change to the terms or in the exercisability of the rights of any partners or members, the sole general partner or managing member increases or decreases its ownership interests, or there is an increase or decrease in the number of outstanding ownership interests. As of September 30, 2019,2020, the Company’s determination of which entity controls its investments in joint ventures has not changed as a result of any reassessment.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.
Reclassifications
Certain amounts in the Company’s condensed consolidated statements of incomecash flows for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations or stockholders’ equityoperations.
Out of prior periods.Period Adjustments
Investment in Unconsolidated Joint Venture
TheDuring the three months ended September 30, 2020, the Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting. Under this method of accounting, the Company’s share of the investee’s earnings or losses is includedidentified certain historical errors in the Company’s condensed consolidated statementsrecording of income. The initial carrying value of the investment is based on the amount paiddepreciation and amortization expense related to purchase the joint venture interest. Differences between the Company’s cost basis and the basis reflected at the joint venture level are generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of earnings of the joint venture.
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its equity method investments may not be recoverable or realized. When indicators of potential impairment are identified, the Company evaluates its equity method investments for impairment based on a comparison of the fair value of the investment to its carrying value. The fair value is estimated based on discounted cash flows that include all estimated cash inflows and outflows over a specified holding period and any estimated debt premiums or discounts. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of its equity method investment, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of its equity method investment.
On January 2, 2018, the Company completed its transaction with affiliates of Enlivant and TPG Real Estate, the real estate platform of TPG, and contributed $352.7 million, before closing costs, to acquire a 49% equity interest in an entity that owned 172 senior housing communities managed by Enlivant (the “Enlivant Joint Venture”). At closing, the Enlivant Joint Venture had outstanding indebtedness of $791.3 million and net working capital of $22.9 million. The joint venture agreement includes an option for the Company to acquire the remainder of the outstanding equity interestsdifference in the Enlivant Joint Venture by January 2, 2021 and grantsnot correctly expensing the Companyallocable portion of the rightbasis difference upon the sale of first offer if the Company’s partnerassets in the Enlivant Joint Venture desiresVenture. These errors impacted the Company’s investment in unconsolidated joint venture and income (loss) from unconsolidated joint venture as well as its condensed consolidated statements of income, condensed consolidated statements of comprehensive income (loss) and condensed consolidated statements of equity since 2018, which impacted the quarterly financial statements and annual periods previously issued. These errors resulted in understating (overstating) previously recorded income (loss) from unconsolidated joint venture and net income by $5.2 million for the six months ended June 30, 2020 and $0.1 million and ($1.7) million for the years ended December 31, 2019 and 2018, respectively. These out of period adjustments were recorded in the third quarter of 2020, resulting in an increase to transfer its equity interest (which it may do commencing on January 2, 2020). Sabra also hasincome from unconsolidated joint venture and net income of $3.6 million. Management evaluated the right to designate 3 directors on the 7 member board of directorsimpact of the Enlivant Joint Ventureerrors to the current period and has other customary minority rights. Duringprior period financial statements and determined that the nine months ended September 30, 2019,impact was not material to any of the Enlivant Joint Venture sold 2 senior housing communities for gross proceedsimpacted periods.
Government Grants
Government assistance provided to the Company in the form of $6.3 million,an income grant, which is not related to long-lived assets and is not required to be repaid, is recognized as grant income when there is reasonable assurance that the grant will be received and the Company recorded an aggregate net loss on sale of real estate relatedwill comply with any conditions associated with the grant. Additionally, grants are recognized over the periods in which the Company recognizes the qualifying expenses and/or lost income for which the grants are intended to unconsolidated joint venture of $1.7 million.compensate. As of September 30, 2019,2020, the book valueamount of qualifying expenditures exceeded amounts recognized under the Company’s investment in the Enlivant Joint Venture was $324.3 million.
Net Investment in Direct Financing Lease
As of September 30, 2019,CARES Act, and the Company had a $23.8 million net investment in 1 skilled nursing/transitional care facility leased to an operator under a direct financing lease, as the tenant is obligated to purchase the property at the endcomplied with all grant conditions. Accordingly, during each of the lease term. The net investment in direct financing lease is recorded in accounts receivable, prepaid expenses and other assets, net on the accompanying condensed consolidated balance sheets and represents the total undiscounted rental payments of $4.4 million, plus the estimated unguaranteed residual value of $24.7 million, less the unearned lease income of $5.3 million as of September 30, 2019. Unearned lease income represents the excess of the minimum lease payments and residual value over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectability of the lease payments is reasonably assured. Income from the Company’s net investment in direct financing lease was $0.7 million and $2.0 million for the three and nine months ended September 30, 2019, respectively,2020, the Company recognized $1.2 million of grants in resident fees and $0.6services and $3.0 million and $1.9 million forof grants in loss from unconsolidated joint venture in the three and nine months ended September 30, 2018, respectively, and is reflected in interest and other income on the accompanying condensed consolidated statements of income. Future minimum lease payments contractually due under the direct financing lease at September 30, 2019 were as follows: $0.6 million for the remainder of 2019; $2.3 million for 2020; and $2.1 million for 2021.
Recently Issued Accounting Standards Update
Adopted
In FebruaryJune 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, as amended by subsequent ASUs (“Topic 842”). Topic 842 supersedes guidance related to accounting for leases and provides for the recognition of lease assets and lease liabilities by lessees for those leases previously classified as operating leases under GAAP. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing and uncertainty of cash flows arising from a lease. Topic 842 does not fundamentally change lessor accounting; however, some changes have been made to lessor accounting to conform and align that guidance with the lessee guidance and other areas within GAAP. Topic 842 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company elected to adopt Topic 842 on January 1, 2019 using the modified retrospective transition method, which permits application of the new standard on the adoption date as opposed to the earliest comparative period presented in the financial statements. In addition, the Company elected to use the available practical expedient package, and therefore did not reassess classification of its existing leases.
Additionally, the Company has elected a practical expedient not to separate lease and nonlease components (such as services rendered), which can only be applied to leasing arrangements for which (i) the timing and pattern of transfer are the same for the lease and nonlease components and (ii) the lease component, if accounted for separately, would be classified as an operating lease. Under this practical expedient, contracts that are predominantly lease-based would be accounted for under Topic 842, and contracts that are predominantly service-based would be accounted for under Topic 606, Revenue from Contracts with Customers. As a result of electing this practical expedient, the Company, beginning January 1, 2019, recognizes revenue from its leased skilled nursing/transitional care facilities, senior housing communities, and specialty hospitals and other facilities under Topic 842 and recognizes revenue from its Senior Housing - Managed communities under the Revenue ASUs (codified under Topic 606). Upon adoption of Topic 842, the Company recognized its operating leases for which it is the lessee, mainly its corporate office lease and ground leases, on its consolidated balance sheets, as a lease liability of $10.0 million, included in accounts payable and accrued liabilities on the condensed consolidated balance sheets, and a corresponding right-of-use asset, included in accounts receivable, prepaid expenses and other assets, net on the condensed consolidated balance sheets. As of September 30, 2019, the balances of the lease liability and the corresponding right-of-use asset were $9.8 million and $9.4 million, respectively.
The Company assesses the collectability of rental revenues on a lease-by-lease basis. Prior to the adoption of Topic 842, the Company recorded rental revenue and receivables to the extent those amounts were expected to be collected, irrespective of the Company’s determination of the collectability of substantially all rents over the life of a lease. Upon adoption of Topic 842, if at any time the Company 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. Upon adoption of Topic 842 and as of the adoption date, the Company recorded a $32.5 million reduction in equity and accounts receivable due to the cumulative effect of this change. This reduction consisted of $17.5 million of straight-line rental income receivables and $15.0 million of cash rent receivables, although management believes the $15.0 million of cash rent receivables are collectible. Any recoveries of these amounts will be recorded in future periods upon receipt of payment. Under Topic 842, future write-offs of receivables and any recoveries of previously written-off receivables will be recorded as adjustments to rental revenue.
Furthermore, Topic 842 requires lessors to exclude from variable payments lessor costs paid by lessees directly to third parties. In contrast, lessor costs that are paid by the lessor and reimbursed by the lessee are included in the measurement of variable lease revenue and the associated expense. As a result, the Company recognized $4.0 million and $13.0 million of variable lease revenue and the associated expense during the three and nine months ended September 30, 2019, respectively.
Issued but Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The amendments in ASU 2016-13 are an improvement because they eliminate the probable initial recognition threshold under current GAAP and, instead, reflect an entity’s current estimate of all expected credit losses. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss. In November 2018, the FASB
issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2018-19”), which amends ASU 2016-13 to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20, and instead, impairment of such receivables should be accounted for in accordance with ASU 2016-02, Leases, as amended by subsequent ASUs (“Topic 842, Leases.842”). In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses (“ASU 2019-11”), which amends ASU 2016-13 to clarify or address stakeholders’ specific issues about certain aspects of ASU 2016-13. ASU 2016-13, ASU 2018-19 and ASU 2018-192019-11 are effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted as of the fiscal years beginning after December 15, 2018. An entity will apply the amendments in these updates through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company adopted ASU 2016-13, ASU 2018-19 and ASU 2019-11 (collectively, “Topic 326”) on January 1, 2020.
The financial assets within the scope of Topic 326 are the Company’s investments in a direct financing lease and loans receivable, including the portion of unfunded loan commitments expected to be funded. The allowance for credit losses is currently evaluatingcalculated using the impact this guidance will haverelated amortization schedules, payment histories and loan-to-value ratios. The following rates are applied to determine the aggregate expected losses, which is recorded as the allowance for credit losses: (i) a default rate, (ii) a liquidation cost rate and (iii) a distressed property reduction rate. If no loan-to-value ratio is available, a loss severity rate is applied in place of the liquidation cost rate and the distressed property reduction rate. The default rate is based on itsaverage charge-off and delinquency rates from the Federal Reserve, and the other rates are based on industry research and historical performance of a similar portfolio of financial assets. Related interest income receivable balances are evaluated separately for collectability, and reserves are established based on management’s estimate of losses.
Upon adoption of these standards, the Company recognized the cumulative effect on the opening balance of the allowance for credit losses in the condensed consolidated financial statements when adopted.balance sheets, which resulted in an increase to cumulative distributions in excess of net income and a decrease to total assets of $0.2 million.
Issued but Not Yet Adopted
In August 2018,March 2020, the FASB issued ASU 2018-13, Fair Value Measurement2020-04, Reference Rate Reform (Topic 820)848): Disclosure Framework—Changes toFacilitation of the Disclosure Requirements for Fair Value MeasurementEffects of Reference Rate Reform on Financial Reporting (“ASU 2018-13”2020-04”). ASU 2018-13 updates2020-04 provides temporary optional guidance that provides transition relief for reference rate reform, including optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions that reference LIBOR or a reference rate that is expected to be discontinued as a result of reference rate reform if certain criteria are met. ASU 2020-04 is effective upon issuance, and the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosureprovisions generally can be applied prospectively as of January 1, 2020 through December 31, 2022. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the amount ofguidance and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements, (ii) modifying certain requirements, including clarifying that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurementmay apply other elections as of the reporting date and (iii) adding certain requirements, including disclosure of theapplicable as additional changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019, with early adoption permitted for any eliminated or modified disclosures. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements when adopted.market occur.
3. RECENT REAL ESTATE ACQUISITIONS
During the nine months ended September 30, 2020, the Company acquired 3 Senior Housing - Leased communities and 1 Senior Housing - Managed community. These investments were part of the Company’s proprietary development pipeline, and $20.7 million was previously funded through its preferred equity investments in these developments. During the nine months ended September 30, 2019, the Company acquired 2 specialty hospitals/other facilities. During the nine months ended September 30, 2018, the Company acquired 11 Senior Housing - Managed communities, 7 senior housing communities and 2 skilled nursing/transitional care facilities. The consideration was allocated as follows (in thousands):
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2019 | | 2018 |
Land | | $ | 2,040 |
| | $ | 28,089 |
|
Building and improvements | | 12,652 |
| | 208,678 |
|
Tenant origination and absorption costs intangible assets | | 234 |
| | 1,669 |
|
Tenant relationship intangible assets | | 51 |
| | 565 |
|
| | | | |
Total consideration | | $ | 14,977 |
| | $ | 239,001 |
|
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 |
Land | | $ | 5,800 | | | $ | 2,040 | |
Building and improvements | | 104,952 | | | 12,652 | |
Tenant origination and absorption costs intangible assets | | 2,578 | | | 234 | |
Tenant relationship intangible assets | | 347 | | | 51 | |
Total consideration | | $ | 113,677 | | | $ | 14,977 | |
| | | | |
The tenant origination and absorption costs intangible assets and tenant relationship intangible assets had weighted-averageweighted-
average amortization periods as of the respective dates of acquisition of seven years and 25 years, respectively, for acquisitions completed during the nine months ended September 30, 2020, and 15 years and 25 years, respectively, for acquisitions completed during the nine months ended September 30, 2019,2019.
For the three and 13 yearsnine months ended September 30, 2020, the Company recognized $3.4 million and 22 years,$9.2 million of total revenues, respectively, forand $1.4 million and $3.7 million of net income attributable to common stockholders, respectively, from the acquisitions completedfacilities acquired during the nine months ended September 30, 2018.
2020. For each of the three and nine months ended September 30, 2019, the Company recognized $0.2 million of total revenues and $0.2 million of net income attributable to common stockholders from the facilities acquired during the nine months ended September 30, 2019. For the three and nine months ended September 30, 2018, the Company recognized $11.2 million and $31.5 million of total revenues, respectively, and $3.2 million and $9.3 million of net income attributable to common stockholders, respectively, from the facilities acquired during the nine months ended September 30, 2018.
4. INVESTMENT IN REAL ESTATE PROPERTIES HELD FOR INVESTMENT
The Company’s real estate properties held for investment consisted of the following (dollars in thousands):
As of September 30, 20192020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Type | | Number of Properties | | Number of Beds/Units | | Total Real Estate at Cost | | Accumulated Depreciation | | Total Real Estate Investments, Net |
Skilled Nursing/Transitional Care | | 287 | | | 32,019 | | | $ | 3,642,653 | | | $ | (360,742) | | | $ | 3,281,911 | |
Senior Housing - Leased | | 64 | | | 4,242 | | | 707,379 | | | (83,105) | | | 624,274 | |
Senior Housing - Managed | | 47 | | | 4,924 | | | 931,655 | | | (134,056) | | | 797,599 | |
Specialty Hospitals and Other | | 27 | | | 1,193 | | | 663,982 | | | (61,909) | | | 602,073 | |
| | 425 | | | 42,378 | | | 5,945,669 | | | (639,812) | | | 5,305,857 | |
Corporate Level | | | | | | 817 | | | (402) | | | 415 | |
| | | | | | $ | 5,946,486 | | | $ | (640,214) | | | $ | 5,306,272 | |
|
| | | | | | | | | | | | | | | | | | |
Property Type | | Number of Properties | | Number of Beds/Units | | Total Real Estate at Cost | | Accumulated Depreciation | | Total Real Estate Investments, Net |
Skilled Nursing/Transitional Care | | 304 |
| | 33,879 |
| | $ | 3,711,702 |
| | $ | (285,138 | ) | | $ | 3,426,564 |
|
Senior Housing - Leased (1) | | 62 |
| | 4,011 |
| | 636,273 |
| | (72,716 | ) | | 563,557 |
|
Senior Housing - Managed (1) | | 44 |
| | 4,470 |
| | 863,130 |
| | (101,426 | ) | | 761,704 |
|
Specialty Hospitals and Other | | 24 |
| | 1,193 |
| | 635,928 |
| | (43,146 | ) | | 592,782 |
|
| | 434 |
| | 43,553 |
| | 5,847,033 |
| | (502,426 | ) | | 5,344,607 |
|
Corporate Level | | | | | | 741 |
| | (351 | ) | | 390 |
|
| | | | | | $ | 5,847,774 |
| | $ | (502,777 | ) | | $ | 5,344,997 |
|
As of December 31, 20182019
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Type | | Number of Properties | | Number of Beds/Units | | Total Real Estate at Cost | | Accumulated Depreciation | | Total Real Estate Investments, Net |
Skilled Nursing/Transitional Care | | 296 | | | 33,290 | | | $ | 3,701,666 | | | $ | (306,565) | | | $ | 3,395,101 | |
Senior Housing - Leased | | 62 | | | 3,820 | | | 630,688 | | | (72,278) | | | 558,410 | |
Senior Housing - Managed | | 46 | | | 4,809 | | | 907,771 | | | (112,893) | | | 794,878 | |
Specialty Hospitals and Other | | 25 | | | 1,193 | | | 639,721 | | | (47,124) | | | 592,597 | |
| | 429 | | | 43,112 | | | 5,879,846 | | | (538,860) | | | 5,340,986 | |
Corporate Level | | | | | | 737 | | | (353) | | | 384 | |
| | | | | | $ | 5,880,583 | | | $ | (539,213) | | | $ | 5,341,370 | |
|
| | | | | | | | | | | | | | | | | | |
Property Type | | Number of Properties | | Number of Beds/Units | | Total Real Estate at Cost | | Accumulated Depreciation | | Total Real Estate Investments, Net |
Skilled Nursing/Transitional Care | | 335 |
| | 37,628 |
| | $ | 4,094,484 |
| | $ | (224,942 | ) | | $ | 3,869,542 |
|
Senior Housing - Leased (1) | | 90 |
| | 7,332 |
| | 1,237,790 |
| | (125,902 | ) | | 1,111,888 |
|
Senior Housing - Managed (1) | | 23 |
| | 1,603 |
| | 301,739 |
| | (19,537 | ) | | 282,202 |
|
Specialty Hospitals and Other | | 22 |
| | 1,085 |
| | 621,236 |
| | (31,640 | ) | | 589,596 |
|
| | 470 |
| | 47,648 |
| | 6,255,249 |
| | (402,021 | ) | | 5,853,228 |
|
Corporate Level | | | | | | 634 |
| | (317 | ) | | 317 |
|
| | | | | | $ | 6,255,883 |
| | $ | (402,338 | ) | | $ | 5,853,545 |
|
(1) During the nine months ended September 30, 2019, the Company transitioned 21 senior housing communities to its Senior Housing - Managed portfolio.
|
| | | | | | | |
| September 30, 2019 | | December 31, 2018 |
Building and improvements | $ | 5,018,346 |
| | $ | 5,388,102 |
|
Furniture and equipment | 235,762 |
| | 237,145 |
|
Land improvements | 1,415 |
| | 1,254 |
|
Land | 592,251 |
| | 629,382 |
|
| 5,847,774 |
| | 6,255,883 |
|
Accumulated depreciation | (502,777 | ) | | (402,338 | ) |
| $ | 5,344,997 |
| | $ | 5,853,545 |
|
| | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
Building and improvements | $ | 5,107,022 | | | $ | 5,042,435 | |
Furniture and equipment | 243,265 | | | 239,229 | |
Land improvements | 1,917 | | | 1,534 | |
Land | 594,282 | | | 597,385 | |
| 5,946,486 | | | 5,880,583 | |
Accumulated depreciation | (640,214) | | | (539,213) | |
| $ | 5,306,272 | | | $ | 5,341,370 | |
Operating Leases
As of September 30, 2019,2020, the substantial majority of the Company’s real estate properties (excluding 4447 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of September 30, 2019,2020, the leases had a weighted-average remaining term of eight years. The leases generally include
provisions to extend the lease terms and other negotiated terms and conditions. The Company, through its subsidiaries, retains substantially all of the risks and benefits of ownership of the real estate assets leased to the tenants. The Company may receive additional security under these operating leases in the form of letters of credit and security deposits from the lessee or guarantees from the parent of the lessee. Security deposits received in cash related to tenant leases are included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets and totaled $7.9$11.7 million and $12.4$10.5 million as of September 30, 20192020 and December 31, 2018,2019, respectively, and letters of credit deposited with the Company totaled approximately $83$86 million and $98$83 million as of September 30, 20192020 and December 31, 2018,2019, respectively. In addition, the Company’s tenants have deposited with the Company $14.1$15.4 million and $17.5$14.3 million as of September 30, 20192020 and December 31, 2018,2019, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to the Company’s properties and their operations.operations, and these amounts are included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.
On February 15, 2019,Lessor costs that are paid by the lessor and reimbursed by the lessee are included in the measurement of variable lease revenue and the associated expense. As a result, the Company entered into a settlement agreement with Senior Care Centers in connection withrecognized variable lease revenue and the noticesassociated expense of default$5.0 million and lease termination issued by the Company to Senior Care Centers$15.7 million during the third quarter of 2018. In accordance with the order entered by the bankruptcy court in March 2019, the settlement agreement provided for the discharge by the Company of its claims against Senior Care Centers in exchange for $9.5 million of settlement payments, a portion of which was applied to pay post-petition rent. The Company recorded $6.2 million of such post-petition rent during thethree and nine months ended September 30, 2019. On April 1, 2019,2020, respectively, and $4.0 million and $13.0 million during the Company completed the sale of 28 facilities (26 skilled nursing/transitional care facilitiesthree and 2 senior housing communities) previously operated by Senior Care Centers and received gross sales proceeds of $282.5 million. In connection with the sale, the Company entered into an agreement to indemnify the buyer from certain costs, expenses and liabilities related to the historical operations of the facilities by Senior Care Centers. In May 2019, the Company transitioned 8 facilities previously operated by Senior Care Centers to a current operator in the Sabra portfolio, and the Company expects to sell the remaining 2 facilities previously operated by Senior Care Centers. During the nine months ended September 30, 2019, the Company recorded an impairment charge of $95.2 million related to the Senior Care Centers facilities, which includes $10.2 million related to the Company’s estimated contractual indemnification obligations.
On December 19, 2018, the Company entered into a letter of intent to terminate its triple-net master lease with Holiday Retirement (“Holiday”) with respect to all 21 senior housing communities subject to the master lease (the “Holiday
Communities”) and concurrently enter into management agreements pursuant to which Holiday would manage the Holiday Communities. On April 1, 2019, the Company completed the conversion of the Holiday Communities to its Senior Housing - Managed portfolio and recognized lease termination income of $66.9 million, which includes a $57.2 million lease termination payment received in exchange for terminating the Holiday master lease and a $9.7 million gain related to the assumption of fixed assets net of liabilities.respectively.
The Company monitors the creditworthiness of its tenants by reviewing credit ratings (if available) and evaluating the ability of the tenants to meet their lease obligations to the Company based on the tenants’ financial performance, including the evaluation of any parent guarantees (or the guarantees of other related parties) of tenant lease obligations. As formal credit ratings may not be available for most of the Company’s tenants, the primary basis for the Company’s evaluation of the credit quality of its tenants (and more specifically the tenant’s ability to pay their rent obligations to the Company) is the tenant’s lease coverage ratio or the parent’s fixed charge coverage ratio for those entities with a parent guarantee. These coverage ratios include earnings before interest, taxes, depreciation, amortization and rent (“EBITDAR”) to rent and earnings before interest, taxes, depreciation, amortization, rent and management fees (“EBITDARM”) to rent at the lease level and consolidated EBITDAR to total fixed charges at the parent guarantor level when such a guarantee exists. The Company obtains various financial and operational information from its tenants each month and reviews this information in conjunction with the above-described coverage metrics to identify financial and operational trends, evaluate the impact of the industry’s operational and financial environment (including the impact of government reimbursement), and evaluate the management of the tenant’s operations. These metrics help the Company identify potential areas of concern relative to its tenants’ credit quality and ultimately the tenant’s ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company.
During the three months ended September 30, 2020, the auditors for Genesis Healthcare, Inc. (“Genesis”) and subsidiaries of Signature Healthcare (“Signature”) that lease facilities from the Company each expressed substantial doubt over the respective abilities of Genesis and Signature to continue as a going concern. Accordingly, the Company concluded that its leases with Genesis and Signature should no longer be accounted for on an accrual basis and wrote off $14.3 million of non-cash rent receivable balances and lease intangibles related to these leases.
For the three and nine months ended September 30, 2019,2020, no tenant relationship represented 10% or more of the Company’s total revenues.
TheAs of September 30, 2020, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases were as follows and may materially differ from actual future rental payments received (in thousands):
As of September 30, 2019
|
| | | |
October 1 through December 31, 2019 | $ | 109,663 |
|
2020 | 425,610 |
|
2021 | 422,465 |
|
2022 | 398,608 |
|
2023 | 381,472 |
|
Thereafter | 2,023,764 |
|
| $ | 3,761,582 |
|
| |
As of December 31, 2018
|
| | | |
2019 | $ | 465,766 |
|
2020 | 456,207 |
|
2021 | 452,346 |
|
2022 | 454,216 |
|
2023 | 437,277 |
|
Thereafter | 2,407,064 |
|
| $ | 4,672,876 |
|
| |
| | | | | |
October 1 through December 31, 2020 | $ | 106,516 | |
2021 | 431,202 | |
2022 | 412,395 | |
2023 | 402,083 | |
2024 | 402,936 | |
Thereafter | 1,923,827 | |
| $ | 3,678,959 | |
Senior Housing - Managed Communities
The Company’s Senior Housing - Managed communities offer residents certain ancillary services that are not contemplated in the lease with each resident (i.e., housekeeping, laundry, guest meals, etc.). These services are provided and paid for in addition to the standard services included in each resident lease (i.e., room and board, standard meals, etc.). The
Company bills residents for ancillary services one month in arrears and recognizes revenue as the services are provided, as the Company has no continuing performance obligation related to those services. Resident fees and services includesinclude ancillary
service revenue of $0.3 million and $0.7 million for the three and nine months ended September 30, 2020, respectively, and $0.2 million and $0.5 million for the three and nine months ended September 30, 2019, respectively,respectively.
Investment in Unconsolidated Joint Venture
The Company has a 49% equity interest in the Enlivant Joint Venture with affiliates of Enlivant and $0.1TPG Real Estate, the real estate platform of TPG, that owns senior housing communities managed by Enlivant. During the nine months ended September 30, 2020, the Enlivant Joint Venture sold 12 senior housing communities for aggregate gross proceeds of $18.2 million, and $0.4the Company recorded an aggregate net loss on sale of real estate related to unconsolidated joint venture of $3.3 million. As of September 30, 2020, the Enlivant Joint Venture owned 158 senior housing communities, and the book value of the Company’s investment in the Enlivant Joint Venture was $293.8 million.
Net Investment in Direct Financing Lease
As of September 30, 2020, the Company had a $24.1 million net investment in 1 skilled nursing/transitional care facility leased to an operator under a direct financing lease, as the tenant is obligated to purchase the property at the end of the lease term. The net investment in direct financing lease is recorded in accounts receivable, prepaid expenses and other assets, net on the accompanying condensed consolidated balance sheets and represents the present value of total rental payments of $2.8 million, plus the estimated purchase price of $24.8 million, less the unearned lease income of $3.3 million and allowance for credit losses of $0.2 million as of September 30, 2020. Unearned lease income represents the excess of the minimum lease payments and residual value over the cost of the investment. Unearned lease income is deferred and amortized to income over the lease term to provide a constant yield when collectability of the lease payments is reasonably assured. Income from the Company’s net investment in direct financing lease was $0.7 million and $2.0 million for the three and nine months ended September 30, 2018,2020, respectively, and $0.7 million and $2.0 million for the three and nine months ended September 30, 2019, respectively, and is reflected in interest and other income on the accompanying condensed consolidated statements of income. Upon adoption of Topic 326 on January 1, 2020 and as of the adoption date, the Company recorded a $0.2 million reduction in equity and increase to its allowance for credit losses due to the cumulative effect of the changes contemplated by Topic 326. During the three and nine months ended September 30, 2020, the Company reduced its allowance for credit losses by $1,000 and $38,000, respectively. Future minimum lease payments contractually due under the direct financing lease at September 30, 2020 were as follows: $0.6 million for the remainder of 2020, $2.3 million for 2021 and $0.1 million for 2022.
5. IMPAIRMENT OF REAL ESTATE AND DISPOSITIONS
2020
Asset Held for Sale
As of September 30, 2020, the Company determined that 1 skilled nursing/transitional care facility with a net book value of $8.9 million met the criteria to be classified as an asset held for sale, and this balance is included in accounts receivable, prepaid expenses and other assets, net on the condensed consolidated balance sheets. Subsequent to September 30, 2020, the Company completed the sale of the facility for a gross sales price of $9.0 million.
Impairment of Real Estate
During the nine months ended September 30, 2020, the Company recognized a $3.2 million real estate impairment related to 3 senior housing communities and 1 skilled nursing/transitional care facility.
Dispositions
During the nine months ended September 30, 2020, the Company completed the sale of 7 skilled nursing/transitional care facilities for aggregate consideration, net of closing costs, of $41.1 million. The net carrying value of the assets and liabilities of these facilities was $38.3 million, which resulted in an aggregate $2.8 million net gain on sale.
During the nine months ended September 30, 2020, the Company recognized $3.9 million of net income, which includes the $2.8 million net gain on sale, and during the nine months ended September 30, 2019, recognized $11.0 million of net loss, which includes $12.8 million of real estate impairment, in each case from these facilities. The sale of these facilities does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results, and therefore the results of operations attributable to these facilities have remained in continuing operations.
2019
Impairment of Real Estate
During the nine months ended September 30, 2019, the Company recognized a $119.1 million real estate impairment, of which amount $95.2 million related to the 2830 Senior Care Centers facilities that the Company sold on Apriland 1 2019 and 3 additional Senior Care Centers facilities,facility that the Company transitioned to another operator, and the remaining $23.9 million related to 5 vacantadditional skilled nursing/transitional care facilities that were subsequently sold and 4 senior housing communities.
Dispositions
During the nine months ended September 30, 2019, the Company completed the sale of 31 skilled nursing/transitional care facilities and 7 senior housing communities for aggregate consideration, net of closing costs, of $315.0 million. The net carrying value of the assets and liabilities of these facilities was $313.8 million, which resulted in an aggregate $1.2 million net gain on sale.
Excluding the net gain on sale and real estate impairment, the Company recognized $2.8 million and $22.3 million of net income duringDuring the nine months ended September 30, 2019, the Company recognized $65.1 million of net loss, which includes the $1.2 million net gain on sale and 2018, respectively,$69.1 million of real estate impairment, from these facilities. The sale of these facilities does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results, and therefore the results of operations attributable to these facilities have remained in continuing operations.
2018
Impairment of Real Estate
During the nine months ended September 30, 2018, the Company recognized a $1.4 million real estate impairment, of which $0.5 million related to 1 senior housing community sold during the period.
Dispositions
During the nine months ended September 30, 2018, the Company completed the sale of 36 skilled nursing/transitional care facilities and 4 senior housing communities for aggregate consideration, net of closing costs, of $290.9 million. The net carrying value of the assets and liabilities of these facilities was $148.5 million, which resulted in an aggregate $142.4 million net gain on sale.
Excluding the net gain on sale and real estate impairment, the Company recognized $12.5 million and $24.9 million of net income during the nine months ended September 30, 2018 and 2017 from these facilities. The sale of these facilities does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results, and therefore the results of operations attributable to these facilities have remained in continuing operations.
6. LOANS RECEIVABLE AND OTHER INVESTMENTS
As of September 30, 20192020 and December 31, 2018,2019, the Company’s loans receivable and other investments consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | September 30, 2020 | | |
Investment | | Quantity as of September 30, 2020 | | Property Type | | Principal Balance as of September 30, 2020 (1) | | Book Value as of September 30, 2020 | | Book Value as of December 31, 2019 | | Weighted Average Contractual Interest Rate / Rate of Return | | Weighted Average Annualized Effective Interest Rate / Rate of Return | | Maturity Date as of September 30, 2020 |
Loans Receivable: | | | | | | | | | | | | | | |
Mortgage | | 1 | | | Specialty Hospital | | $ | 19,000 | | | $ | 19,000 | | | $ | 19,000 | | | 10.0 | % | | 10.0 | % | | 01/31/27 |
Construction | | 1 | | | Senior Housing | | 3,343 | | | 3,353 | | | 2,487 | | | 8.0 | % | | 7.8 | % | | 09/30/22 |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Other | | 17 | | | Multiple | | 43,973 | | | 40,010 | | | 42,147 | | | 6.8 | % | | 6.9 | % | | 03/01/21- 08/31/28 |
| | 19 | | | | | 66,316 | | | 62,363 | | | 63,634 | | | 7.8 | % | | 7.9 | % | | |
Allowance for loan losses | | | | | | — | | | (1,287) | | | (564) | | | | | | | |
| | | | | | $ | 66,316 | | | $ | 61,076 | | | $ | 63,070 | | | | | | | |
Other Investments: | | | | | | | | | | | | | | |
Preferred Equity | | 6 | | | Skilled Nursing / Senior Housing | | 42,533 | | | 42,744 | | | 44,304 | | | 11.3 | % | | 11.3 | % | | N/A |
Total | | 25 | | | | | $ | 108,849 | | | $ | 103,820 | | | $ | 107,374 | | | 9.2 | % | | 9.3 | % | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | September 30, 2019 | | |
Investment | | Quantity as of September 30, 2019 | | Property Type | | Principal Balance as of September 30, 2019 (1) | | Book Value as of September 30, 2019 | | Book Value as of December 31, 2018 | | Weighted Average Contractual Interest Rate / Rate of Return | | Weighted Average Annualized Effective Interest Rate / Rate of Return | | Maturity Date as of September 30, 2019 |
Loans Receivable: | | | | | | | | | | | | | | |
Mortgage | | 1 |
| | Specialty Hospital | | $ | 19,000 |
| | $ | 19,000 |
| | $ | 18,577 |
| | 10.0 | % | | 10.0 | % | | 01/31/27 |
Construction | | 2 |
| | Senior Housing | | 5,884 |
| | 5,935 |
| | 4,629 |
| | 8.0 | % | | 7.7 | % | | 10/14/19- 09/30/22 |
Mezzanine | | — |
| | Skilled Nursing | | — |
| | — |
| | 2,188 |
| | N/A |
| | N/A |
| | N/A |
Other | | 17 |
| | Multiple | | 43,602 |
| | 39,673 |
| | 45,324 |
| | 6.7 | % | | 7.1 | % | | 09/23/19- 08/31/28 |
| | | | | | | | | | | | | | | | |
| | 20 |
| | | | 68,486 |
| | 64,608 |
| | 70,718 |
| | 7.7 | % | | 8.0 | % | | |
| | | | | | | | | | | | | | | | |
Loan loss reserve | | | | — |
| | (783 | ) | | (1,258 | ) | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | $ | 68,486 |
| | $ | 63,825 |
| | $ | 69,460 |
| | | | | | |
Other Investments: | | | | | | | | | | | | | | |
Preferred Equity | | 9 |
| | Skilled Nursing / Senior Housing | | 44,005 |
| | 44,417 |
| | 44,262 |
| | 12.0 | % | | 12.0 | % | | N/A |
| | | | | | | | | | | | | | | | |
Total | | 29 |
| | | | $ | 112,491 |
| | $ | 108,242 |
| | $ | 113,722 |
| | 9.4 | % | | 9.6 | % | | |
| | | | | | | | | | | | | | | | |
(1) Principal balance includes amounts funded and accrued but unpaid interest / preferred return and excludes capitalizable fees. | |
(1)
| Principal balance includes amounts funded and accrued but unpaid interest / preferred return and excludes capitalizable fees. |
As of September 30, 20192020 and December 31, 2018,2019, the Company had 6 and 74 loans receivable investments, respectively, with an aggregate principal balance of $2.8$2.2 million and $27.7$2.3 million, respectively, that were considered to have deteriorated credit quality. As of September 30, 20192020 and December 31, 2018,2019, the book value of the outstanding loans with deteriorated credit quality was $1.2$0.6 million and $4.2$0.8 million, respectively. During the nine months ended September 30, 2019, 1 loan with deteriorated credit quality was repaid.
The following table presents changes in the accretable yield for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Accretable yield, beginning of period | | $ | 112 |
| | $ | 1,081 |
| | $ | 449 |
| | $ | 2,483 |
| Accretable yield, beginning of period | $ | 24 | | | $ | 112 | | | $ | 39 | | | $ | 449 | |
Accretion recognized in earnings | | (53 | ) | | (348 | ) | | (357 | ) | | (2,477 | ) | Accretion recognized in earnings | (7) | | | (53) | | | (22) | | | (357) | |
Reduction due to payoff | | — |
| | — |
| | (33 | ) | | — |
| Reduction due to payoff | 0 | | | 0 | | | 0 | | | (33) | |
Net reclassification from nonaccretable difference | | — |
| | — |
| | — |
| | 727 |
| |
| Accretable yield, end of period | | $ | 59 |
| | $ | 733 |
| | $ | 59 |
| | $ | 733 |
| Accretable yield, end of period | $ | 17 | | | $ | 59 | | | $ | 17 | | | $ | 59 | |
| | | | | | | | | |
During the three months ended September 30, 2020, the Company decreased its allowance for loan losses by $0.1 million, and during the nine months ended September 30, 2020, the Company increased its allowance for loan losses by $0.7 million.
As of September 30, 2020, the Company had a $1.3 million allowance for loan losses. As of September 30, 2020, 2 loans receivable investments with 0 book value were on nonaccrual status. As of September 30, 2020, the Company did not consider any preferred equity investments to be impaired, and no preferred equity investments were on nonaccrual status.
As of December 31, 2019, the Company had 0 asset-specific loan loss reserve and a $0.6 million portfolio-based loan loss reserve. As of December 31, 2019, the Company did 0t consider any loans receivable investments to be impaired. As of December 31, 2019, 2 loans receivable investments with 0 book value were on nonaccrual status. As of December 31, 2019, the Company did not consider any preferred equity investments to be impaired, and no preferred equity investments were on nonaccrual status.
During the three months ended September 30, 2019, the Company recorded 0 provision for specific loan losses, and during the nine months ended September 30, 2019, the Company recorded a $1.2 million provision for specific loan losses. During the three and nine months ended September 30, 2019, the Company increased its portfolio-based loan loss reserve by $0.1 million and $0.2 million, respectively.
As of September 30, 2019, the Company had 0 specific loan loss reserve and a $0.8 million portfolio-based loan loss reserve. As of September 30, 2019, the Company did not consider any loans receivable investments to be impaired. As of September 30, 2019, 2 loans receivable investments with 0 book value were on nonaccrual status. As of September 30, 2019, the Company did not consider any preferred equity investments to be impaired, and no preferred equity investments were on nonaccrual status.
As of December 31, 2018, the Company had a $0.7 million specific loan loss reserve and a $0.6 million portfolio-based loan loss reserve. As of December 31, 2018, the Company considered 1 loan receivable investment with a principal balance of $1.3 million to be impaired, and 2 loans receivable investments with an aggregate book value of $1.3 million were on nonaccrual status. Additionally, as of December 31, 2018, the Company recognized interest income related to 1 loan
receivable investment, with a book value of $4.3 million, that was more than 90 days past due. As of December 31, 2018, the Company did not consider any preferred equity investments to be impaired, and no preferred equity investments were on nonaccrual status.
During each of the three and nine months ended September 30, 2018, the Company recorded a $0.6 million provision for specific loan losses, and during the three and nine months ended September 30, 2018, the Company increased its portfolio-based loan loss reserve by $0.3 million and $0.6 million, respectively.
7. DEBT
Secured Indebtedness
The Company’s secured debt consists of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Type | Principal Balance as of September 30, 2020 (1) | | Principal Balance as of December 31, 2019 (1) | | Weighted Average Interest Rate at September 30, 2020 (2) | | Maturity Date |
Fixed Rate | $ | 80,124 | | | $ | 114,777 | | | 3.68 | % | | December 2021 - August 2051 |
| | | | | | | |
| | | | | | | |
(1) Principal balance does not include deferred financing costs, net of $1.1 million and $1.7 million as of September 30, 2020 and December 31, 2019, respectively.
(2) Weighted average interest rate includes private mortgage insurance.
|
| | | | | | | | | | | | |
Interest Rate Type | Principal Balance as of September 30, 2019 (1) | | Principal Balance as of December 31, 2018 (1) | | Weighted Average Interest Rate at September 30, 2019 (2) | | Maturity Date |
Fixed Rate | $ | 115,370 |
| | $ | 117,464 |
| | 3.67 | % | | December 2021 - August 2051 |
On April 1, 2020, the Company sold 2 facilities that secured an aggregate $14.2 million of debt, which was assumed by the buyer of the facilities. On August 1, 2020, the Company sold 1 facility that secured $17.6 million of debt, which was assumed by the buyer of the facility. | |
(1)
| Principal balance does not include deferred financing costs, net of $1.7 million and $1.8 million as of September 30, 2019 and December 31, 2018, respectively. |
| |
(2)
| Weighted average interest rate includes private mortgage insurance. |
Senior Unsecured Notes
The Company’s senior unsecured notes consist of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Principal Balance as of |
Title | | Maturity Date | | September 30, 2020 (1) | | December 31, 2019 (1) |
4.80% senior unsecured notes due 2024 (“2024 Notes”) | | June 1, 2024 | | $ | 300,000 | | | $ | 300,000 | |
5.125% senior unsecured notes due 2026 (“2026 Notes”) | | August 15, 2026 | | 500,000 | | | 500,000 | |
5.88% senior unsecured notes due 2027 (“2027 Notes”) | | May 17, 2027 | | 100,000 | | | 100,000 | |
3.90% senior unsecured notes due 2029 (“2029 Notes”) | | October 15, 2029 | | 350,000 | | | 350,000 | |
| | | | $ | 1,250,000 | | | $ | 1,250,000 | |
(1) |
| | | | | | | | | | |
| | | | Principal Balance as of |
Title | | Maturity Date | | September 30, 2019 (1) | | December 31, 2018 (1) |
| | | | | | |
5.5% senior unsecured notes due 2021 (“2021 Notes”) | | February 1, 2021 | | $ | — |
| | $ | 500,000 |
|
5.375% senior unsecured notes due 2023 (“2023 Notes”) | | June 1, 2023 | | 200,000 |
| | 200,000 |
|
4.80% senior unsecured notes due 2024 (“2024 Notes”) | | June 1, 2024 | | 300,000 |
| | — |
|
5.125% senior unsecured notes due 2026 (“2026 Notes”) | | August 15, 2026 | | 500,000 |
| | 500,000 |
|
5.38% senior unsecured notes due 2027 (“2027 Notes”) | | May 17, 2027 | | 100,000 |
| | 100,000 |
|
| | | | $ | 1,100,000 |
| | $ | 1,300,000 |
|
| | | | | | |
Principal balance does not include premium, net of $6.7 million and deferred financing costs, net of $8.4 million as of September 30, 2020 and does not include premium, net of $7.6 million and deferred financing costs, net of $8.8 million as of December 31, 2019. | |
(1)
| Principal balance does not include premium, net of $13.2 million and deferred financing costs, net of $6.7 million as of September 30, 2019 and does not include premium, net of $14.5 million and deferred financing costs, net of $7.1 million as of December 31, 2018. |
The 20232024 Notes and the 2029 Notes were issued by the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company, (the “Issuers”). The 2023 Notesand accrue interest at a rate of 5.375%4.80% and 3.90%, respectively, per annumannum. Interest is payable semiannually on June 1 and December 1 of each year. As discussed below, the 2023 Notes were redeemed in full on October 27, 2019.
On May 29, 2019, the Issuers completed an underwritten public offering of $300.0 million aggregate principal amount of 2024 Notes. The net proceeds were $295.3 million after deducting underwriting discounts and other offering expenses. The net proceeds, together with borrowings under the Revolving Credit Facility (as defined below), were used to redeem the 2021 Notes as discussed below. The 2024 Notes accrue interest at a rate of 4.80% per annum payable semiannually on June 1 and December 1 of each year. The 2024 Notes are redeemable at the option of the Issuers, in whole or in part at any time and from time to time, prior to May 1, 2024, at a price equal to 100% of the principal amount, together with any accrued and unpaid interest to, but not including, the redemption date, plus a “make-whole” premium. The Issuers may also redeemyear for the 2024 Notes on or after May 1, 2024, at a price equal to 100% of the principal amount, together with any accrued and unpaid interest to, but not including, the redemption date. Assuming the 2024 Notes are not redeemed, the 2024 Notes mature on June 1, 2024.
Additionally, on May 29, 2019, the Issuers issued a notice of redemption for all $500.0 million aggregate principal amount outstanding of the 2021 Notes. On June 29, 2019, the Issuers redeemed the 2021 Notes at a cash redemption price of 101.375% of the principal amount being redeemed, plus accrued and unpaid interest. The redemption resulted in $10.1 million of redemption related costs and write-offs for the nine months ended September 30, 2019, including $6.9 million in payments made to noteholders and legal fees for early redemption and $3.2 million of write-offs associated with unamortized deferred
financing and premium costs. These amounts are included in loss on extinguishment of debt on the accompanying condensed consolidated statements of income.
On October 7, 2019, the Issuers completed an underwritten public offering of $350.0 million aggregate principal amount of 3.90% senior unsecured notes due 2029 (the “2029 Notes”). The net proceeds were $340.5 million after deducting underwriting discounts and other offering expenses. A portion of the net proceeds was used to redeem all of the 2023 Notes as discussed below, and the remaining net proceeds were used to repay borrowings outstanding on the Revolving Credit Facility. The 2029 Notes accrue interest at a rate of 3.90% per annum payable semiannually on April 15 and October 15 of each year. The 2029 Notes are redeemable at the option of the Issuers, in whole or in part at any time and from time to time, prior to July 15, 2029, at a price equal to 100% of the principal amount, together with any accrued and unpaid interest to, but not including, the redemption date, plus a “make-whole” premium. The Issuers may also redeemyear for the 2029 Notes on or after July 15, 2029, at a price equal to 100% of the principal amount, together with any accrued and unpaid interest to, but not including, the redemption date. Assuming the 2029 Notes are not redeemed, the 2029 Notes mature on October 15, 2029.
On September 27, 2019, the Issuers issued a notice of redemption for all $200.0 million aggregate principal amount outstanding of the 2023 Notes. On October 27, 2019, the Issuers redeemed the 2023 Notes at a cash redemption price of 101.792% of the principal amount being redeemed, plus accrued and unpaid interest. As a result of the redemption, the Company recognized $5.6 million of redemption related costs and write-offs, consisting of $3.6 million in payments made to noteholders and legal fees for early redemption and $2.0 million of write-offs associated with unamortized deferred financing costs, subsequent to September 30, 2019.
The 2026 Notes and the 2027 Notes were assumed as a result of the CCP MergerCompany’s merger with Care Capital Properties, Inc. in 2017 and accrue interest at a rate of 5.125% and 5.38%5.88%, respectively, per annum. Interest is payable semiannually on February 15 and August 15 of each year for the 2026 Notes and on May 17 and November 17 of each year for the 2027 Notes.
As of September 30, 2019, theThe obligations under the 2023 Notes, 2024 Notes and 2027 Notes were fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain subsidiaries of Sabra, and as of the issuance of the 2029 Notes on October 7, 2019, the 2029 Notes were fully and unconditionally guaranteed on an unsecured basis by Sabra; provided, however, that such guarantees were subject to release under certain customary circumstances. Upon redemption of the 2023 Notes on October 27, 2019, Sabra Capital Corporation’s obligations as a co-issuer under the 2024 Notes and the 2029 Notes were automatically released and discharged. In addition, following the redemption of the 2023 Notes, substantially all of the subsidiary guarantors under the 2024 Notes and the 2027 Notes were released; the 2024 Notes and 2027 Notes remainare fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and one of its non-operating subsidiaries, subject to release under certain customary circumstances. The obligations under the 2026 Notes and 2029 Notes are fully and unconditionally guaranteed, on an unsecured basis, by Sabra; provided, however, that such guarantee is subject to release under certain customary circumstances. See Note 12, “Summarized Condensed Consolidating Information” for additional information concerning the circumstances pursuant to which the guarantors will be automatically and unconditionally released from their obligations under the guarantees.
The indentures and agreements (the “Senior Notes Indentures”) governing the 2023 Notes, 2024 Notes, 2026 Notes, 2027 Notes and 20272029 Notes (collectively, the “Senior Notes”) include customary events of default and require the Company to comply with specified restrictive covenants. As of September 30, 2019,2020, the Company was in compliance with all applicable financial covenants under the Senior Notes Indentures.
Credit Agreement
On August 17, 2017,September 9, 2019, the Operating Partnership and Sabra Canadian Holdings, LLC (together, the “Borrowers”), Sabra and the other parties thereto entered into a fourth amended and restated unsecured credit agreement (the “Prior Credit Agreement”).
The Prior Credit Agreement included a $1.0 billion revolving credit facility (the “Prior Revolving Credit Facility”), $1.1 billion in U.S. dollar term loans and a CAD $125.0 million Canadian dollar term loan (collectively, the “Prior Term Loans”). Further, up to $175.0 million of the Prior Revolving Credit Facility could be used for borrowings in certain foreign currencies. The Prior Credit Agreement also contained an accordion feature that allowed for an increase in the total available borrowings to $2.5 billion, subject to terms and conditions.
The Prior Revolving Credit Facility had a maturity date of August 17, 2021, and included 2 six-month extension options. $200.0 million of the U.S. dollar Prior Term Loans had a maturity date of August 17, 2020, and the other Prior Term Loans had a maturity date of August 17, 2022.
Borrowings under the Prior Revolving Credit Facility bore interest on the outstanding principal amount at a rate equal to an applicable interest margin plus, at the Operating Partnership’s option, either (a) LIBOR or (b) a base rate determined as the greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) one-month LIBOR plus 1.0% (the “Base Rate”). On August 17, 2017, Sabra’s ratings met the Investment Grade Ratings Criteria (as defined in the Prior Credit Agreement), and Sabra elected to use the ratings-based applicable interest margin for borrowings which varied based on the Debt Ratings, as defined in the Prior Credit Agreement, and ranged from 0.875% to 1.65% per annum for LIBOR based borrowings and 0.00% to 0.65% per annum for borrowings at the Base Rate. In addition, the Operating Partnership paid a facility fee ranging between 0.125% and 0.300% per annum based on the aggregate amount of commitments under the Prior Revolving Credit Facility regardless of amounts outstanding thereunder.
The U.S. dollar Prior Term Loans bore interest on the outstanding principal amount at a rate equal to an applicable interest margin plus, at the Operating Partnership’s option, either (a) LIBOR or (b) the Base Rate. The ratings-based applicable interest margin for borrowings varied based on the Debt Ratings, as defined in the Prior Credit Agreement, and ranged from 0.90% to 1.90% per annum for LIBOR based borrowings and 0.00% to 0.90% per annum for borrowings at the Base Rate. The Canadian dollar Prior Term Loan bore interest on the outstanding principal amount at a rate equal to the Canadian Dollar Offered Rate (“CDOR”) plus an interest margin that ranged from 0.90% to 1.90% depending on the Debt Ratings.
On September 9, 2019, the Borrowers, Sabra and the other parties thereto entered into a fifth amended and restated unsecured credit agreement (the “Credit Agreement”). The Credit Agreement amends and restates the Prior Credit Agreement. The Company recognized a $0.6 million loss on extinguishment of debt related to write-offs of unamortized deferred financing costs in connection with amending and restating the Prior Credit Agreement during the three and nine months ended September 30, 2019.
The Credit Agreement includes a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), $1.1 billion$955.0 million in U.S. dollar term loans and a CAD $125.0 million Canadian dollar term loan (collectively, the “Term Loans”). Further, up to $175.0 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 September 9, 2023, and includes 2 six-month extension options. $250.0$105.0 million of the U.S. dollar Term Loans has a maturity date of September 9, 2022, $350.0 million of the U.S. dollar Term Loans has a maturity date of September 9, 2023, and the other Term Loans have a maturity date of September 9, 2024.
As of September 30, 2019,2020, there was $200.0$56.0 million outstanding under the Revolving Credit Facility and $800.0$944.0 million available for borrowing.
Borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to a ratings-based applicable interest margin plus, at the Operating Partnership’s option, either (a) LIBOR or (b) a base rate determined as the Base Rate.greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) one-month LIBOR plus 1.0% (the “Base Rate”). The ratings-based applicable interest margin for borrowings will vary based on the Debt Ratings, as defined in the Credit Agreement, and will range from 0.775% to 1.45% per annum for LIBOR based borrowings and 0.00% to 0.45% per
annum for borrowings at the Base Rate. As of September 30, 2019,2020, the interest rate on the Revolving Credit Facility was 3.17%1.25%. In addition, the Operating Partnership pays a facility fee ranging between 0.125% and 0.300% per annum based on the aggregate amount of commitments under the Revolving Credit Facility regardless of amounts outstanding thereunder.
The U.S. dollar Term Loans bear interest on the outstanding principal amount at a rate equal to a ratings-based applicable interest margin plus, at the Operating Partnership’s option, either (a) LIBOR or (b) the Base Rate. The ratings-based applicable interest margin for borrowings will vary based on the Debt Ratings and will range from 0.85% to 1.65% per annum for LIBOR based borrowings and 0.00% to 0.65% per annum for borrowings at the Base Rate. The Canadian dollar Term Loan bears interest on the outstanding principal amount at a rate equal to CDORthe Canadian Dollar Offered Rate (“CDOR”) plus an interest margin that ranges from 0.85% to 1.65% depending on the Debt Ratings.
On June 10, 2015, theThe Company entered into anhas interest rate swap agreement to fix the CDOR portion of the interest rate for CAD $90.0 million of its Canadian dollar Term Loan at 1.59%. In addition, CAD $90.0 million of the Canadian dollar Term Loan was designated as a net investment hedge. On August 10, 2016, the Company entered into 2 interest rate swap agreements to fix the LIBOR portion of the interest rate for $245.0 million of its U.S. dollar Term Loans at 0.90% and 1 interest rate swap agreement to fix the CDOR portion on CAD $35.0 million of its Canadian dollar Term Loan at 0.93%. See Note 8, “Derivative and Hedging Instruments” for further information.
As a result of the CCP Merger, the Company assumed 8 interest rate swap agreementsswaps that fix the LIBOR portion of the interest rate for $600$845.0 million of the Company’sLIBOR-based borrowings under its U.S. dollar Term Loans at a weighted average rate of 1.31%1.24% and an interest rate swap that fixes the CDOR portion of the interest rate for $125.0 million of CDOR-based borrowings under its Canadian dollar Term Loan at a rate of 0.93%. In addition, CAD $125.0 million of the Canadian dollar Term Loan is designated as a net investment hedge. See Note 8, “Derivative and Hedging Instruments”Instruments,” for further information.
As of September 30, 2019, theThe obligations of the Borrowers under the Credit Agreement were guaranteed by Sabra and certain subsidiaries of Sabra. Following the redemption of the 2023 Notes on October 27, 2019, substantially all of the subsidiary guarantors under the Credit Agreement were released; the Credit Agreement remainsare fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and one of its non-operating subsidiaries, subject to release under certain customary circumstances.
The Credit Agreement contains customary covenants that include restrictions or limitations on the ability to pay dividends, incur additional indebtedness, engage in non-healthcare related business activities, enter into transactions with affiliates and sell or otherwise transfer certain assets as well as customary events of default. The Credit Agreement also requires Sabra, through the Operating Partnership, to comply with specified financial covenants, which include a maximum total leverage ratio, a minimum secured debt leverage ratio, a minimum fixed charge coverage ratio, a maximum unsecured leverage ratio, a minimum tangible net worth requirement and a minimum unsecured interest coverage ratio. As of September 30, 2019,2020, the Company was in compliance with all applicable financial covenants under the Credit Agreement.
Interest Expense
The Company incurred interest expense of $24.9 million and $75.9 million during the three and nine months ended September 30, 2020, respectively, and $29.3 million and $99.2 million during the three and nine months ended September 30, 2019, respectively, and $37.3 million and $109.9 million during the three and nine months ended September 30, 2018, respectively. Interest expense includes non-cash interest expense of $2.5$2.1 million and $7.8 million for the three and nine months ended September 30, 2019, respectively, and $2.6 million and $7.5$6.5 million for the three and nine months ended September 30, 2018,2020, respectively, and $2.5 million and $7.8 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 20192020 and December 31, 2018,2019, the Company had $15.1$18.1 million and $24.0$16.7 million, respectively, of accrued interest included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.
Maturities
The following is a schedule of maturities for the Company’s outstanding debt as of September 30, 20192020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Secured Indebtedness | | Revolving Credit Facility (1) | | Term Loans | | Senior Notes | | Total |
October 1 through December 31, 2020 | | $ | 655 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 655 | |
2021 | | 17,689 | | | 0 | | | 0 | | | 0 | | | 17,689 | |
2022 | | 2,412 | | | 0 | | | 105,000 | | | 0 | | | 107,412 | |
2023 | | 2,478 | | | 56,000 | | | 350,000 | | | 0 | | | 408,478 | |
2024 | | 2,545 | | | 0 | | | 593,538 | | | 300,000 | | | 896,083 | |
Thereafter | | 54,345 | | | 0 | | | 0 | | | 950,000 | | | 1,004,345 | |
Total Debt | | 80,124 | | | 56,000 | | | 1,048,538 | | | 1,250,000 | | | 2,434,662 | |
Premium, net | | 0 | | | 0 | | | 0 | | | 6,740 | | | 6,740 | |
Deferred financing costs, net | | (1,149) | | | 0 | | | (8,853) | | | (8,416) | | | (18,418) | |
Total Debt, Net | | $ | 78,975 | | | $ | 56,000 | | | $ | 1,039,685 | | | $ | 1,248,324 | | | $ | 2,422,984 | |
(1) Revolving Credit Facility is subject to 2 six-month extension options.
|
| | | | | | | | | | | | | | | | | | | | |
| | Secured Indebtedness | | Revolving Credit Facility (1) | | Term Loans | | Senior Notes | | Total |
October 1 through December 31, 2019 | | $ | 869 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 869 |
|
2020 | | 3,545 |
| | — |
| | — |
| | — |
| | 3,545 |
|
2021 | | 18,573 |
| | — |
| | — |
| | — |
| | 18,573 |
|
2022 | | 3,185 |
| | — |
| | 250,000 |
| | — |
| | 253,185 |
|
2023 | | 3,282 |
| | 200,000 |
| | 350,000 |
| | 200,000 |
| | 753,282 |
|
Thereafter | | 85,916 |
| | — |
| | 594,400 |
| | 900,000 |
| | 1,580,316 |
|
Total Debt | | 115,370 |
| | 200,000 |
| | 1,194,400 |
| | 1,100,000 |
| | 2,609,770 |
|
Premium, net | | — |
| | — |
| | — |
| | 13,188 |
| | 13,188 |
|
Deferred financing costs, net | | (1,726 | ) | | — |
| | (11,417 | ) | | (6,704 | ) | | (19,847 | ) |
Total Debt, Net | | $ | 113,644 |
| | $ | 200,000 |
| | $ | 1,182,983 |
| | $ | 1,106,484 |
| | $ | 2,603,111 |
|
| |
(1)
| Revolving Credit Facility is subject to 2 six-month extension options. |
8. DERIVATIVE AND HEDGING INSTRUMENTS
The Company is exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign exchange rates. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and foreign exchange rates. The Company’s derivative financial instruments are used to manage differences in the amount of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.
Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value in the Company’s functional currency, the U.S. dollar, of the Company’s investment in foreign operations, the cash receipts and payments related to these foreign operations and payments of interest and principal under Canadian dollar denominated debt. The Company enters into derivative financial instruments to protect the
value of its foreign investments and fix a portion of the interest payments for certain debt obligations. The Company does not enter into derivatives for speculative purposes.
Cash Flow Hedges
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. In May 2019, the Company terminated 3 forward starting interest rate swaps, resulting in a payment to counterparties totaling $12.6 million. The balance of the loss in other comprehensive income will be reclassified to earnings through 2029. As of September 30, 2019,2020, approximately $1.4$12.5 million of gains,losses, which are included in accumulated other comprehensive income, are expected to be reclassified into earnings in the next 12 months.
Net Investment Hedges
The Company is exposed to fluctuations in foreign exchange rates on investments it holds in Canada. The Company uses cross currency interest rate swaps to hedge its exposure to changes in foreign exchange rates on these foreign investments.
The following presents the notional amount of derivative instruments as of the dates indicated (in thousands):
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
Derivatives designated as cash flow hedges: | | | | |
Denominated in U.S. Dollars (1) | | $ | 1,490,000 |
| | $ | 1,045,000 |
|
Denominated in Canadian Dollars | | $ | 125,000 |
| | $ | 125,000 |
|
| | | | |
Derivatives designated as net investment hedges: | | | | |
Denominated in Canadian Dollars | | $ | 54,676 |
| | $ | 55,401 |
|
| | | | |
Financial instrument designated as net investment hedge: | | | | |
Denominated in Canadian Dollars | | $ | 125,000 |
| | $ | 125,000 |
|
| | | | |
Derivatives not designated as net investment hedges: | | | | |
Denominated in Canadian Dollars | | $ | 1,624 |
| | $ | 899 |
|
| | | | |
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Derivatives designated as cash flow hedges: | | | | |
Denominated in U.S. Dollars (1) | | $ | 1,340,000 | | | $ | 1,490,000 | |
Denominated in Canadian Dollars (2) | | $ | 250,000 | | | $ | 125,000 | |
Derivatives designated as net investment hedges: | | | | |
Denominated in Canadian Dollars | | $ | 53,239 | | | $ | 54,489 | |
Financial instrument designated as net investment hedge: | | | | |
Denominated in Canadian Dollars | | $ | 125,000 | | | $ | 125,000 | |
Derivatives not designated as net investment hedges: | | | | |
Denominated in Canadian Dollars | | $ | 3,061 | | | $ | 1,811 | |
(1) Balance includes 4 forward starting interest rate swaps and 1 forward starting interest rate collar with an effective dateaggregate notional value of August 2020$400.0 million, which accretes to $600.0 million in January 2023, and 2 forward starting interest rate swaps and 1 forward starting interest rate collar with an effective date of January 2021 that were entered into as of September 30, 2019.2021. The forward starting interest rate swaps and forward starting interest rate collarscollar have an aggregate initial notional amount of $645.0 million accreting to $845.0 million in$245.0 million. Balance as of September 30, 2020 also includes 6 forward starting interest rate swaps with an effective date of May 2024 and an aggregate notional amount of $250.0 million.
(2) Balance as of September 30, 2020 includes 2 forward starting interest rate swaps with an effective date of January 2023.2021 and an aggregate notional amount of CAD $125.0 million.
Derivative and Financial Instruments Designated as Hedging Instruments
The following is a summary of the derivative and financial instruments designated as hedging instruments held by the Company at September 30, 20192020 and December 31, 20182019 (dollars in thousands):
|
| | | | | | | | | | | | | | | | | |
| | | | Count as of September 30, 2019 | | Fair Value | | Maturity Dates | | |
Type | | Designation | | | September 30, 2019 | | December 31, 2018 | | | Balance Sheet Location |
Assets: | | | | | | | | | | | | |
Interest rate swaps | | Cash flow | | 7 |
| | $ | 4,617 |
| | $ | 25,184 |
| | 2020 - 2023 | | Accounts receivable, prepaid expenses and other assets, net |
Cross currency interest rate swaps | | Net investment | | 2 |
| | 4,068 |
| | 4,160 |
| | 2025 | | Accounts receivable, prepaid expenses and other assets, net |
| | | | | | $ | 8,685 |
| | $ | 29,344 |
| | | | |
| | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | |
Interest rate swaps | | Cash flow | | 3 |
| | $ | 367 |
| | $ | — |
| | 2023 | | Accounts payable and accrued liabilities |
Forward starting interest rate swaps | | Cash flow | | 6 |
| | 6,267 |
| | 4,529 |
| | 2024 | | Accounts payable and accrued liabilities |
Forward starting interest rate collars | | Cash flow | | 2 |
| | 844 |
| | — |
| | 2024 | | Accounts payable and accrued liabilities |
CAD term loan | | Net investment | | 1 |
| | 94,400 |
| | 91,700 |
| | 2024 | | Term loans, net |
| | | | | | $ | 101,878 |
| | $ | 96,229 |
| | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Count as of September 30, 2020 | | Fair Value | | Maturity Dates | | |
Type | | Designation | | | September 30, 2020 | | December 31, 2019 | | | Balance Sheet Location |
Assets: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Interest rate swaps | | Cash flow | | 0 | | | $ | 0 | | | $ | 4,239 | | | N/A | | Accounts receivable, prepaid expenses and other assets, net |
Forward starting interest rate swaps | | Cash flow | | 6 | | | 3,840 | | | 0 | | | 2034 | | Accounts receivable, prepaid expenses and other assets, net |
Cross currency interest rate swaps | | Net investment | | 2 | | | 4,633 | | | 3,238 | | | 2025 | | Accounts receivable, prepaid expenses and other assets, net |
| | | | | | $ | 8,473 | | | $ | 7,477 | | | | | |
Liabilities: | | | | | | | | | | | | |
Interest rate swaps | | Cash flow | | 11 | | | $ | 28,494 | | | $ | 0 | | | 2021- 2024 | | Accounts payable and accrued liabilities |
Forward starting interest rate swaps | | Cash flow | | 4 | | | 10,742 | | | 494 | | | 2024 | | Accounts payable and accrued liabilities |
Forward starting interest rate collars | | Cash flow | | 1 | | | 902 | | | 132 | | | 2024 | | Accounts payable and accrued liabilities |
CAD term loan | | Net investment | | 1 | | | 93,538 | | | 96,025 | | | 2024 | | Term loans, net |
| | | | | | $ | 133,676 | | | $ | 96,651 | | | | | |
The following presents the effect of the Company’s derivative and financial instruments designated as hedging instruments on the condensed consolidated statements of income and the condensed consolidated statements of equity for the three and nine months ended September 30, 20192020 and 20182019 (in thousands):
|
| | | | | | | | | | | | | | | | | | |
| | (Loss) Gain Recognized in Other Comprehensive (Loss) Income | |
|
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2019 | | 2018 | | 2019 | | 2018 | | Income Statement Location |
| | | | | | | | | | |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate products | | $ | (8,196 | ) | | $ | 2,954 |
| | $ | (27,933 | ) | | $ | 16,091 |
| | Interest expense |
Net Investment Hedges: | | | | | | | | | | |
Foreign currency products | | 1,273 |
| | (688 | ) | | (3 | ) | | 817 |
| | N/A |
CAD term loan | | 1,088 |
| | (1,725 | ) | | (2,700 | ) | | 2,700 |
| | N/A |
| | | | | | | | | | |
| | $ | (5,835 | ) | | $ | 541 |
| | $ | (30,636 | ) | | $ | 19,608 |
| | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Recognized in Other Comprehensive Income (Loss) | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | Income Statement Location |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate products | | $ | 3,836 | | | $ | (8,196) | | | $ | (42,826) | | | $ | (27,933) | | | Interest expense |
Net Investment Hedges: | | | | | | | | | | |
Foreign currency products | | (1,044) | | | 1,273 | | | 1,544 | | | (3) | | | N/A |
CAD term loan | | (1,913) | | | 1,088 | | | 2,488 | | | (2,700) | | | N/A |
| | $ | 879 | | | $ | (5,835) | | | $ | (38,794) | | | $ | (30,636) | | | |
|
| | | | | | | | | | | | | | | | | | |
| | Gain Reclassified from Accumulated Other Comprehensive Income into Income | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2019 | | 2018 | | 2019 | | 2018 | | Income Statement Location |
| | | | | |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate products | | $ | 1,173 |
| | $ | 1,001 |
| | $ | 4,781 |
| | $ | 1,584 |
| | Interest expense |
| | | | | | | | | | |
The gain in the table above related to interest rate products was reclassified from accumulated other comprehensive income into interest expense. Interest expense totaled $29.3 million and $99.2 million for the three and nine months ended September 30, 2019, respectively, and $37.3 million and $109.9 million for the three and nine months ended September 30, 2018, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | (Loss) Gain Reclassified from Accumulated Other Comprehensive Income (Loss) into Income | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, | | |
| | 2020 | | 2019 | | 2020 | | 2019 | | Income Statement Location |
Cash Flow Hedges: | | | | | | | | | | |
Interest rate products | | $ | (2,985) | | | $ | 1,173 | | | $ | (5,148) | | | $ | 4,781 | | | Interest expense |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
During the three and nine months ended September 30, 20192020 and 2018,2019, 0 cash flow hedges were determined to be ineffective.
Derivatives Not Designated as Hedging Instruments
As of September 30, 2019,2020, the Company had 1 outstanding cross currency interest rate swap, of which a portion was not designated as a hedging instrument, in an asset position with a fair value of $118,000$0.3 million and included this amount in accounts receivable, prepaid expenses and other assets, net on the condensed consolidated balance sheets. During the three and nine months ended September 30, 2019,2020, the Company recorded $38,000 and $31,000, respectively,$0.1 million of other expense and $13,000 of other income, respectively, related to this portion of the derivative not designated as a hedging instrument. During each of the three and nine months
ended September 30, 2018,2019, the Company recorded $11,000$38,000 and $31,000, respectively, of other expenseincome related to a portion of a cross currency interest rate swap not designated as a hedging instrument.
Offsetting Derivatives
The Company enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 20192020 and December 31, 20182019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of September 30, 2020 |
| | Gross Amounts of Recognized Assets / Liabilities | | Gross Amounts Offset in the Balance Sheet | | Net Amounts of Assets / Liabilities presented in the Balance Sheet | | Gross Amounts Not Offset in the Balance Sheet | | |
| | | | | Financial Instruments | | Cash Collateral Received | | Net Amount |
Offsetting Assets: | | | | | | | | | | | | |
Derivatives | | $ | 8,473 | | | $ | 0 | | | $ | 8,473 | | | $ | (7,405) | | | $ | 0 | | | $ | 1,068 | |
Offsetting Liabilities: | | | | | | | | | | | | |
Derivatives | | $ | 40,138 | | | $ | 0 | | | $ | 40,138 | | | $ | (7,405) | | | $ | 0 | | | $ | 32,733 | |
| | | | As of September 30, 2019 | | As of December 31, 2019 |
| | Gross Amounts of Recognized Assets / Liabilities | | Gross Amounts Offset in the Balance Sheet | | Net Amounts of Assets / Liabilities presented in the Balance Sheet | | Gross Amounts Not Offset in the Balance Sheet | | | | Gross Amounts of Recognized Assets / Liabilities | | Gross Amounts Offset in the Balance Sheet | | Net Amounts of Assets / Liabilities presented in the Balance Sheet | | Gross Amounts Not Offset in the Balance Sheet | |
| | Financial Instruments | | Cash Collateral Received | | Net Amount | | Financial Instruments | | Cash Collateral Received | | Net Amount |
Offsetting Assets: | | | | | | | | | | | | | Offsetting Assets: | | | | | | | | | | | | |
Derivatives | | $ | 8,684 |
| | $ | — |
| | $ | 8,684 |
| | $ | (4,106 | ) | | $ | — |
| | $ | 4,578 |
| Derivatives | | $ | 7,477 | | | $ | 0 | | | $ | 7,477 | | | $ | (544) | | | $ | 0 | | | $ | 6,933 | |
Offsetting Liabilities: | | | | | | | | | | | | | Offsetting Liabilities: | |
Derivatives | | $ | 7,478 |
| | $ | — |
| | $ | 7,478 |
| | $ | (4,106 | ) | | $ | — |
| | $ | 3,372 |
| Derivatives | | $ | 626 | | | $ | 0 | | | $ | 626 | | | $ | (544) | | | $ | 0 | | | $ | 82 | |
| | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | As of December 31, 2018 |
| | Gross Amounts of Recognized Assets / Liabilities | | Gross Amounts Offset in the Balance Sheet | | Net Amounts of Assets / Liabilities presented in the Balance Sheet | | Gross Amounts Not Offset in the Balance Sheet | | |
| | | | | Financial Instruments | | Cash Collateral Received | | Net Amount |
Offsetting Assets: | | | | | | | | | | | | |
Derivatives | | $ | 29,344 |
| | $ | — |
| | $ | 29,344 |
| | $ | (2,069 | ) | | $ | — |
| | $ | 27,275 |
|
Offsetting Liabilities: | | | | | | | | | | | | |
Derivatives | | $ | 4,529 |
| | $ | — |
| | $ | 4,529 |
| | $ | (2,069 | ) | | $ | — |
| | $ | 2,460 |
|
| | | | | | | | | | | | |
Credit-risk-relatedCredit Risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision pursuant to which the Company could be declared in default on the derivative obligation if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender. As of September 30, 2019,2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $3.6$34.3 million. As of September 30, 2019,2020, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2019,2020, it could have been required to settle its obligations under the agreements at their termination value of $3.4$32.7 million.
9. FAIR VALUE DISCLOSURES
Financial Instruments
The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments.
Financial instruments for which actively quoted prices or pricing parameters are available and whose markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments whose markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The carrying values of cash and cash equivalents, restricted cash, accounts payable, accrued liabilities and the Credit Agreement are reasonable estimates of fair value because of the short-term maturities of these instruments. Fair values for other financial instruments are derived as follows:
Loans receivable: These instruments are presented on the accompanying condensed consolidated balance sheets at their amortized cost and not at fair value. The fair values of the loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans receivable, as well as the underlying collateral value and other credit
enhancements as applicable. The Company utilized discount rates ranging from 6% to 16% with a weighted average rate of 12% in its fair value calculation. As such, the Company classifies these instruments as Level 3.
Preferred equity investments: These instruments are presented on the accompanying condensed consolidated balance sheets at their cost and not at fair value. The fair values of the preferred equity investments were estimated using an internal valuation model that considered the expected future cash flows for the preferred equity investments, the underlying collateral value and other credit enhancements. The Company utilized discount rates ranging from 10% to 15% with a weighted average rate of 11% in its fair value calculation. As such, the Company classifies these instruments as Level 3.
Derivative instruments: The Company’s derivative instruments are presented at fair value on the accompanying condensed consolidated balance sheets. The Company estimates the fair value of derivative instruments, including its interest rate swaps and cross currency swaps, using the assistance of a third party using inputs that are observable in the market, which include forward yield curves and other relevant information. Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in Level 2 of the fair value hierarchy.
Senior Notes: These instruments are presented on the accompanying condensed consolidated balance sheets at their outstanding principal balance, net of unamortized deferred financing costs and premiums/discounts and not at fair value. The fair values of the Senior Notes were determined using third-party market quotes derived from orderly trades. As such, the Company classifies these instruments as Level 2.
Secured indebtedness: These instruments are presented on the accompanying condensed consolidated balance sheets at their outstanding principal balance, net of unamortized deferred financing costs and premiums/discounts and not at fair value. The fair values of the Company’s secured debt were estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. The Company utilized rates ranging from 2% to 3% with a weighted average rate of 3% in its fair value calculation. As such, the Company classifies these instruments as Level 3.
The following are the face values, carrying amounts and fair values of the Company’s financial instruments as of September 30, 20192020 and December 31, 20182019 whose carrying amounts do not approximate their fair value (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
| Face Value (1) | | Carrying Amount (2) | | Fair Value | | Face Value (1) | | Carrying Amount (2) | | Fair Value |
Financial assets: | | | | | | | | | | | |
Loans receivable | $ | 66,316 | | | $ | 61,076 | | | $ | 56,956 | | | $ | 67,527 | | | $ | 63,070 | | | $ | 59,832 | |
Preferred equity investments | 42,533 | | | 42,744 | | | 43,039 | | | 43,893 | | | 44,304 | | | 44,493 | |
Financial liabilities: | | | | | | | | | | | |
Senior Notes | 1,250,000 | | | 1,248,324 | | | 1,311,354 | | | 1,250,000 | | | 1,248,773 | | | 1,328,714 | |
Secured indebtedness | 80,124 | | | 78,975 | | | 79,249 | | | 114,777 | | | 113,070 | | | 105,510 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 | | December 31, 2018 |
| Face Value (1) | | Carrying Amount (2) | | Fair Value | | Face Value (1) | | Carrying Amount (2) | | Fair Value |
Financial assets: | | | | | | | | | | | |
Loans receivable | $ | 68,486 |
| | $ | 63,825 |
| | $ | 61,008 |
| | $ | 96,492 |
| | $ | 69,460 |
| | $ | 65,797 |
|
Preferred equity investments | 44,005 |
| | 44,417 |
| | 44,753 |
| | 43,851 |
| | 44,262 |
| | 43,825 |
|
Financial liabilities: | | | | | | | | | | | |
Senior Notes | 1,100,000 |
| | 1,106,484 |
| | 1,166,203 |
| | 1,300,000 |
| | 1,307,394 |
| | 1,270,877 |
|
Secured indebtedness | 115,370 |
| | 113,644 |
| | 110,579 |
| | 117,464 |
| | 115,679 |
| | 101,820 |
|
(1) Face value represents amounts contractually due under the terms of the respective agreements. | |
(1)(2) Carrying amount represents the book value of financial instruments, including unamortized premiums/discounts and deferred financing costs.
| Face value represents amounts contractually due under the terms of the respective agreements. |
| |
(2)
| Carrying amount represents the book value of financial instruments, including unamortized premiums/discounts and deferred financing costs. |
The Company determined the fair value of financial instruments as of September 30, 20192020 whose carrying amounts do not approximate their fair value with valuation methods utilizing the following types of inputs (in thousands):
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Total | | | |
Financial assets: | | | | | | | |
Loans receivable | $ | 61,008 |
| | $ | — |
| | $ | — |
| | $ | 61,008 |
|
Preferred equity investments | 44,753 |
| | — |
| | — |
| | 44,753 |
|
Financial liabilities: | | | | | | | |
Senior Notes | 1,166,203 |
| | — |
| | 1,166,203 |
| | — |
|
Secured indebtedness | 110,579 |
| | — |
| | — |
| | 110,579 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Total | | | |
Financial assets: | | | | | | | |
Loans receivable | $ | 56,956 | | | $ | 0 | | | $ | 0 | | | $ | 56,956 | |
Preferred equity investments | 43,039 | | | 0 | | | 0 | | | 43,039 | |
Financial liabilities: | | | | | | | |
Senior Notes | 1,311,354 | | | 0 | | | 1,311,354 | | | 0 | |
Secured indebtedness | 79,249 | | | 0 | | | 0 | | | 79,249 | |
| | | | | | | |
Disclosure of the fair value of financial instruments is based on pertinent information available to the Company at the applicable dates and requires a significant amount of judgment. Despite increased capital market and credit market activity, transactionTransaction volume for certain of the Company’s financial instruments remains relatively low. Thislow, which has made the estimation of fair values difficult and, therefore,difficult. Therefore, both the actual results and the Company’s estimate of fair value at a future date could be materially different.
Items Measured at Fair Value on a Recurring Basis
During the nine months ended September 30, 2019,2020, the Company recorded the following amounts measured at fair value (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Total | | | |
Recurring Basis: | | | | | | | |
Financial assets: | | | | | | | |
| | | | | | | |
Forward starting interest rate swaps | $ | 3,840 | | | $ | 0 | | | $ | 3,840 | | | $ | 0 | |
Cross currency interest rate swaps | 4,633 | | | 0 | | | 4,633 | | | 0 | |
| | | | | | | |
Financial liabilities: | | | | | | | |
Interest rate swaps | 28,494 | | | 0 | | | 28,494 | | | 0 | |
Forward starting interest rate swaps | 10,742 | | | 0 | | | 10,742 | | | 0 | |
Forward starting interest rate collars | 902 | | | 0 | | | 902 | | | 0 | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements Using |
| | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| Total | | | |
Recurring Basis: | | | | | | | |
Financial assets: | | | | | | | |
Interest rate swaps | $ | 4,617 |
| | $ | — |
| | $ | 4,617 |
| | $ | — |
|
Cross currency interest rate swaps | 4,068 |
| | — |
| | 4,068 |
| | — |
|
Financial liabilities: | | | | | | | |
Interest rate swaps | 367 |
| | — |
| | 367 |
| | — |
|
Forward starting interest rate swaps | 6,267 |
| | — |
| | 6,267 |
| | — |
|
Forward starting interest rate collars | 844 |
| | — |
| | 844 |
| | — |
|
10. EQUITY
Preferred Stock
On March 21, 2013, the Company completed an underwritten public offering of 5,750,000 shares of 7.125% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”) at a price of $25.00 per share, pursuant to an effective registration statement.
The Company redeemed all 5,750,000 shares of its Series A Preferred Stock on June 1, 2018 (the “Redemption Date”) for $25.00 per share, plus accrued and unpaid dividends to, but not including, the Redemption Date, without interest, in the amount of $0.4453125 per share of Series A Preferred Stock, for a total redemption price per share of Series A Preferred Stock equal to $25.4453125. As a result of the redemption, the Company incurred a charge of $5.5 million related to the original issuance costs of the Series A Preferred Stock during the three months ended June 30, 2018.
Common Stock
On February 25,December 11, 2019, the Company entered intoestablished an at-the-market equity distribution agreementoffering program (the “Distribution Agreement”“ATM Program”) withpursuant to which shares of its common stock having an aggregate gross sales price of up to $400.0 million may be sold from time to time (i) by the Company through a consortium of banks acting as sales agents (the “Sales Agents”) to sell shares of its common stock having aggregate gross proceeds of up to $500.0 million from time to time through the Sales Agents (the “ATM Program”).
Pursuantor directly to the termsbanks 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. The use of a forward sale agreement would allow the Distribution Agreement, the shares may be sold by any method permitted by law deemedCompany to be an “at-the-market” offering, including, without limitation, sales made directlylock in a share price on the Nasdaq Global Select Market, on any other existing trading market for the Company’s common stock or to or through a market maker (which may include block transactions). In addition, with the Company’s prior consent, the Sales Agents may also sell the shares in privately negotiated transactions. The Company will pay each Sales Agent a commission of up to 1.5% of the gross proceeds from the salessale of shares sold pursuant toat the Distribution Agreement. The offering of shares pursuant totime the Distribution Agreement will terminate uponagreement is effective, but defer receiving the earlier of (i)proceeds from the sale of the maximum aggregate amount of the shares subject to the Distribution Agreement, or (ii) the termination of the Distribution Agreement as permitted therein.until a later date. The offering of shares pursuant to the Distribution AgreementCompany may also be suspended as permitted therein.elect to cash settle or net share settle all or a portion of its obligations under any forward sale agreement.
During the three months ended September 30, 2019,2020, the Company sold 4.21.4 million shares under the ATM Program at an average price of $21.82$15.70 per share, generating gross proceeds of $91.2$21.4 million, before $1.3$0.3 million of commissions. During the nine months ended September 30, 2019,2020, the Company sold 15.31.6 million shares under the ATM Program at an average price of $20.20
$16.26 per share, generating gross proceeds of $308.5$25.3 million, before $4.6$0.4 million of commissions. As of September 30, 2019,2020, the Company has not utilized the forward feature of the ATM Program and had $191.5$314.7 million available under the ATM Program.
The following table lists the cash dividends on common stock declared and paid by the Company during the nine months ended September 30, 2019:
|
| | | | | | | | |
Declaration Date | | Record Date | | Amount Per Share | | Dividend Payable Date |
February 5, 2019 | | February 15, 2019 | | $ | 0.45 |
| | February 28, 2019 |
May 8, 2019 | | May 20, 2019 | | $ | 0.45 |
| | May 31, 2019 |
August 7, 2019 | | August 20, 2019 | | $ | 0.45 |
| | August 30, 2019 |
During the nine months ended September 30, 2019,2020:
| | | | | | | | | | | | | | | | | | | | |
Declaration Date | | Record Date | | Amount Per Share | | Dividend Payable Date |
February 4, 2020 | | February 14, 2020 | | $ | 0.45 | | | February 28, 2020 |
May 6, 2020 | | May 18, 2020 | | $ | 0.30 | | | May 29, 2020 |
August 5, 2020 | | August 17, 2020 | | $ | 0.30 | | | August 31, 2020 |
During the nine months ended September 30, 2020, the Company issued 115,572164,224 shares of common stock as a result of restricted stock unit vestings.
Upon any payment of shares to employees as a result of restricted stock unit vestings, the employees’ related tax withholding obligation will generally be satisfied by the Company, reducing the number of shares to be delivered by a number of shares necessary to satisfy the related applicable tax withholding obligation. During the nine months ended September 30, 20192020 and 2018,2019, the Company incurred $1.3$0.9 million and $0.2$1.3 million, respectively, in tax withholding obligations on behalf of its employees that were satisfied through a reduction in the number of shares delivered to those participants.
Accumulated Other Comprehensive (Loss) IncomeLoss
The following is a summary of the Company’s accumulated other comprehensive (loss) incomeloss (in thousands):
|
| | | | | | | | |
| | September 30, 2019 | | December 31, 2018 |
Foreign currency translation loss | | $ | (1,269 | ) | | $ | (2,193 | ) |
Unrealized (loss) gain on cash flow hedges | | (18,126 | ) | | 14,494 |
|
| | | | |
Total accumulated other comprehensive (loss) income | | $ | (19,395 | ) | | $ | 12,301 |
|
| | | | |
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Foreign currency translation loss | | $ | (702) | | | $ | (1,516) | |
Unrealized loss on cash flow hedges | | (48,468) | | | (10,872) | |
Total accumulated other comprehensive loss | | $ | (49,170) | | | $ | (12,388) | |
11. EARNINGS PER COMMON SHARE
The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 20192020 and 20182019 (in thousands, except share and per share amounts):
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2019 | | 2018 | | 2019 | | 2018 |
Numerator | | | | | | | | |
Net income attributable to common stockholders | | $ | 23,282 |
| | $ | 35,218 |
| | $ | 29,255 |
| | $ | 288,708 |
|
| | | | | | | | |
Denominator | | | | | | | | |
Basic weighted average common shares and common equivalents | | 190,650,400 |
| | 178,317,769 |
| | 183,578,254 |
| | 178,309,127 |
|
Dilutive restricted stock units | | 1,301,989 |
| | 623,444 |
| | 1,120,157 |
| | 420,726 |
|
| | | | | | | | |
Diluted weighted average common shares | | 191,952,389 |
| | 178,941,213 |
| | 184,698,411 |
| | 178,729,853 |
|
| | | | | | | | |
Net income attributable to common stockholders, per: | | | | | | | | |
| | | | | | | | |
Basic common share | | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.16 |
| | $ | 1.62 |
|
| | | | | | | | |
Diluted common share | | $ | 0.12 |
| | $ | 0.20 |
| | $ | 0.16 |
| | $ | 1.62 |
|
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Numerator | | | | | | | | |
Net income attributable to common stockholders | | $ | 36,460 | | | $ | 23,282 | | | $ | 101,300 | | | $ | 29,255 | |
Denominator | | | | | | | | |
Basic weighted average common shares and common equivalents | | 205,791,699 | | | 190,650,400 | | | 205,592,806 | | | 183,578,254 | |
Dilutive restricted stock units | | 935,468 | | | 1,301,989 | | | 849,868 | | | 1,120,157 | |
Diluted weighted average common shares | | 206,727,167 | | | 191,952,389 | | | 206,442,674 | | | 184,698,411 | |
Net income attributable to common stockholders, per: | | | | | | | | |
Basic common share | | $ | 0.18 | | | $ | 0.12 | | | $ | 0.49 | | | $ | 0.16 | |
Diluted common share | | $ | 0.18 | | | $ | 0.12 | | | $ | 0.49 | | | $ | 0.16 | |
During the three and nine months ended September 30, 2020, approximately 99,700 and 113,300 restricted stock units, respectively, were not included in computing diluted earnings per share because they were considered anti-dilutive. During the three months ended September 30, 2019,, 0 restricted stock units were considered anti-dilutive, and during the nine months ended September 30, 2019, approximately 430 restricted stock units were not included in computing diluted earnings per share because they were considered anti-dilutive. During the three months ended September 30, 2018, 0 restricted stock units were considered anti-dilutive, and during the nine months ended September 30, 2018, approximately 20,500 restricted stock units were not included in computing diluted earnings per share because they were considered anti-dilutive. NaN stock options were outstanding as of September 30, 2019, and 0 stock options were considered anti-dilutive during the three and nine months ended September 30, 2018.
12. SUMMARIZED CONDENSED CONSOLIDATING INFORMATION
In connection with the offerings of the 2023 Notes and the 2024 Notes by the Issuers, the Company and certain 100% owned subsidiaries of the Company (the “Guarantors”), jointly and severally, fully and unconditionally guaranteed the 2023 Notes and the 2024 Notes, subject to release under certain customary circumstances as described below. In connection with the assumption of the 2026 Notes as a result of the CCP Merger, the Company has fully and unconditionally guaranteed the 2026 Notes, subject to release under certain circumstances as described below. These guarantees are subordinated to all existing and future senior debt and senior guarantees of the Guarantors and are unsecured. The Company conducts all of its business through and derives virtually all of its income from its subsidiaries. Therefore, the Company’s ability to make required payments with respect to its indebtedness (including the Senior Notes) and other obligations depends on the financial results and condition of its subsidiaries and its ability to receive funds from its subsidiaries.
A Guarantor will be automatically and unconditionally released from its obligations under the guarantees with respect to the 2023 Notes and the 2024 Notes in the event of:
Any sale of the subsidiary Guarantor or of all or substantially all of its assets;
A merger or consolidation of a subsidiary Guarantor with an issuer of the 2023 Notes or the 2024 Notes or another Guarantor, provided that the surviving entity remains a Guarantor;
With respect to the 2023 Notes, a subsidiary Guarantor is declared “unrestricted” for covenant purposes under the indenture governing the 2023 Notes;
The requirements for legal defeasance or covenant defeasance or to discharge the indentures governing the 2023 Notes or the 2024 Notes have been satisfied;
A liquidation or dissolution, to the extent permitted under the indentures governing the 2023 Notes or the 2024 Notes, of a subsidiary Guarantor;
The release or discharge of the guaranty that resulted in the creation of the subsidiary guaranty, except a discharge or release by or as a result of payment under such guaranty; or
With respect to the 2024 Notes, if the subsidiary Guarantor is not a guarantor or is not otherwise liable in respect of any obligations under any credit facility (as defined in the indenture governing the 2024 Notes) of the Company or any of its subsidiaries.
On October 7, 2019, the Issuers completed the offering of the 2029 Notes. Upon redemption of the 2023 Notes on October 27, 2019, Sabra Capital Corporation’s obligations as a co-issuer under the 2024 Notes and the 2029 Notes were automatically released and discharged. In addition, following the redemption of the 2023 Notes, substantially all of the subsidiary guarantors under the 2024 Notes were released; the 2024 Notes remain fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by the Company and one of its non-operating subsidiaries, subject to release under certain customary circumstances. The 2029 Notes are fully and unconditionally guaranteed, on an unsecured basis, by the Company, subject to release under certain customary circumstances.
The Company will be automatically and unconditionally released from its obligations under the guarantees with respect to the 2026 Notes in the event of:
A liquidation or dissolution, to the extent permitted under the indenture governing the 2026 Notes;
A merger or consolidation, provided that the surviving entity remains a Guarantor; or
The requirements for legal defeasance or covenant defeasance or to discharge the indenture governing the 2026 Notes have been satisfied.
Pursuant to Rule 3-10 of Regulation S-X, the following summarized condensed consolidating information is provided for the Company (the “Parent Company”), the Operating Partnership, Sabra Capital Corporation, the Guarantors, and the Company’s non-Guarantor subsidiaries with respect to the 2023 Notes and the 2024 Notes. This summarized financial information has been prepared from the books and records maintained by the Company, the Operating Partnership, Sabra Capital Corporation, the Guarantors and the non-Guarantor subsidiaries. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Operating Partnership, Sabra Capital Corporation, the Guarantors or non-Guarantor subsidiaries operated as independent entities. Sabra’s investments in its consolidated subsidiaries are presented based upon Sabra’s proportionate share of each subsidiary’s net assets. The Guarantor subsidiaries’ investments in the non-Guarantor subsidiaries and non-Guarantor subsidiaries’ investments in Guarantor subsidiaries are presented under the equity method of accounting. Intercompany activities between subsidiaries and the Parent Company are presented within operating activities on the condensed consolidating statement of cash flows.
Condensed consolidating financial statements for the Company and its subsidiaries, including the Parent Company only, the Operating Partnership only, Sabra Capital Corporation only, the combined Guarantor subsidiaries and the combined non-Guarantor subsidiaries, are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2019
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Assets | | | | | | | | | | | | | |
Real estate investments, net of accumulated depreciation | $ | 390 |
| | $ | — |
| | $ | — |
| | $ | 1,417,907 |
| | $ | 3,926,700 |
| | $ | — |
| | $ | 5,344,997 |
|
Loans receivable and other investments, net | (783 | ) | | — |
| | — |
| | 55,935 |
| | 53,090 |
| | — |
| | 108,242 |
|
Investment in unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | 324,324 |
| | — |
| | 324,324 |
|
Cash and cash equivalents | 21,369 |
| | — |
| | — |
| | 2,607 |
| | 5,455 |
| | — |
| | 29,431 |
|
Restricted cash | — |
| | — |
| | — |
| | 1,860 |
| | 8,371 |
| | — |
| | 10,231 |
|
Lease intangible assets, net | — |
| | — |
| | — |
| | 9,029 |
| | 95,948 |
| | — |
| | 104,977 |
|
Accounts receivable, prepaid expenses and other assets, net | 3,693 |
| | 21,559 |
| | — |
| | 27,396 |
| | 100,698 |
| | (7,545 | ) | | 145,801 |
|
Intercompany | 1,992,202 |
| | 1,946,790 |
| | — |
| | — |
| | — |
| | (3,938,992 | ) | | — |
|
Investment in subsidiaries | 1,298,119 |
| | 1,748,807 |
| | — |
| | 33,358 |
| | — |
| | (3,080,284 | ) | | — |
|
Total assets | $ | 3,314,990 |
| | $ | 3,717,156 |
| | $ | — |
| | $ | 1,548,092 |
| | $ | 4,514,586 |
| | $ | (7,026,821 | ) | | $ | 6,068,003 |
|
| | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | |
Secured debt, net | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 113,644 |
| | $ | — |
| | $ | 113,644 |
|
Revolving credit facility | — |
| | 200,000 |
| | — |
| | — |
| | — |
| | — |
| | 200,000 |
|
Term loans, net | — |
| | 1,089,805 |
| | — |
| | 93,178 |
| | — |
| | — |
| | 1,182,983 |
|
Senior unsecured notes, net | — |
| | 1,106,484 |
| | — |
| | — |
| | — |
| | — |
| | 1,106,484 |
|
Accounts payable and accrued liabilities | 32,573 |
| | 22,748 |
| | — |
| | 2,182 |
| | 59,443 |
| | (7,545 | ) | | 109,401 |
|
Lease intangible liabilities, net | — |
| | — |
| | — |
| | — |
| | 73,074 |
| | — |
| | 73,074 |
|
Intercompany | — |
| | — |
| | — |
| | 659,890 |
| | 3,279,102 |
| | (3,938,992 | ) | | — |
|
Total liabilities | 32,573 |
| | 2,419,037 |
| | — |
| | 755,250 |
| | 3,525,263 |
| | (3,946,537 | ) | | 2,785,586 |
|
| | | | | | | | | | | | | |
Total equity | 3,282,417 |
| | 1,298,119 |
| | — |
| | 792,842 |
| | 989,323 |
| | (3,080,284 | ) | | 3,282,417 |
|
Total liabilities and equity | $ | 3,314,990 |
| | $ | 3,717,156 |
| | $ | — |
| | $ | 1,548,092 |
| | $ | 4,514,586 |
| | $ | (7,026,821 | ) | | $ | 6,068,003 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2018
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Assets | | | | | | | | | | | | | |
Real estate investments, net of accumulated depreciation | $ | 317 |
| | $ | — |
| | $ | — |
| | $ | 1,453,451 |
| | $ | 4,399,777 |
| | $ | — |
| | $ | 5,853,545 |
|
Loans receivable and other investments, net | (560 | ) | | — |
| | — |
| | 50,534 |
| | 63,748 |
| | — |
| | 113,722 |
|
Investment in unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | 340,120 |
| | — |
| | 340,120 |
|
Cash and cash equivalents | 40,835 |
| | — |
| | — |
| | 3,508 |
| | 5,887 |
| | — |
| | 50,230 |
|
Restricted cash | — |
| | — |
| | — |
| | 1,820 |
| | 7,608 |
| | — |
| | 9,428 |
|
Lease intangible assets, net | — |
| | — |
| | — |
| | 13,947 |
| | 117,150 |
| | — |
| | 131,097 |
|
Accounts receivable, prepaid expenses and other assets, net | 798 |
| | 37,075 |
| | — |
| | 58,704 |
| | 81,603 |
| | (11,019 | ) | | 167,161 |
|
Intercompany | 1,972,059 |
| | 2,646,669 |
| | — |
| | — |
| | — |
| | (4,618,728 | ) | | — |
|
Investment in subsidiaries | 1,258,715 |
| | 1,629,795 |
| | — |
| | 33,083 |
| | — |
| | (2,921,593 | ) | | — |
|
Total assets | $ | 3,272,164 |
| | $ | 4,313,539 |
| | $ | — |
| | $ | 1,615,047 |
| | $ | 5,015,893 |
| | $ | (7,551,340 | ) | | $ | 6,665,303 |
|
| | | | | | | | | | | | | |
Liabilities | | | | | | | | | | | | | |
Secured debt, net | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 115,679 |
| | $ | — |
| | $ | 115,679 |
|
Revolving credit facility | — |
| | 624,000 |
| | — |
| | — |
| | — |
| | — |
| | 624,000 |
|
Term loans, net | — |
| | 1,094,177 |
| | — |
| | 90,753 |
| | — |
| | — |
| | 1,184,930 |
|
Senior unsecured notes, net | — |
| | 1,307,394 |
| | — |
| | — |
| | — |
| | — |
| | 1,307,394 |
|
Accounts payable and accrued liabilities | 21,750 |
| | 29,253 |
| | — |
| | 2,570 |
| | 52,273 |
| | (11,019 | ) | | 94,827 |
|
Lease intangible liabilities, net | — |
| | — |
| | — |
| | — |
| | 83,726 |
| | — |
| | 83,726 |
|
Intercompany | — |
| | — |
| | — |
| | 810,394 |
| | 3,808,334 |
| | (4,618,728 | ) | | — |
|
Total liabilities | 21,750 |
| | 3,054,824 |
| | — |
| | 903,717 |
| | 4,060,012 |
| | (4,629,747 | ) | | 3,410,556 |
|
| | | | | | | | | | | | | |
Total Sabra Health Care REIT, Inc. stockholders’ equity | 3,250,414 |
| | 1,258,715 |
| | — |
| | 711,330 |
| | 951,548 |
| | (2,921,593 | ) | | 3,250,414 |
|
Noncontrolling interests | — |
| | — |
| | — |
| | — |
| | 4,333 |
| | — |
| | 4,333 |
|
Total equity | 3,250,414 |
| | 1,258,715 |
| | — |
| | 711,330 |
| | 955,881 |
| | (2,921,593 | ) | | 3,254,747 |
|
Total liabilities and equity | $ | 3,272,164 |
| | $ | 4,313,539 |
| | $ | — |
| | $ | 1,615,047 |
| | $ | 5,015,893 |
| | $ | (7,551,340 | ) | | $ | 6,665,303 |
|
| |
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Three Months Ended September 30, 2019
(dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Revenues: | | | | | | | | | | | | | |
Rental and related revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24,947 |
| | $ | 94,602 |
| | $ | (9,445 | ) | | $ | 110,104 |
|
Interest and other income | 47 |
| | 1,863 |
| | — |
| | 1,355 |
| | 1,924 |
| | (1,864 | ) | | 3,325 |
|
Resident fees and services | — |
| | — |
| | — |
| | — |
| | 36,405 |
| | — |
| | 36,405 |
|
Total revenues | 47 |
| | 1,863 |
| | — |
| | 26,302 |
| | 132,931 |
| | (11,309 | ) | | 149,834 |
|
Expenses: | | | | | | | | | | | | | |
Depreciation and amortization | 11 |
| | — |
| | — |
| | 11,692 |
| | 31,389 |
| | — |
| | 43,092 |
|
Interest | — |
| | 27,275 |
| | — |
| | 2,665 |
| | 1,179 |
| | (1,864 | ) | | 29,255 |
|
Triple-net portfolio operating expenses | — |
| | — |
| | — |
| | 657 |
| | 4,954 |
| | — |
| | 5,611 |
|
Senior housing - managed portfolio operating expenses | — |
| | — |
| | — |
| | — |
| | 33,424 |
| | (9,445 | ) | | 23,979 |
|
General and administrative | 8,010 |
| | 91 |
| | — |
| | 274 |
| | 334 |
| | — |
| | 8,709 |
|
Provision for doubtful accounts, straight-line rental income and loan losses | 57 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 57 |
|
Impairment of real estate | — |
| | — |
| | — |
| | 10,835 |
| | 3,131 |
| | — |
| | 13,966 |
|
Total expenses | 8,078 |
| | 27,366 |
| | — |
| | 26,123 |
| | 74,411 |
| | (11,309 | ) | | 124,669 |
|
Other (expense) income: | | | | | | | | | | | | | |
Loss on extinguishment of debt | (598 | ) | | (2 | ) | | — |
| | (44 | ) | | — |
| | — |
| | (644 | ) |
Other income (expense) | — |
| | 205 |
| | — |
| | (167 | ) | | 177 |
| | — |
| | 215 |
|
Net loss on sales of real estate | — |
| | — |
| | — |
| | — |
| | (19 | ) | | — |
| | (19 | ) |
Total other (expense) income | (598 | ) | | 203 |
| | — |
| | (211 | ) | | 158 |
| | — |
| | (448 | ) |
Income in subsidiary | 32,182 |
| | 57,482 |
| | — |
| | 1,696 |
| | — |
| | (91,360 | ) | | — |
|
Income before loss from unconsolidated joint venture and income tax expense | 23,553 |
| | 32,182 |
| | — |
| | 1,664 |
| | 58,678 |
| | (91,360 | ) | | 24,717 |
|
Loss from unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | (605 | ) | | — |
| | (605 | ) |
Income tax expense | (271 | ) | | — |
| | — |
| | (133 | ) | | (422 | ) | | — |
| | (826 | ) |
Net income | 23,282 |
| | 32,182 |
| | — |
| | 1,531 |
| | 57,651 |
| | (91,360 | ) | | 23,286 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Net income attributable to common stockholders | $ | 23,282 |
| | $ | 32,182 |
| | $ | — |
| | $ | 1,531 |
| | $ | 57,647 |
| | $ | (91,360 | ) | | $ | 23,282 |
|
Net income attributable to common stockholders, per: | | | | | | | | | | | | | |
Basic common share | | | | | | | | | | | | | $ | 0.12 |
|
Diluted common share | | | | | | | | | | | | | $ | 0.12 |
|
Weighted-average number of common shares outstanding, basic | | | | | | | | | | | | | 190,650,400 |
|
Weighted-average number of common shares outstanding, diluted | | | | | | | | | | | | | 191,952,389 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF INCOME
(dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Revenues: | | | | | | | | | | | | | |
Rental and related revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 35,204 |
| | $ | 99,566 |
| | $ | (4,303 | ) | | $ | 130,467 |
|
Interest and other income | 33 |
| | 95 |
| | — |
| | 1,434 |
| | 2,465 |
| | (95 | ) | | 3,932 |
|
Resident fees and services | — |
| | — |
| | — |
| | — |
| | 17,403 |
| | — |
| | 17,403 |
|
Total revenues | 33 |
| | 95 |
| | — |
| | 36,638 |
| | 119,434 |
| | (4,398 | ) | | 151,802 |
|
Expenses: | | | | | | | | | | | | | |
Depreciation and amortization | 221 |
| | — |
| | — |
| | 12,634 |
| | 35,613 |
| | — |
| | 48,468 |
|
Interest | — |
| | 33,892 |
| | — |
| | 846 |
| | 2,662 |
| | (95 | ) | | 37,305 |
|
Senior housing - managed portfolio operating expenses | — |
| | — |
| | — |
| | — |
| | 16,914 |
| | (4,303 | ) | | 12,611 |
|
General and administrative | 7,084 |
| | 24 |
| | — |
| | 636 |
| | 429 |
| | — |
| | 8,173 |
|
(Recovery of) provision for doubtful accounts, straight-line rental income and loan losses | (1,699 | ) | | — |
| | — |
| | 4,315 |
| | 6,294 |
| | — |
| | 8,910 |
|
Total expenses | 5,606 |
| | 33,916 |
| | — |
| | 18,431 |
| | 61,912 |
| | (4,398 | ) | | 115,467 |
|
Other (expense) income: | | | | | | | | | | | | | |
Other (expense) income | — |
| | (11 | ) | | — |
| | (70 | ) | | 1,417 |
| | — |
| | 1,336 |
|
Net (loss) gain on sales of real estate | — |
| | — |
| | — |
| | (1,136 | ) | | 1,150 |
| | — |
| | 14 |
|
Total other (expense) income | — |
| | (11 | ) | | — |
| | (1,206 | ) | | 2,567 |
| | — |
| | 1,350 |
|
Income in subsidiary | 41,283 |
| | 75,115 |
| | — |
| | 1,924 |
| | — |
| | (118,322 | ) | | — |
|
Income before loss from unconsolidated joint venture and income tax expense | 35,710 |
| | 41,283 |
| | — |
| | 18,925 |
| | 60,089 |
| | (118,322 | ) | | 37,685 |
|
Loss from unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | (1,725 | ) | | — |
| | (1,725 | ) |
Income tax expense | (492 | ) | | — |
| | — |
| | (200 | ) | | (40 | ) | | — |
| | (732 | ) |
Net income | 35,218 |
| | 41,283 |
| | — |
| | 18,725 |
| | 58,324 |
| | (118,322 | ) | | 35,228 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
Net income attributable to common stockholders | $ | 35,218 |
| | $ | 41,283 |
| | $ | — |
| | $ | 18,725 |
| | $ | 58,314 |
| | $ | (118,322 | ) | | $ | 35,218 |
|
Net income attributable to common stockholders, per: | | | | | | | | | | | | | |
Basic common share | | | | | | | | | | | | | $ | 0.20 |
|
Diluted common share | | | | | | | | | | | | | $ | 0.20 |
|
Weighted-average number of common shares outstanding, basic | | | | | | | | | | | | | 178,317,769 |
|
Weighted-average number of common shares outstanding, diluted | | | | | | | | | | | | | 178,941,213 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Nine Months Ended September 30, 2019
(dollars in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Revenues: | | | | | | | | | | | | | |
Rental and related revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 84,344 |
| | $ | 278,138 |
| | $ | (23,191 | ) | | $ | 339,291 |
|
Interest and other income | 167 |
| | 3,855 |
| | — |
| | 70,784 |
| | 6,194 |
| | (3,855 | ) | | 77,145 |
|
Resident fees and services | — |
| | — |
| | — |
| | — |
| | 89,537 |
| | — |
| | 89,537 |
|
Total revenues | 167 |
| | 3,855 |
| | — |
| | 155,128 |
| | 373,869 |
| | (27,046 | ) | | 505,973 |
|
Expenses: | | | | | | | | | | | | | |
Depreciation and amortization | 35 |
| | — |
| | — |
| | 38,934 |
| | 98,548 |
| | — |
| | 137,517 |
|
Interest | — |
| | 93,165 |
| | — |
| | 6,234 |
| | 3,637 |
| | (3,855 | ) | | 99,181 |
|
Triple-net portfolio operating expenses | — |
| | — |
| | — |
| | 1,827 |
| | 15,313 |
| | — |
| | 17,140 |
|
Senior housing - managed portfolio operating expenses | — |
| | — |
| | — |
| | — |
| | 83,449 |
| | (23,191 | ) | | 60,258 |
|
General and administrative | 23,247 |
| | 153 |
| | — |
| | 550 |
| | 1,002 |
| | — |
| | 24,952 |
|
Provision for doubtful accounts, straight-line rental income and loan losses | 223 |
| | — |
| | — |
| | — |
| | 1,234 |
| | — |
| | 1,457 |
|
Impairment of real estate | — |
| | — |
| | — |
| | 10,835 |
| | 108,267 |
| | — |
| | 119,102 |
|
Total expenses | 23,505 |
| | 93,318 |
| | — |
| | 58,380 |
| | 311,450 |
| | (27,046 | ) | | 459,607 |
|
Other (expense) income: | | | | | | | | | | | | | |
Loss on extinguishment of debt | (598 | ) | | (10,121 | ) | | — |
| | (44 | ) | | — |
| | — |
| | (10,763 | ) |
Other (expense) income | — |
| | (403 | ) | | — |
| | 434 |
| | 354 |
| | — |
| | 385 |
|
Net (loss) gain on sales of real estate | — |
| | — |
| | — |
| | (179 | ) | | 1,395 |
| | — |
| | 1,216 |
|
Total other (expense) income | (598 | ) | | (10,524 | ) | | — |
| | 211 |
| | 1,749 |
| | — |
| | (9,162 | ) |
Income in subsidiary | 53,810 |
| | 153,798 |
| | — |
| | 5,056 |
| | — |
| | (212,664 | ) | | — |
|
Income before loss from unconsolidated joint venture and income tax expense | 29,874 |
| | 53,811 |
| | — |
| | 102,015 |
| | 64,168 |
| | (212,664 | ) | | 37,204 |
|
Loss from unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | (5,635 | ) | | — |
| | (5,635 | ) |
Income tax expense | (619 | ) | | (1 | ) | | — |
| | (780 | ) | | (892 | ) | | — |
| | (2,292 | ) |
Net income | 29,255 |
| | 53,810 |
| | — |
| | 101,235 |
| | 57,641 |
| | (212,664 | ) | | 29,277 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
Net income attributable to common stockholders | $ | 29,255 |
| | $ | 53,810 |
| | $ | — |
| | $ | 101,235 |
| | $ | 57,619 |
| | $ | (212,664 | ) | | $ | 29,255 |
|
Net income attributable to common stockholders, per: | | | | | | | | | | | | | |
Basic common share | | | | | | | | | | | | | $ | 0.16 |
|
Diluted common share | | | | | | | | | | | | | $ | 0.16 |
|
Weighted-average number of common shares outstanding, basic | | | | | | | | | | | | | 183,578,254 |
|
Weighted-average number of common shares outstanding, diluted | | | | | | | | | | | | | 184,698,411 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF INCOME
For the Nine Months Ended September 30, 2018
(dollars in thousands, except per share amounts)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Revenues: | | | | | | | | | | | | | |
Rental and related revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 106,773 |
| | $ | 325,034 |
| | $ | (12,856 | ) | | $ | 418,951 |
|
Interest and other income | 83 |
| | 303 |
| | — |
| | 3,847 |
| | 8,893 |
| | (303 | ) | | 12,823 |
|
Resident fees and services | — |
| | — |
| | — |
| | — |
| | 52,426 |
| | — |
| | 52,426 |
|
Total revenues | 83 |
| | 303 |
| | — |
| | 110,620 |
| | 386,353 |
| | (13,159 | ) | | 484,200 |
|
Expenses: | | | | | | | | | | | | | |
Depreciation and amortization | 665 |
| | — |
| | — |
| | 36,765 |
| | 105,871 |
| | — |
| | 143,301 |
|
Interest | — |
| | 99,873 |
| | — |
| | 2,446 |
| | 7,864 |
| | (303 | ) | | 109,880 |
|
Senior housing - managed portfolio operating expenses | — |
| | — |
| | — |
| | — |
| | 49,890 |
| | (12,856 | ) | | 37,034 |
|
General and administrative | 21,363 |
| | 52 |
| | — |
| | 1,419 |
| | 2,919 |
| | — |
| | 25,753 |
|
Provision for doubtful accounts, straight-line rental income and loan losses | 793 |
| | — |
| | — |
| | 2,359 |
| | 6,297 |
| | — |
| | 9,449 |
|
Impairment of real estate | — |
| | — |
| | — |
| | 1,413 |
| | — |
| | — |
| | 1,413 |
|
Total expenses | 22,821 |
| | 99,925 |
| | — |
| | 44,402 |
| | 172,841 |
| | (13,159 | ) | | 326,830 |
|
Other income: | | | | | | | | | | | | | |
Other income | 1,977 |
| | 222 |
| | — |
| | 308 |
| | 1,649 |
| | — |
| | 4,156 |
|
Net gain on sales of real estate | — |
| | — |
| | — |
| | 40,384 |
| | 102,061 |
| | — |
| | 142,445 |
|
Total other income | 1,977 |
| | 222 |
| | — |
| | 40,692 |
| | 103,710 |
| | — |
| | 146,601 |
|
Income in subsidiary | 320,082 |
| | 419,483 |
| | — |
| | 5,649 |
| | — |
| | (745,214 | ) | | — |
|
Income before loss from unconsolidated joint venture and income tax expense | 299,321 |
| | 320,083 |
| | — |
| | 112,559 |
| | 317,222 |
| | (745,214 | ) | | 303,971 |
|
Loss from unconsolidated joint venture | — |
| | — |
| | — |
| | — |
| | (3,626 | ) | | — |
| | (3,626 | ) |
Income tax expense | (845 | ) | | (1 | ) | | — |
| | (742 | ) | | (259 | ) | | — |
| | (1,847 | ) |
Net income | 298,476 |
| | 320,082 |
| | — |
| | 111,817 |
| | 313,337 |
| | (745,214 | ) | | 298,498 |
|
Net income attributable to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
Net income attributable to Sabra Health Care REIT, Inc. | 298,476 |
| | 320,082 |
| | — |
| | 111,817 |
| | 313,315 |
| | (745,214 | ) | | 298,476 |
|
Preferred stock dividends | (9,768 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (9,768 | ) |
Net income attributable to common stockholders | $ | 288,708 |
| | $ | 320,082 |
| | $ | — |
| | $ | 111,817 |
| | $ | 313,315 |
| | $ | (745,214 | ) | | $ | 288,708 |
|
Net income attributable to common stockholders, per: | | | | | | | | | | | | | |
Basic common share | | | | | | | | | | | | | $ | 1.62 |
|
Diluted common share | | | | | | | | | | | | | $ | 1.62 |
|
Weighted-average number of common shares outstanding, basic | | | | | | | | | | | | | 178,309,127 |
|
Weighted-average number of common shares outstanding, diluted | | | | | | | | | | | | | 178,729,853 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the Three Months Ended September 30, 2019
(dollars in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net income | $ | 23,282 |
| | $ | 32,182 |
| | $ | — |
| | $ | 1,531 |
| | $ | 57,651 |
| | $ | (91,360 | ) | | $ | 23,286 |
|
Other comprehensive loss: | | | | | | | | | | | | | |
Unrealized gain (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation gain (loss) | — |
| | 1,403 |
| | — |
| | (206 | ) | | (280 | ) | | — |
| | 917 |
|
Unrealized loss on cash flow hedges | — |
| | (9,375 | ) | | — |
| | (1 | ) | | — |
| | — |
| | (9,376 | ) |
Total other comprehensive loss | — |
| | (7,972 | ) | | — |
| | (207 | ) | | (280 | ) | | — |
| | (8,459 | ) |
Comprehensive income | 23,282 |
| | 24,210 |
| | — |
| | 1,324 |
| | 57,371 |
| | (91,360 | ) | | 14,827 |
|
Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (4 | ) | | — |
| | (4 | ) |
Comprehensive income attributable to Sabra Health Care REIT, Inc. | $ | 23,282 |
| | $ | 24,210 |
| | $ | — |
| | $ | 1,324 |
| | $ | 57,367 |
| | $ | (91,360 | ) | | $ | 14,823 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2018
(dollars in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net income | $ | 35,218 |
| | $ | 41,283 |
| | $ | — |
| | $ | 18,725 |
| | $ | 58,324 |
| | $ | (118,322 | ) | | $ | 35,228 |
|
Other comprehensive income: | | | | | | | | | | | | | |
Unrealized gain (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation (loss) gain | — |
| | (857 | ) | | — |
| | 610 |
| | 182 |
| | — |
| | (65 | ) |
Unrealized gain on cash flow hedges | — |
| | 2,000 |
| | — |
| | 10 |
| | — |
| | — |
| | 2,010 |
|
Total other comprehensive income | — |
| | 1,143 |
| | — |
| | 620 |
| | 182 |
| | — |
| | 1,945 |
|
Comprehensive income | 35,218 |
| | 42,426 |
| | — |
| | 19,345 |
| | 58,506 |
| | (118,322 | ) | | 37,173 |
|
Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (10 | ) | | — |
| | (10 | ) |
Comprehensive income attributable to Sabra Health Care REIT, Inc. | $ | 35,218 |
| | $ | 42,426 |
| | $ | — |
| | $ | 19,345 |
| | $ | 58,496 |
| | $ | (118,322 | ) | | $ | 37,163 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE (LOSS) INCOME
For the Nine Months Ended September 30, 2019
(dollars in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net income | $ | 29,255 |
| | $ | 53,810 |
| | $ | — |
| | $ | 101,235 |
| | $ | 57,641 |
| | $ | (212,664 | ) | | $ | 29,277 |
|
Other comprehensive (loss) income: | | | | | | | | | | | | | |
Unrealized gain (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation (loss) gain | — |
| | (298 | ) | | — |
| | 1,101 |
| | 121 |
| | — |
| | 924 |
|
Unrealized (loss) gain on cash flow hedges | — |
| | (32,669 | ) | | — |
| | 49 |
| | — |
| | — |
| | (32,620 | ) |
Total other comprehensive (loss) income | — |
| | (32,967 | ) | | — |
| | 1,150 |
| | 121 |
| | — |
| | (31,696 | ) |
Comprehensive income | 29,255 |
| | 20,843 |
| | — |
| | 102,385 |
| | 57,762 |
| | (212,664 | ) | | (2,419 | ) |
Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
Comprehensive income attributable to Sabra Health Care REIT, Inc. | $ | 29,255 |
| | $ | 20,843 |
| | $ | — |
| | $ | 102,385 |
| | $ | 57,740 |
| | $ | (212,664 | ) | | $ | (2,441 | ) |
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2018
(dollars in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net income | $ | 298,476 |
| | $ | 320,082 |
| | $ | — |
| | $ | 111,817 |
| | $ | 313,337 |
| | $ | (745,214 | ) | | $ | 298,498 |
|
Other comprehensive income (loss): | | | | | | | | | | | | | |
Unrealized gain (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation gain (loss) | — |
| | 1,048 |
| | — |
| | (926 | ) | | (300 | ) | | — |
| | (178 | ) |
Unrealized gain on cash flow hedges | — |
| | 15,238 |
| | — |
| | 8 |
| | — |
| | — |
| | 15,246 |
|
Total other comprehensive income (loss) | — |
| | 16,286 |
| | — |
| | (918 | ) | | (300 | ) | | — |
| | 15,068 |
|
Comprehensive income | 298,476 |
| | 336,368 |
| | — |
| | 110,899 |
| | 313,037 |
| | (745,214 | ) | | 313,566 |
|
Comprehensive income attributable to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (22 | ) | | — |
| | (22 | ) |
Comprehensive income attributable to Sabra Health Care REIT, Inc. | $ | 298,476 |
| | $ | 336,368 |
| | $ | — |
| | $ | 110,899 |
| | $ | 313,015 |
| | $ | (745,214 | ) | | $ | 313,544 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2019
(in thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net cash provided by operating activities | $ | 267,509 |
| | $ | — |
| | $ | — |
| | $ | 487 |
| | $ | 8,985 |
| | $ | — |
| | $ | 276,981 |
|
Cash flows from investing activities: |
| |
| |
| |
| |
| |
| |
|
Acquisition of real estate | — |
| | — |
| | — |
| | (14,977 | ) | | — |
| | — |
| | (14,977 | ) |
Origination and fundings of loans receivable | — |
| | — |
| | — |
| | (6,018 | ) | | (3,423 | ) | | — |
| | (9,441 | ) |
Additions to real estate | (107 | ) | | — |
| | — |
| | (8,314 | ) | | (7,564 | ) | | — |
| | (15,985 | ) |
Repayments of loans receivable | — |
| | — |
| | — |
| | 124 |
| | 13,637 |
| | — |
| | 13,761 |
|
Repayments of preferred equity investments | — |
| | — |
| | — |
| | 3,672 |
| | — |
| | — |
| | 3,672 |
|
Net proceeds from the sales of real estate | — |
| | — |
| | — |
| | 21,586 |
| | 300,129 |
| | — |
| | 321,715 |
|
Buyout of noncontrolling interests | — |
| | — |
| | — |
| | (200 | ) | | — |
| | — |
| | (200 | ) |
Distribution from subsidiaries | 5,139 |
| | 5,139 |
| | — |
| | — |
| | — |
| | (10,278 | ) | | — |
|
Intercompany financing | (346,815 | ) | | 301,044 |
| | — |
| | — |
| | — |
| | 45,771 |
| | — |
|
Net cash (used in) provided by investing activities | (341,783 | ) | | 306,183 |
| | — |
| | (4,127 | ) | | 302,779 |
| | 35,493 |
| | 298,545 |
|
Cash flows from financing activities: |
| |
| |
| |
| |
| |
| |
|
Net repayments of revolving credit facility | — |
| | (424,000 | ) | | — |
| | — |
| | — |
| | — |
| | (424,000 | ) |
Proceeds from issuance of senior unsecured notes | — |
| | 297,039 |
| | — |
| | — |
| | — |
| | — |
| | 297,039 |
|
Principal payments on senior unsecured notes | — |
| | (500,000 | ) | |
|
| | — |
| | — |
| | — |
| | (500,000 | ) |
Principal payments on secured debt | — |
| | — |
| | — |
| | — |
| | (2,566 | ) | | — |
| | (2,566 | ) |
Payments of deferred financing costs | — |
| | (14,001 | ) | | — |
| | — |
| | — |
| | — |
| | (14,001 | ) |
Payments related to extinguishment of debt | — |
| | (6,897 | ) | | — |
| | — |
| | — |
| | — |
| | (6,897 | ) |
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (116 | ) | | — |
| | (116 | ) |
Issuance of common stock, net | 302,030 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 302,030 |
|
Dividends paid on common stock | (247,222 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (247,222 | ) |
Distribution to parent | — |
| | (5,139 | ) | | — |
| | — |
| | (5,139 | ) | | 10,278 |
| | — |
|
Intercompany financing | — |
| | 346,815 |
| | — |
| | 2,637 |
| | (303,681 | ) | | (45,771 | ) | | — |
|
Net cash provided by (used in) financing activities | 54,808 |
| | (306,183 | ) | | — |
| | 2,637 |
| | (311,502 | ) | | (35,493 | ) | | (595,733 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (19,466 | ) | | — |
| | — |
| | (1,003 | ) | | 262 |
| | — |
| | (20,207 | ) |
Effect of foreign currency translation on cash, cash equivalents and restricted cash | — |
| | — |
| | — |
| | 142 |
| | 69 |
| | — |
| | 211 |
|
Cash, cash equivalents and restricted cash, beginning of period | 40,835 |
| | — |
| | — |
| | 5,328 |
| | 13,495 |
| | — |
| | 59,658 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 21,369 |
| | $ | — |
| | $ | — |
| | $ | 4,467 |
| | $ | 13,826 |
| | $ | — |
| | $ | 39,662 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2018
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Combined Non-Guarantor Subsidiaries of 2026 Notes(6) | | | | |
| Parent Company(1) | | Operating Partnership(2) | | Sabra Capital Corporation(3) | | Combined Guarantor Subsidiaries of 2023 Notes and 2024 Notes(4) | | Combined Non- Guarantor Subsidiaries of 2023 Notes and 2024 Notes(5) | | Elimination | | Consolidated |
Net cash provided by operating activities | $ | 271,511 |
| | $ | — |
| | $ | — |
| | $ | 1,038 |
| | $ | 10,475 |
| | $ | — |
| | $ | 283,024 |
|
Cash flows from investing activities: | | | | | | | | | | | | | |
Acquisition of real estate | — |
| | — |
| | — |
| | (54,715 | ) | | (184,286 | ) | | — |
| | (239,001 | ) |
Origination and fundings of loans receivable | — |
| | — |
| | — |
| | (2,650 | ) | | (38,798 | ) | | — |
| | (41,448 | ) |
Origination and fundings of preferred equity investments | — |
| | — |
| | — |
| | (5,285 | ) | | — |
| | — |
| | (5,285 | ) |
Additions to real estate | (40 | ) | | — |
| | — |
| | (5,763 | ) | | (15,892 | ) | | — |
| | (21,695 | ) |
Repayments of loans receivable | — |
| | — |
| | — |
| | 6,534 |
| | 41,748 |
| | — |
| | 48,282 |
|
Repayments of preferred equity investments | — |
| | — |
| | — |
| | 6,491 |
| | — |
| | — |
| | 6,491 |
|
Investment in unconsolidated JV | — |
| | — |
| | — |
| | — |
| | (354,461 | ) | | — |
| | (354,461 | ) |
Net proceeds from the sales of real estate | — |
| | — |
| | — |
| | 79,738 |
| | 211,126 |
| | — |
| | 290,864 |
|
Distribution from subsidiaries | 5,421 |
| | 5,421 |
| | — |
| | — |
| | — |
| | (10,842 | ) | | — |
|
Intercompany financing | (369,732 | ) | | (347,720 | ) | | — |
| | — |
| | — |
| | 717,452 |
| | — |
|
Net cash (used in) provided by investing activities | (364,351 | ) | | (342,299 | ) | | — |
| | 24,350 |
| | (340,563 | ) | | 706,610 |
| | (316,253 | ) |
Cash flows from financing activities: |
| |
| | | |
| |
| |
| |
|
Net repayments of revolving credit facility | — |
| | (22,000 | ) | | — |
| | — |
| | — |
| | — |
| | (22,000 | ) |
Principal payments on secured debt | — |
| | — |
| | — |
| | — |
| | (3,202 | ) | | — |
| | (3,202 | ) |
Payments of deferred financing costs | — |
| | (12 | ) | | — |
| | — |
| | — |
| | — |
| | (12 | ) |
Distributions to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (107 | ) | | — |
| | (107 | ) |
Preferred stock redemption | (143,750 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (143,750 | ) |
Issuance of common stock, net | (499 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (499 | ) |
Dividends paid on common and preferred stock | (244,978 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (244,978 | ) |
Distribution to parent | — |
| | (5,421 | ) | | — |
| | — |
| | (5,421 | ) | | 10,842 |
| | — |
|
Intercompany financing | — |
| | 369,732 |
| | — |
| | (28,697 | ) | | 376,417 |
| | (717,452 | ) | | — |
|
Net cash (used in) provided by financing activities | (389,227 | ) | | 342,299 |
| | — |
| | (28,697 | ) | | 367,687 |
| | (706,610 | ) | | (414,548 | ) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (482,067 | ) | | — |
| | — |
| | (3,309 | ) | | 37,599 |
| | — |
| | (447,777 | ) |
Effect of foreign currency translation on cash, cash equivalents and restricted cash | — |
| | — |
| | — |
| | (82 | ) | | (74 | ) | | — |
| | (156 | ) |
Cash, cash equivalents and restricted cash, beginning of period | 511,670 |
| | — |
| | — |
| | 6,761 |
| | 69,018 |
| | — |
| | 587,449 |
|
Cash, cash equivalents and restricted cash, end of period | $ | 29,603 |
| | $ | — |
| | $ | — |
| | $ | 3,370 |
| | $ | 106,543 |
| | $ | — |
| | $ | 139,516 |
|
| |
(1)
| The Parent Company guarantees the 2023 Notes, the 2024 Notes and the 2026 Notes. |
| |
(2)
| The Operating Partnership is the co-issuer of the 2023 Notes and the 2024 Notes and the issuer of the 2026 Notes. |
| |
(3)
| Sabra Capital Corporation is the co-issuer of the 2023 Notes and the 2024 Notes. |
| |
(4)
| The Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2023 Notes and the 2024 Notes. |
| |
(5)
| The Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes consist of the subsidiaries that do not guarantee the 2023 Notes and the 2024 Notes. |
| |
(6)
| None of Sabra Capital Corporation, the Combined Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes, nor the Combined Non-Guarantor Subsidiaries of the 2023 Notes and the 2024 Notes guarantee the 2026 Notes. |
13.12. COMMITMENTS AND CONTINGENCIES
Environmental
As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities. As of September 30, 2019,2020, the Company does not expect that compliance with existing environmental laws will have a material adverse effect on the Company’s financial condition and results of operations.
Legal Matters
From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings where the likelihood of a loss contingency is reasonably possible and the amount or range of reasonably possible losses is material to the Company’s results of operations, financial condition or cash flows.
14.13. SUBSEQUENT EVENTS
The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.
Dividend Declaration
On October 30, 2019,November 5, 2020, the Company announced that itsCompany’s board of directors declared a quarterly cash dividend of $0.45$0.30 per share of common stock. The dividend will be paid on November 29, 201930, 2020 to common stockholders of record as of the close of business on November 15, 2019.16, 2020.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.OPERATIONS
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 20182019 Annual Report on Form 10-K and Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.2020. Also see “Statement Regarding Forward-Looking Statements” preceding Part I.
The following discussion and analysis should be read in conjunction with our accompanying condensed 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
•Recently Issued Accounting Standards Update
•Results of Operations
•Liquidity and Capital Resources
•Concentration of Credit Risk
•Skilled Nursing Facility Reimbursement Rates
•Obligations and Commitments
•Off-Balance Sheet Arrangements
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 the United States (“U.S.”) and Canada.
Our investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities (“Senior Housing - Leased”) 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 loans receivable; preferred equity investments and an investment in an unconsolidated joint venture.
In 2017Recent disruptions in the equity and 2018, we completed a series of transactions—including our merger with CCP (“CCP Merger”), sales of 67 facilities leased to Genesis Healthcare, Inc., investment in an unconsolidated joint venture with Enlivant and TPG Real Estate (“Enlivant Joint Venture”) and entry into a new credit agreement (which was amended and restated on September 9, 2019, the Credit Agreement as defined below)—thatdebt markets have significantly enhanced our scale and increased our diversification. Additionally, Sabra has substantially completed the repositioningcost of the CCP portfolio, which included a combination of lease modifications, working capital advances, transitioning facilitiesand have made it difficult to other Sabra tenantsestablish market values for potential real estate investments, and strategic sales or closures of underperforming facilities (including the sales of Senior Care Centers facilities described below under “—Dispositions”).
Following these transactions,accordingly we do not expect to continuemake any material real estate investments as long as these market conditions persist.
Should market conditions improve, 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 builtpurpose-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 expect to continue to grow our portfolio primarily through the acquisition of assisted living, independent living and memory care communities in the U.S. and Canada and through the acquisition of skilled nursing/transitional care and behavioral health facilities in the U.S. We have and, should market conditions improve, expect to continue to opportunistically acquire other types of healthcare real estate, originate financing secured directly or indirectly by healthcare facilities and invest in the development of senior housing communities and skilled nursing/transitional care facilities. We also expect to expand our portfolio through the development of purpose-built healthcare facilities through pipeline agreements and other arrangements with select developers. We further expect to work with existing operators to identify strategic development opportunities. These opportunities may involve replacing, renovating or expanding facilities in our portfolio that may have become less competitive and new development
opportunities that present attractive risk-adjusted returns. In addition to pursuing acquisitions with triple-net leases, we expect to continue to pursue other forms of investment, including investments in Senior Housing - Managed communities, mezzanine and secured debt investments, and joint ventures for senior housing communities and skilled nursing/
transitional care facilities. We also expect to continue to enhance the strength of our investment portfolio by selectively disposing of underperforming facilities or working with new or existing operators to transfer underperforming but promising properties to new operators.
With respect to our debt and preferred equity investments, in general, we originate loans and make preferred equity investments when an attractive investment opportunity is presented and (a) the property is in or near the development phase, (b) the development of the property is completed but the operations of the facility are not yet stabilized or (c) the loan investment will provide capital to existing relationships. A key component of our development strategy related to loan originations and preferred equity investments is having the option to purchase the underlying real estate that is owned by our borrowers (and that directly or indirectly secures our loan investments) or by the entity in which we have an investment. These options become exercisable upon the occurrence of various criteria, such as the passage of time or the achievement of certain operating goals, and the method to determine the purchase price upon exercise of the option is set in advance based on the same valuation methods we use to value our investments in healthcare real estate. This proprietary development pipeline strategy allows us to diversify our revenue streams and build relationships with operators and developers, and provides us with the option to add new properties to our existing real estate portfolio if we determine that those properties enhance our investment portfolio and stockholder value at the time the options are exercisable.
We employ a disciplined, opportunistic 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 our U.S. federal income tax return for the taxable year beginning January 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 by Sabra Health Care Limited Partnership, a Delaware 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 the Operating Partnership.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a pandemic, and the United States declared a national emergency with respect to COVID-19. In the intervening months, COVID-19 has spread globally and led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Although some of these governmental restrictions have since been lifted or scaled back, a recent surge of COVID-19 infections has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. These measures may remain in place for a significant amount of time. The COVID-19 pandemic and measures to prevent its spread have negatively impacted and are expected to continue to negatively impact us and our operations in a number of ways, including but not limited to:
•Decreased occupancy and increased operating costs for our tenants and borrowers, which has 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. In some cases, we may have to restructure 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. To date, the impact of COVID-19 on our skilled nursing/transitional care facility operators has been partially mitigated by the assistance they have received or expect to receive from state and federal assistance programs, including through the CARES Act (as defined and further described below under “—Skilled Nursing Facility Reimbursement Rates”), although these benefits on an individual operator basis vary and may not provide enough relief to meet their rental obligations to us. Prior to September 1, 2020, few of these programs were available to our senior housing operators; as of September 1, 2020, eligible assisted living facility operators may apply for funding through the CARES Act, and the assistance received or expected to be received will partially mitigate the negative impact of COVID-19 on our eligible assisted living facility operators. As of September 30, 2020, our tenants and borrowers have continued to pay expected cash rents and debt service obligations consistent with past practice. However, the longer the duration of the COVID-19 pandemic, the more likely that our tenants and borrowers will begin to 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.
•Decreased occupancy and increased operating costs within our Senior Housing - Managed portfolio and in our 49% equity interest in a joint venture with affiliates of Enlivant and TPG Real Estate, the real estate platform of TPG, that
owns senior housing communities managed by Enlivant (the “Enlivant Joint Venture”), which have negatively impacted and are expected to continue to negatively impact the operating results of these investments. As noted above, as of September 1, 2020, eligible assisted living facility operators may apply for funding through the CARES Act, and the assistance received or expected to be received will partially mitigate the negative impact of COVID-19 on our Senior Housing - Managed portfolio and the Enlivant Joint Venture. During each of the three and nine months ended September 30, 2020, we recognized government grants under the CARES Act of $4.2 million. In addition, on October 1, 2020, the Department of Health and Human Services announced $20 billion of new funding for assisted living facility operators that have already received funds and to those who were previously ineligible. Prolonged deterioration in the operating results for our investments in our Senior Housing - Managed portfolio and the Enlivant Joint Venture could result in the determination that the full amounts of our investments are not recoverable, which could result in an impairment charge.
Our financial results as of and for the three and nine months ended September 30, 2020 reflect the results of our evaluation of the impact of COVID-19 on our business including, but not limited to, our evaluation of potential impairments of long-lived or other assets, measurement of credit losses on financial instruments, evaluation of any lease modifications, evaluation of lease accounting impact, estimates of fair value and our ability to continue as a going concern.
Acquisitions
During the nine months ended September 30, 2019,2020, we acquired two specialty hospitals/other facilitiesthree Senior Housing - Leased communities and one Senior Housing - Managed community for an aggregate $15.0$113.7 million. See Note 3, “Recent Real Estate Acquisitions”Acquisitions,” in the Notes to Condensed Consolidated Financial Statements for additional information regarding this acquisition.these acquisitions.
Dispositions
During the nine months ended September 30, 2019,2020, we completed the sale of 31seven skilled nursing/transitional care facilities and seven senior housing communities for aggregate consideration, net of closing costs, of $315.0$41.1 million. The net carrying value of the assets and liabilities of these facilities was $313.8$38.3 million, which resulted in an aggregate $1.2$2.8 million net gain on sale.
On February 15, 2019, we entered into a settlement agreement with Senior Care Centers in connection with the notices of default and lease termination we issued to Senior Care Centers during the third quarter of 2018. In accordance with the order entered by the bankruptcy court in March 2019, the settlement agreement provided for the discharge of our claims against Senior Care Centers in exchange for $9.5 million of settlement payments, a portion of which was applied to pay post-petition rent. We recorded $6.2 million of such post-petition rent during the nine months ended September 30, 2019. On April 1, 2019, we completed the sale of 28 facilities (26 skilled nursing/transitional care facilities and two senior housing communities) previously operated by Senior Care Centers and received gross sales proceeds of $282.5 million. In connection with the sale, we entered into an agreement to indemnify the buyer from certain costs, expenses and liabilities related to the historical operations of the facilities by Senior Care Centers. In May 2019, we transitioned eight facilities previously operated by Senior Care Centers to a current operator in the Sabra portfolio, and we expect to sell the remaining two facilities previously operated by Senior Care Centers. During the nine months ended September 30, 2019, we recorded an impairment charge of $95.2 million related to the Senior Care Centers facilities, which includes $10.2 million related to our estimated contractual indemnification obligations.
Holiday
On December 19, 2018, we entered into a letter of intent to terminate our triple-net master lease with Holiday Retirement (“Holiday”) with respect to all 21 senior housing communities subject to the master lease (the “Holiday Communities”) and
concurrently enter into management agreements pursuant to which Holiday would manage the Holiday Communities. On April 1, 2019, we completed the conversion of the Holiday Communities to our Senior Housing - Managed portfolio and recognized lease termination income of $66.9 million, which includes a $57.2 million lease termination payment received in exchange for terminating the Holiday master lease and a $9.7 million gain related to the assumption of fixed assets net of liabilities.
Credit Agreement
Effective on September 9, 2019, we and certain of our subsidiaries entered into the Credit Agreement. See “—Liquidity and Capital Resources—Loan Agreements—Credit Agreement.”
At-The-Market Common Stock Offering Program
On February 25, 2019, we established the $500.0 million ATM Program (as defined below). During the three months ended September 30, 2019, we sold 4.2 million shares under the ATM Program at an average price of $21.82 per share, generating gross proceeds of $91.2 million, before $1.3 million of commissions. During the nine months ended September 30, 2019, we sold 15.3 million shares under the ATM Program at an average price of $20.20 per share, generating gross proceeds of $308.5 million, before $4.6 million of commissions.
Senior Unsecured Notes
On May 29, 2019, we completed an underwritten public offering of $300.0 million aggregate principal amount of 4.80% senior unsecured notes due 2024, resulting in net proceeds of $295.3 million after deducting underwriting discounts and other offering expenses.
On June 29, 2019, we redeemed all $500.0 million aggregate principal amount outstanding of the 5.5% senior unsecured notes due 2021 at a premium of 101.375%, plus accrued and unpaid interest. The redemption resulted in $10.1 million of redemption related costs and write-offs, including $6.9 million in payments made to noteholders and legal fees for early redemption and $3.2 million of write-offs associated with unamortized deferred financing and premium costs.
On October 7, 2019, we completed an underwritten public offering of $350.0 million aggregate principal amount of 3.90% senior unsecured notes due 2029, resulting in net proceeds of $340.5 million after deducting underwriting discounts and other offering expenses.
On October 27, 2019, we redeemed all $200.0 million aggregate principal amount outstanding of the 5.375% senior unsecured notes due 2023 at a premium of 101.792%, plus accrued and unpaid interest. As a result of the redemption, we recognized $5.6 million of redemption related costs and write-offs, consisting of $3.6 million in payments made to noteholders and legal fees for early redemption and $2.0 million of write-offs associated with unamortized deferred financing costs, subsequent to September 30, 2019.
Critical Accounting Policies
Our condensed consolidated interim financial statements have been prepared in accordance with GAAPU.S. generally accepted accounting principles (“GAAP”) and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These 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 20182019 Annual Report on Form 10-K filed with the SEC. Except for the impact of Topic 842, as discussed in Note 2, “Summary of Significant Accounting Policies,” in the Notes to Condensed Consolidated Financial Statements, thereThere have been no significant changes to our critical accounting policies during the nine months ended September 30, 2019.2020.
Recently Issued Accounting Standards Update
See Note 2, “Summary of Significant Accounting Policies,” in the Notes to Condensed Consolidated Financial Statements for information concerning recently issued accounting standards updates.
Results of Operations
As of September 30, 2020, our investment portfolio included 425 real estate properties held for investment, one asset held for sale, one investment in a direct financing lease, 19 investments in loans receivable, six preferred equity investments and one investment in an unconsolidated joint venture. As of September 30, 2019, our investment portfolio included 434 real estate properties held for investment, one investment in a direct financing lease, 20 investments in loans receivable, nine preferred equity investments and one investment in an unconsolidated joint venture. As of September 30, 2018, our investment portfolio included 487 real estate properties held for investment, one investment in a direct financing lease, 22 investments in loans receivable, 11 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.
Comparison of results of operations for the three months ended
September 30, 20192020 versus the three months ended September 30, 20182019 (dollars in thousands): | | | Three Months Ended September 30, | | Increase / (Decrease) | | Percentage Difference | | Variance due to Acquisitions, Originations and Dispositions (1) | | Remaining Variance (2) | | Three Months Ended September 30, | | Increase / (Decrease) | | Percentage Difference | | Variance due to Acquisitions, Originations and Dispositions (1) | | Remaining Variance (2) |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Revenues: | | | | | | | | | | | | Revenues: | | | | | | | | | | | |
Rental and related revenues | $ | 110,104 |
| | $ | 130,467 |
| | $ | (20,363 | ) | | (16 | )% | | $ | (11,628 | ) | | $ | (8,735 | ) | Rental and related revenues | $ | 100,612 | | | $ | 110,104 | | | $ | (9,492) | | | (9) | % | | $ | 1,717 | | | $ | (11,209) | |
Interest and other income | 3,325 |
| | 3,932 |
| | (607 | ) | | (15 | )% | | (463 | ) | | (144 | ) | Interest and other income | 3,299 | | | 3,325 | | | (26) | | | (1) | % | | (283) | | | 257 | |
Resident fees and services | 36,405 |
| | 17,403 |
| | 19,002 |
| | 109 | % | | (451 | ) | | 19,453 |
| Resident fees and services | 39,341 | | | 36,405 | | | 2,936 | | | 8 | % | | 2,429 | | | 507 | |
Expenses: | | | | | | | | | | | | Expenses: | |
Depreciation and amortization | 43,092 |
| | 48,468 |
| | (5,376 | ) | | (11 | )% | | (3,951 | ) | | (1,425 | ) | Depreciation and amortization | 44,209 | | | 43,092 | | | 1,117 | | | 3 | % | | 854 | | | 263 | |
Interest | 29,255 |
| | 37,305 |
| | (8,050 | ) | | (22 | )% | | — |
| | (8,050 | ) | Interest | 24,904 | | | 29,255 | | | (4,351) | | | (15) | % | | (220) | | | (4,131) | |
Triple-net portfolio operating expenses | 5,611 |
| | — |
| | 5,611 |
| | NM |
| | — |
| | 5,611 |
| Triple-net portfolio operating expenses | 5,249 | | | 5,611 | | | (362) | | | (6) | % | | 66 | | | (428) | |
Senior housing - managed portfolio operating expenses | 23,979 |
| | 12,611 |
| | 11,368 |
| | 90 | % | | (368 | ) | | 11,736 |
| Senior housing - managed portfolio operating expenses | 27,745 | | | 23,979 | | | 3,766 | | | 16 | % | | 1,764 | | | 2,002 | |
General and administrative | 8,709 |
| | 8,173 |
| | 536 |
| | 7 | % | | (221 | ) | | 757 |
| General and administrative | 7,216 | | | 8,709 | | | (1,493) | | | (17) | % | | — | | | (1,493) | |
Provision for doubtful accounts, straight-line rental income and loan losses | 57 |
| | 8,910 |
| | (8,853 | ) | | (99 | )% | | — |
| | (8,853 | ) | |
| (Recovery of) provision for loan losses and other reserves | | (Recovery of) provision for loan losses and other reserves | (90) | | | 57 | | | (147) | | | (258) | % | | — | | | (147) | |
Impairment of real estate | 13,966 |
| | — |
| | 13,966 |
| | NM |
| | — |
| | 13,966 |
| Impairment of real estate | 3,154 | | | 13,966 | | | (10,812) | | | (77) | % | | (3,131) | | | (7,681) | |
Other income (expense): | | | | |
|
| | | | | | | Other income (expense): | |
Loss on extinguishment of debt | (644 | ) | | — |
| | (644 | ) | | NM |
| | — |
| | (644 | ) | Loss on extinguishment of debt | (139) | | | (644) | | | 505 | | | (78) | % | | (139) | | | 644 | |
Other income | 215 |
| | 1,336 |
| | (1,121 | ) | | (84 | )% | | — |
| | (1,121 | ) | Other income | 115 | | | 215 | | | (100) | | | (47) | % | | — | | | (100) | |
Net (loss) gain on sales of real estate | (19 | ) | | 14 |
| | (33 | ) | | (236 | )% | | (33 | ) | | — |
| |
Loss from unconsolidated joint venture | (605 | ) | | (1,725 | ) | | 1,120 |
| | (65 | )% | | — |
| | 1,120 |
| |
Income tax expense | (826 | ) | | (732 | ) | | (94 | ) | | 13 | % | | — |
| | (94 | ) | |
Net gain (loss) on sales of real estate | | Net gain (loss) on sales of real estate | 2,715 | | | (19) | | | 2,734 | | | NM | | 2,734 | | | — | |
Income (loss) from unconsolidated joint venture | | Income (loss) from unconsolidated joint venture | 2,766 | | | (605) | | | 3,371 | | | (557) | % | | 7,538 | | | (4,167) | |
Income tax benefit (expense) | | Income tax benefit (expense) | 138 | | | (826) | | | 964 | | | (117) | % | | — | | | 964 | |
| |
(1)(1) Represents the dollar amount increase (decrease) for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 as a result of investments/dispositions made after July 1, 2019. (2) Represents the dollar amount increase (decrease) for the three months ended September 30, 2020 compared to the three months ended September 30, 2019 that is not a direct result of investments/dispositions made after July 1, 2019. | Represents the dollar amount increase (decrease) for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 as a result of investments/dispositions made after July 1, 2018.
|
| |
(2)
| Represents the dollar amount increase (decrease) for the three months ended September 30, 2019 compared to the three months ended September 30, 2018 that is not a direct result of investments/dispositions made after July 1, 2018. |
Rental and Related Revenues
During the three months ended September 30, 2019,2020, we recognized $110.1$100.6 million of rental income compared to $130.5$110.1 million for the three months ended September 30, 2018.2019. The $20.4$9.5 million net decrease in rental income is primarily related to (i) a $12.8$12.1 million decrease from properties disposed of after July 1, 2018, (ii) a $9.8 million decrease from the 21 Holiday Communities that were transitioned to Senior Housing - Managed communities in April 2019, (iii) a $1.7 millionnet decrease related to the 10 remaining Senior Care Centers facilities, eight of which were transitioned to a new operator and (iv) a $1.6 million net decrease primarily related to lease restructurings and leases that we concluded should no longer be accounted for on an accrual basis and (ii) a $1.0 million decrease from properties disposed of after July 1, 2019. The $12.1 million net decrease consists of a $13.1 million decrease in non-cash rental revenues, which includes $14.3 million in write-offs related to Signature Healthcare and Genesis Healthcare, Inc., whose leases are no longer accounted for on an accrual basis as a result of adopting Accounting Standards Update (“ASU”) 2016-02, Leases, as amended by subsequent ASUs (“Topic 842”) in 2019, consisting of a $4.4 million net decrease in earned cash rents and a $4.2 million net decrease in straight-line rental income,the going concern issues for these tenants, partially offset by a $7.0$1.0 million net increase in above/below market lease intangible amortization.
earned cash rents. These amounts weredecreases are partially offset by (i) a $4.0$2.7 million increase primarily related to property tax recoveries due to the adoption of Topic 842, which now requires lessor costs that are paid by the lessor and reimbursed by the lessee to be included in the measurement of variable lease revenue and the associated expense, and (ii) an increase of $1.2 million from properties acquired after July 1, 2018.2019 and (ii) a $1.0 million increase related to property tax recoveries.
Our reported rental and related revenues may be subject to increased variability in the future as a result of adopting Topic 842. However, there can be no assurances regarding the timing and amount of these collections. 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 ended September 30, 20192020 and 2018.2019.
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 direct financing lease. During each of the three months ended September 30, 2020 and 2019, we recognized $3.3 million of interest and other income compared to $3.9 million forincome. During the three months ended September 30, 2018. The net decrease2020, we recognized $0.3 million of $0.6 million is primarily duelease termination income related to (i)the transition of a $0.8specialty hospital to a
new operator. In addition, we recognized a $0.7 million decrease in income from investments that were repaid after July 1, 2018 and (ii) a $0.3 million decrease in interest income related to funds held by exchange accommodation titleholders,2019, partially offset by a $0.3$0.4 million increase in income from investments made after July 1, 2018. The remaining increase is due to income on additional fundings for loans receivable investments made before July 1, 2018.2019.
Resident Fees and Services
During the three months ended September 30, 2019,2020, we recognized $36.4$39.3 million of resident fees and services compared to $17.4$36.4 million for the three months ended September 30, 2018.2019. The $19.0$2.9 million net increase is primarily related to an $18.9(i) a $2.4 million increase from the 21 Holiday Communities that were transitioned totwo Senior Housing - Managed communities acquired after July 1, 2019 and (ii) a $1.1 million increase from one Senior Housing - Leased community that was transitioned to a Senior Housing - Managed community in AprilNovember 2019, partially offset by a $0.5$0.6 million decrease from one Senior Housing - Managed community disposed of aftercommunities acquired before July 1, 2018.2019 primarily due to decreases in occupancy. Included in resident fees and services is $1.2 million of government grant income recognized under the CARES Act during the three months ended September 30, 2020.
Depreciation and Amortization
During the three months ended September 30, 2019,2020, we incurred $43.1$44.2 million of depreciation and amortization expense compared to $48.5$43.1 million for the three months ended September 30, 2018.2019. The $5.4$1.1 million net decrease in depreciation and amortization expenseincrease is primarily relateddue to (i) a $4.3$1.6 million increase from properties acquired after July 1, 2019, partially offset by a $0.7 million decrease from properties disposed of after July 1, 2018 and (ii) a $1.0 million decrease due to the acceleration of lease intangible amortization in connection with the transition of four skilled nursing/transitional care facilities and two senior housing communities to new operators in 2018, partially offset by a $0.4 million increase from properties acquired after July 1, 2018.2019.
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 ended September 30, 2019,2020, we incurred $29.3$24.9 million of interest expense compared to $37.3$29.3 million for the three months ended September 30, 2018.2019. The $8.1$4.4 million net decrease is primarily related to (i) a $7.4$2.8 million decrease in interest expense related to the redemption of the 2021 Notes (as defined below) on June 29,5.375% senior unsecured notes due 2023 (the “2023 Notes”) in October 2019, (ii) a $3.2$2.1 million decrease in interest expense related to the partial pay down of the U.S. dollar term loans and decrease in interest rates, (iii) a $2.1 million decrease in interest expense related to the borrowings outstanding on the Revolving Credit Facility (as defined below) and (iii)decrease in interest rates and (iv) a $1.5$0.6 million decrease in non-cash interest expense related to our secured borrowings primarily due to the repayment of five mortgage notes during 2018,interest rate hedges, which decreases were partially offset by a $3.8$3.6 million increase in interest expense related to the issuance of the 20242029 Notes (as defined below).
Triple-Net Portfolio Operating Expenses
During the three months ended September 30, 2019,2020, we recognized $5.6$5.2 million of triple-net portfolio operating expenses of which $4.0compared to $5.6 million is due tofor the adoption of Topic 842 in 2019, which now requires lessor costs that are paid by the lessor and reimbursed by the lessee to be included in the measurement of variable lease revenue and the associated expense and the remaining $1.6three months ended September 30, 2019. The $0.4 million net decrease is primarily duerelated to property taxes paid during the three months ended September 30, 2019 on behalf of cash basis tenantsfacilities that have not yet been reimbursed andwere transitioned to new operators who are now paying the property taxes that are not expected to be reimbursed by our tenants.directly.
Senior Housing - Managed Portfolio Operating Expenses
During the three months ended September 30, 2019,2020, we recognized $24.0$27.7 million of Senior Housing - Managed portfolio operating expenses compared to $12.6$24.0 million for the three months ended September 30, 2018.2019. The $11.4$3.8 million net increase is primarily relateddue to an $11.6(i) a $1.8 million increase from the 21 Holiday Communitiestwo Senior Housing - Managed communities acquired after July 1, 2019 and (ii) a $1.0 million increase from one Senior Housing - Leased community that werewas transitioned to Senior Housing -
Managed communities in April 2019, partially offset by a $0.4 million decrease from one Senior Housing - Managed community disposed of after July 1, 2018.November 2019. The remaining increase is primarily due to increased supplies and labor needs related to the COVID-19 pandemic.
General and AdministrativeAdministrative 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 ended September 30, 2019,2020, general and administrative expenses were $8.7$7.2 million compared to $8.2$8.7 million during the three months ended September 30, 2018.2019. The $0.5$1.5 million net increasedecrease is primarily related to a $0.8$2.3 million increasedecrease in stock-based compensation expense, partially offset by a $0.2$0.9 million decreaseincrease in transition expenses relatedemployee compensation as a result of increased staffing and employees electing to the CCP Merger.receive their annual bonus opportunity in cash. The increasedecrease in stock-based compensation expense, from $2.4$3.3 million during the three months ended September 30, 20182019 to $3.2$0.9 million during the three months ended September 30, 2019,2020, is primarily due to a change in performance-based vesting assumptions on management’s equity compensation.compensation and employees electing to receive their annual bonus opportunity in cash. We expect expensed merger and acquisition costsstock-based compensation expense to fluctuate from period to period depending on acquisition activityupon changes in our stock price and whether these acquisitions are considered business combinations.estimates associated with performance-based compensation.
(Recovery of) Provision for Doubtful Accounts, Straight-Line Rental IncomeLoan Losses and Loan LossesOther Reserves
During the three months ended September 30, 2019,2020, we recognized a $57,000 provision for doubtful accounts, straight-line rental income and$0.1 million recovery of loan losses all of which wasand other reserves, primarily associated with loan loss reserves. During the three months ended September 30, 2018,2019, we recognized a $8.9$0.1 million provision for doubtful accounts, straight-line rental income and loan losses and other reserves, all of which was comprised of (i) a $7.9 million provision for straight-line rental income primarily related to the termination of the master leases for the Senior Care Centers facilities and the transfer of four skilled nursing/transitional care facilities and one senior housing community to a new operator and (ii) a $1.0 million increase inassociated with loan loss reserves.
Impairment of Real Estate
During the three months ended September 30, 2020, we recognized $3.2 million of impairment of real estate related to three senior housing communities and one skilled nursing/transitional care facility. During the three months ended September 30, 2019, we recognized $14.0 million of impairment of real estate related to three vacant skilled nursing/transitional care facilities that were subsequently sold and four senior housing communities. No impairment
Loss on Extinguishment of real estate was recognized duringDebt
During the three months ended September 30, 2018.
Loss2020, we recognized a $0.1 million loss on Extinguishmentextinguishment of Debt
debt related to write-offs of deferred financing costs in connection with the assumption of a mortgage note by the buyer of the facility that secured the mortgage note. During the three months ended September 30, 2019, we recognized a $0.6 million loss on extinguishment of debt related to the write-off of unamortized deferred financing costs in connection with entering into the Credit Agreement. During the three months ended September 30, 2018, we did not recognize any loss on extinguishment of debt.Agreement (as defined below).
Other Income
During the three months ended September 30, 2020 and September 30, 2019, we recognized $0.1 million and $0.2 million, respectively, of other income primarily related to a settlement paymentpayments received related to a legacy CCPCare Capital Properties, Inc. (“CCP”) investment.
Net Gain (Loss) on Sales of Real Estate
During the three months ended September 30, 2018,2020, we recognized $1.3an aggregate net gain on the sales of real estate of $2.7 million of other income primarily related to insurance proceeds received related tothe disposition of a legacy CCP investment.
Net (Loss) Gain on Sales of Real Estate
skilled nursing/transitional care facility. During the three months ended September 30, 2019, we recognized $19,000 of selling expenses related to previously completed sales.
Income (Loss) from Unconsolidated Joint Venture
During the three months ended September 30, 2018,2020, we recognized an aggregate net gain on the sales of real estate of $14,000 primarily related to the disposition of three skilled nursing/transitional care facilities.
Loss from Unconsolidated Joint Venture
During the three months ended September 30, 2019, we recognized $0.6$2.8 million of lossincome from the Enlivant Joint Ventureour unconsolidated joint venture compared to $1.7$0.6 million of loss for the three months ended September 30, 2018. 2019. The $1.1$3.4 million net decreaseincrease is primarily related to (i) a $1.4$3.1 million increasenet adjustment to our basis difference in revenues netthe joint venture as a result of operating expenses primarily duethe completion of the joint venture’s strategic program to increased ratesdispose of 14 senior housing communities and improved margin,depreciation adjustments, partially offset by a $0.2$0.5 million loss on the sale of the final senior housing community in the joint venture’s strategic disposition program during the three months ended September 30, 2020, (ii) $3.0 million of government grant income recognized under the CARES Act and (iii) a $2.0 million decrease in interest expense primarily due to a decrease in interest rates, partially offset by (i) a $2.5 million increase in income tax expense.operating expenses from the facilities owned by the joint venture as of September 30, 2020 due to increased supplies and labor needs related to the COVID-19 pandemic and increased insurance expense and (ii) a $1.7 million decrease in revenuefrom the facilities owned by the joint venture as of September 30, 2020 primarily due to decreased occupancy.
Income Tax ExpenseBenefit (Expense)
During the three months ended September 30, 2019,2020, we recognized $0.1 million of income tax benefit compared to $0.8 million of income tax expense compared to $0.7 million for the three months ended September 30, 2018.2019. The increasedecrease is primarily due to the increase inlower taxable income from Senior Housing - Managed communities.
Comparison of results of operations for the nine months ended September 30,
20192020 versus the nine months ended September 30,
20182019 (dollars in thousands):
| | | Nine Months Ended September 30, | | Increase / (Decrease) | | Percentage Difference | | Variance due to Acquisitions, Originations and Dispositions (1) | | Remaining Variance (2) | | Nine Months Ended September 30, | | Increase / (Decrease) | | Percentage Difference | | Variance due to Acquisitions, Originations and Dispositions (1) | | Remaining Variance (2) |
| 2019 | | 2018 | | | 2020 | | 2019 | |
Revenues: | | | | | | | | | | | | Revenues: | | | | | | | | | | | |
Rental and related revenues | $ | 339,291 |
| | $ | 418,951 |
| | $ | (79,660 | ) | | (19 | )% | | $ | (44,744 | ) | | $ | (34,916 | ) | Rental and related revenues | $ | 319,851 | | | $ | 339,291 | | | $ | (19,440) | | | (6) | % | | $ | (7) | | | $ | (19,433) | |
Interest and other income | 77,145 |
| | 12,823 |
| | 64,322 |
| | 502 | % | | (3,077 | ) | | 67,399 |
| Interest and other income | 8,756 | | | 77,145 | | | (68,389) | | | (89) | % | | (1,794) | | | (66,595) | |
Resident fees and services | 89,537 |
| | 52,426 |
| | 37,111 |
| | 71 | % | | (1,382 | ) | | 38,493 |
| Resident fees and services | 117,908 | | | 89,537 | | | 28,371 | | | 32 | % | | 7,095 | | | 21,276 | |
Expenses: | | | | | | | | | | | | Expenses: | |
Depreciation and amortization | 137,517 |
| | 143,301 |
| | (5,784 | ) | | (4 | )% | | (10,335 | ) | | 4,551 |
| Depreciation and amortization | 132,579 | | | 137,517 | | | (4,938) | | | (4) | % | | 218 | | | (5,156) | |
Interest | 99,181 |
| | 109,880 |
| | (10,699 | ) | | (10 | )% | | — |
| | (10,699 | ) | Interest | 75,900 | | | 99,181 | | | (23,281) | | | (23) | % | | (375) | | | (22,906) | |
Triple-net portfolio operating expenses | 17,140 |
| | — |
| | 17,140 |
| | NM |
| | — |
| | 17,140 |
| Triple-net portfolio operating expenses | 15,481 | | | 17,140 | | | (1,659) | | | (10) | % | | (1,225) | | | (434) | |
Senior housing - managed portfolio operating expenses | 60,258 |
| | 37,034 |
| | 23,224 |
| | 63 | % | | (1,080 | ) | | 24,304 |
| Senior housing - managed portfolio operating expenses | 82,976 | | | 60,258 | | | 22,718 | | | 38 | % | | 5,100 | | | 17,618 | |
General and administrative | 24,952 |
| | 25,753 |
| | (801 | ) | | (3 | )% | | (1,796 | ) | | 995 |
| General and administrative | 24,650 | | | 24,952 | | | (302) | | | (1) | % | | — | | | (302) | |
Provision for doubtful accounts, straight-line rental income and loan losses | 1,457 |
| | 9,449 |
| | (7,992 | ) | | (85 | )% | | — |
| | (7,992 | ) | |
Provision for loan losses and other reserves | | Provision for loan losses and other reserves | 706 | | | 1,457 | | | (751) | | | (52) | % | | — | | | (751) | |
Impairment of real estate | 119,102 |
| | 1,413 |
| | 117,689 |
| | 8,329 | % | | 68,558 |
| | 49,131 |
| Impairment of real estate | 3,154 | | | 119,102 | | | (115,948) | | | (97) | % | | (102,238) | | | (13,710) | |
Other income (expense): | | | | | | | | | | | | Other income (expense): | |
Loss on extinguishment of debt | (10,763 | ) | | — |
| | (10,763 | ) | | NM |
| | — |
| | (10,763 | ) | Loss on extinguishment of debt | (531) | | | (10,763) | | | 10,232 | | | (95) | % | | (531) | | | 10,763 | |
Other income | 385 |
| | 4,156 |
| | (3,771 | ) | | (91 | )% | | — |
| | (3,771 | ) | Other income | 2,308 | | | 385 | | | 1,923 | | | 499 | % | | — | | | 1,923 | |
Net gain on sales of real estate | 1,216 |
| | 142,445 |
| | (141,229 | ) | | (99 | )% | | (141,229 | ) | | — |
| Net gain on sales of real estate | 2,828 | | | 1,216 | | | 1,612 | | | 133 | % | | 1,612 | | | — | |
Loss from unconsolidated joint venture | (5,635 | ) | | (3,626 | ) | | (2,009 | ) | | 55 | % | | (1,690 | ) | | (319 | ) | Loss from unconsolidated joint venture | (13,037) | | | (5,635) | | | (7,402) | | | 131 | % | | (1,580) | | | (5,822) | |
Income tax expense | (2,292 | ) | | (1,847 | ) | | (445 | ) | | 24 | % | | — |
| | (445 | ) | Income tax expense | (1,337) | | | (2,292) | | | 955 | | | (42) | % | | — | | | 955 | |
| |
(1)(1) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 as a result of investments/dispositions made after January 1, 2019. (2) Represents the dollar amount increase (decrease) for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 that is not a direct result of investments/dispositions made after January 1, 2019. | Represents the dollar amount increase (decrease) for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 as a result of investments/dispositions made after January 1, 2018. |
| |
(2)
| Represents the dollar amount increase (decrease) for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018 that is not a direct result of investments/dispositions made after January 1, 2018. |
Rental and Related Revenues
During the nine months ended September 30, 2019,2020, we recognized $339.3$319.9 million of rental income compared to $419.0$339.3 million for the nine months ended September 30, 2018.2019. The $79.7$19.4 million net decrease in rental income is primarily duerelated to (i) a $48.9$14.1 million decrease from properties disposed of after January 1, 2018, (ii) a $20.7 million decrease from the 21 Holiday Communities that were transitioned to Senior Housing - Managed communities in April 2019, (iii) a $20.1 million decrease primarily related to lease restructurings and leases that we concluded should no longer be accounted for on an accrual basis, (ii) a $10.1 million decrease from the 21 Holiday communities and one Senior Housing - Leased community that were transitioned to Senior Housing - Managed communities in April 2019 and November 2019, respectively, and (iii) a $7.4 million decrease from properties disposed of after January 1, 2019. The $14.1 million decrease consists of a $13.7 million decrease in non-cash rental revenues, which includes $14.3 million in write-offs related to Signature Healthcare and Genesis Healthcare, Inc., whose leases are no longer accounted for on an accrual basis as a result of adopting Topic 842 in 2019, consisting ofthe going concern issues for these tenants, and a $13.3$0.4 million net decrease in earned cash rents and a $9.4 million net decrease in straight-line rental income, partially offset by a $2.6 million net increase in above/below market lease intangible amortization and (iv) an $8.3 million decrease related to the 10 remaining Senior Care Centers facilities, eight of which were transitioned to a new operator.
rents. These amounts were partially offset by (i) a $13.0$7.4 million increase primarily related to property tax recoveries due to the adoption of Topic 842, which now requires lessor costs that are paid by the lessor and reimbursed by the lessee to be included in the measurement of variable lease revenue and the associated expense, and (ii) an increase of $4.1 million from properties acquired after January 1, 2018.2019 and (ii) a $2.7 million increase related to property tax recoveries.
Our reported rental and related revenues may be subject to increased variability in the future as a result of adopting Topic 842. However, there can be no assurances regarding the timing and amount of these collections. 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 nine months ended September 30, 20192020 and 2018.
2019.
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 direct financing lease. During the nine months ended
September 30, 2019,2020, we recognized $77.1$8.8 million of interest and other income compared to $12.8$77.1 million for the nine months ended September 30, 2018.2019. The net increasedecrease of $64.3$68.4 million is primarily due to (i) $66.9 million of income related to the transition of the 21 Holiday Communitiescommunities to our Senior Housing-Housing - Managed portfolio in April 2019, consisting of a $57.2 million lease termination payment and a $9.7 million gain related to the assumption of fixed assets net of liabilities, and (ii) a $1.5 million increase in income from investments made after January 1, 2018, partially offset by (i) a $4.5$2.4 million decrease in income from investments that were repaid after January 1, 2018 and (ii)2019, partially offset by a $0.3$0.6 million decreaseincrease in interest income related to funds held by exchange accommodation titleholders. The remaining increase is due to income on additional fundings for loans receivablefrom investments made beforeafter January 1, 2018.2019.
Resident Fees and Services
During the nine months ended September 30, 2019,2020, we recognized $89.5$117.9 million of resident fees and services compared to $52.4$89.5 million for the nine months ended September 30, 2018.2019. The $37.1$28.4 million net increase is primarily duerelated to (i) a $37.8$20.6 million increase from the 21 Holiday Communitiescommunities and one Senior Housing - Leased community that were transitioned to Senior Housing - Managed communities in April 2019 partially offset byand November 2019, respectively, and (ii) a $1.4$7.1 million decreaseincrease from onetwo Senior Housing - Managed community disposed ofcommunities acquired after January 1, 2018.2019. Included in resident fees and services is $1.2 million of government grant income recognized under the CARES Act during the nine months ended September 30, 2020.
Depreciation and Amortization
During the nine months ended September 30, 2019,2020, we incurred $137.5$132.6 million of depreciation and amortization expense compared to $143.3$137.5 million for the nine months ended September 30, 2018.2019. The $5.8$4.9 million net decrease in depreciation and amortization expense is primarily due (i) a decrease of $12.1 million from properties disposed of after January 1, 2018 and (ii) a $1.3 million decrease due to the acceleration of lease intangible amortization in connection with the transition of five senior housing communities and four skilled nursing/transitional care facilities to new operators in 2018, partially offset by (i) a $5.7 million increasedecrease due to the acceleration of lease intangible amortization related to the transition of the 21 Holiday Communitiescommunities to Senior Housing - Managed communities in April 2019 and (ii) ana $4.3 million decrease from properties disposed of after January 1, 2019, partially offset by a $4.6 million increase of $1.7 million from properties acquired after January 1, 2018 and (iii) a $0.9 million increase due to the acceleration of lease intangible amortization in connection with the transition of six skilled nursing/transitional care facilities to new operators during 2019.
Interest Expense
We incur interest expense comprised of costs of borrowings plus the amortization of deferred financing costs related to our indebtedness. During the nine months ended September 30, 2019,2020, we incurred $99.2$75.9 million of interest expense compared to $109.9$99.2 million for the nine months ended September 30, 2018.2019. The $10.7$23.3 million net decrease is primarily related to (i) a $7.5an aggregate $23.1 million decrease in interest expense related to the redemptionredemptions of the 5.5% senior unsecured notes due 2021 (the “2021 Notes”) in June 2019 and the 2023 Notes on June 29,in October 2019, which includes $1.0 million of incremental interest expense related to the redemption of the 2021 Notes occurring after the issuance of the 2024 Notes, (ii) a $5.5$9.1 million decrease in interest expense related to the borrowings outstanding on the Revolving Credit Facility and decrease in interest rates, (iii) a $4.2$6.5 million decrease in interest expense related to the partial pay down of the U.S. dollar term loans and decrease in interest rates and (iv) a $1.3 million decrease in non-cash interest expense related to our secured borrowings primarily due to the repayment of five mortgage notes during 2018,interest rate hedges, which decreases were partially offset by (i) a $5.2an aggregate $17.2 million increase in interest expense related to the issuanceissuances of the 2024 Notes (as defined below) and (ii) a $0.9 million increase in interest expense related to our U.S. dollar term loans primarily due to an increase in interest rates.2029 Notes.
Triple-NetTriple-Net Portfolio Operating Expenses
During the nine months ended September 30, 2019,2020, we recognized $17.1$15.5 million of triple-net portfolio operating expenses compared to $17.1 million for the nine months ended September 30, 2019. The $1.7 million net decrease is primarily related to a $1.2 million decrease related to properties disposed of which $13.0 million is due to the adoption of Topic 842 inafter January 1, 2019 which now requires lessor costs that are paid by the lessor and reimbursed by the lessee to be included in the measurement of variable lease revenue and the associated expense, and the remaining $4.1 milliondecrease is primarily duerelated to property taxes paid during the nine months ended September 30, 2020 on behalf of cash basis tenantsfacilities that have not yet been reimbursed andwere transitioned to new operators who are now paying the property taxes that are not expected to be reimbursed by our tenants.directly.
Senior Housing - Managed Portfolio Operating Expenses
During the nine months ended September 30, 2019,2020, we recognized $60.3$83.0 million of operating expenses compared to $37.0$60.3 million for the nine months ended September 30, 2018.2019. The $23.2$22.7 million net increase is primarily due to (i) a $23.6$14.8 million increase from the 21 Holiday Communitiescommunities and one Senior Housing - Leased community that were transitioned to Senior Housing - Managed communities in April 2019 partially offset byand November 2019, respectively, and (ii) a $1.1$5.1 million decreaseincrease from onetwo Senior Housing - Managed community disposed ofcommunities acquired after January 1, 2018.
2019. The remaining increase is primarily due to increased supplies and labor needs related to the COVID-19 pandemic.
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 nine months ended September 30, 2019,2020, general and administrative expenses were $25.0$24.7 million compared to $25.8$25.0 million during the nine months ended September 30, 2018.2019. The $0.8$0.3 million net decrease is primarily related to (i) a $1.8$3.2 million decrease in legal expenses primarily duestock-based compensation expense, offset by a $2.7 million increase in employee compensation as a result of increased staffing and employees electing to expenses incurredreceive their annual bonus opportunity in cash. The decrease in stock-based compensation expense, from $8.8 million during
the nine months ended September 30, 2018 related2019 to the recovery of previously reserved cash rental income, the previously anticipated refinancing of certain Senior Notes and the repositioning of the CCP portfolio, (ii) a $1.0 million decrease in transition expenses related to the CCP Merger and (iii) a $0.8 million decrease in expenses incurred by our specialty valuation firm that we sold in March 2018, partially offset by a $2.6 million increase in stock-based compensation expense. The increase in stock-based compensation expense, from $6.3$5.7 million during the nine months ended September 30, 2018 to $8.8 million during the nine months ended September 30, 2019,2020, is primarily due to a change in performance-based vesting assumptions on management’s equity compensation and employees electing to receive their annual bonus opportunity in cash. We expect stock-based compensation expense to fluctuate from period to period depending upon changes in our stock price and estimates associated with performance-based compensation.
Provision for Doubtful Accounts, Straight-Line Rental IncomeLoan Losses and Loan LossesOther Reserves
During the nine months ended September 30, 2020, we recognized a $0.7 million provision for loan losses and other reserves, primarily associated with loan loss reserves. During the nine months ended September 30, 2019, we recognized a $1.5 million provision for doubtful accounts, straight-line rental incomeloan losses and loan losses,other reserves, all of which was associated with loan loss reserves.
Impairment of Real Estate
During the nine months ended September 30, 2018,2020, we recognized a $9.4$3.2 million provision for doubtful accounts, straight-line rental income and loan losses, which was comprised of (i) a $10.1 million provision for straight-line rental income primarilyimpairment of real estate related to the termination of the master leases for the Senior Care Centers facilitiesthree senior housing communities and the transfer of fourone skilled nursing/transitional care facilities and one senior housing community to a new operator and (ii) a $1.2 million increase in loan loss reserves, partially offset by a $1.9 million net recovery of previously reserved cash rental income.
Impairment of Real Estate
facility. During the nine months ended September 30, 2019, we recognized $119.1 million of impairment of real estate, consisting of (i) $95.2 million related to the 30 Senior Care Centers portfolio, including the 28 facilities that we sold on April 1, 2019, and one additional Senior Care Centers facility that we transitioned to another operator, which includesamount included $10.2 million related to our estimated contractual indemnification obligations, and (ii) $23.9 million related to five vacant skilled nursing/transitional care facilities that were subsequently sold and four senior housing communities.
Loss on Extinguishment of Debt
During the nine months ended September 30, 2018,2020, we recognized $1.4a $0.5 million loss on extinguishment of impairment of real estatedebt related to one senior housing community and one skilled nursing/transitional care facility. The senior housing community was sold duringwrite-offs of deferred financing costs in connection with the nine months ended September 30, 2018.
Loss on Extinguishmentsale of Debt
three facilities that secured three mortgage notes. During the nine months ended September 30, 2019, we recognized a $10.8 million loss on extinguishment of debt, consisting of (i) $10.1 million in connection with the redemption of the 2021 Notes, including $6.9 million in payments made to noteholders and legal fees for early redemption and $3.2 million of write-offs associated with unamortized deferred financing and premium costs and (ii) $0.6 million related to the write-off of unamortized deferred financing costs in connection with entering into the Credit Agreement. During the nine months ended September 30, 2018, we did not recognize any loss on extinguishment of debt.
Other Income
During the nine months ended September 30, 2020 and September 30, 2019, we recognized $2.3 million and $0.4 million, respectively, of other income primarily related to settlement payments received related to a legacy CCP investment. During the nine months ended September 30, 2018, we recognized $4.2 million of other income, which was primarily comprised of (i) a $2.0 million contingency fee related to a legacy CCP investment, (ii) $1.3 million of insurance proceeds received related to a legacy CCP investment, (iii) $0.6 million related to cash payments received from two facilities not subject to a lease and (iv) $0.2 million related to the sale of our specialty valuation firm.investments.
Net Gain on Sales of Real Estate
During the nine months ended September 30, 2020, we recognized an aggregate net gain on the sales of real estate of $2.8 million related to the disposition of seven skilled nursing/transitional care facilities. During the nine months ended September 30, 2019, we recognized an aggregate net gain on the sales of real estate of $1.2 million related to the disposition of 31 skilled nursing/transitional care facilities and seven senior housing communities.
Loss from Unconsolidated Joint Venture
During the nine months ended September 30, 2018,2020, we recognized an aggregate net gain on the sales of real estate of $142.4 million related to the disposition of 36 skilled nursing/transitional care facilities and four senior housing communities.
Loss from Unconsolidated Joint Venture
During the nine months ended September 30, 2019, we recognized $5.6$13.0 million of loss from the Enlivant Joint Ventureour unconsolidated joint venture compared to $3.6$5.6 million of loss for the nine months ended September 30, 2018.2019. The $2.0$7.4 million net increase is primarily related to (i) a $1.7$6.3 million netincrease in operating expenses from the facilities owned by the joint venture as of September 30, 2020 primarily due to increased supplies and labor needs related to the COVID-19 pandemic and increased insurance expense, (ii) a $4.9 million depreciation adjustment related to our basis difference in the joint venture, (iii) a $2.4 million decrease in revenues from the facilities owned by the joint venture as of September 30, 2020 primarily due to decreases in occupancy and (iv) a $1.6 million increase in loss on sale primarily related to the sale of two12 senior housing communities, (ii)partially offset by (i) a $1.2$4.6 million change in the mark-to-market adjustments related to interest cap agreements, from gains recognized during the nine months ended September 30, 2018 to losses recognized during the nine months ended September 30, 2019, (iii) a $1.5 million increasedecrease in interest expense primarily due to an increasea decrease in interest rates and (iv) a $0.4(ii) $3.0 million increase inof government grant income tax expense, partially offset by a $2.5 million increase in revenues net of operating expenses primarily due to increased rates and improved margin.recognized under the CARES Act.
Income Tax Expense
During the nine months ended September 30, 2019,2020, we recognized $2.3$1.3 million of income tax expense compared to $1.8$2.3 million forof income tax expense recognized during the nine months ended September 30, 2018.2019. The increasedecrease is primarily due to the increase inlower taxable income from Senior Housing - Managed communities.
Funds from Operations and Adjusted Funds from Operations
We believe that net income attributable to common stockholders as defined by GAAP is the most appropriate earnings measure. We also believe that funds from operations attributable to common stockholders (“FFO”), as defined in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”Nareit”), and adjusted funds from operations attributable to common stockholders (“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 uses historical cost accounting for depreciation could be less informative. Thus, NAREITNareit created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income attributable to common stockholders, as defined by GAAP. FFO is defined as net income attributable to common stockholders, 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 venture, 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 venture, and real estate impairment charges. AFFO is defined as FFO excluding merger and acquisition costs, stock-based compensation expense, straight-linenon-cash rental income adjustments, amortization of above and below market lease intangibles,related revenues, non-cash interest income, adjustments, non-cash interest expense, change in fair value of contingent consideration, non-cash portion of loss on extinguishment of debt, provision for doubtful straight-line rental income, 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 venture. 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 attributable to common stockholders 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 NAREITNareit definition or that interpret the current NAREITNareit definition or define AFFO differently than we do.
The following table reconciles our calculations of FFO and AFFO for the three and nine months ended September 30, 20192020 and 2018,2019, to net income attributable to common stockholders, the most directly comparable GAAP financial measure, for the same periods (in thousands, except share and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income attributable to common stockholders | $ | 36,460 | | | $ | 23,282 | | | $ | 101,300 | | | $ | 29,255 | |
Depreciation and amortization of real estate assets | 44,209 | | | 43,092 | | | 132,579 | | | 137,517 | |
Depreciation and amortization of real estate assets related to noncontrolling interest | — | | | (14) | | | — | | | (93) | |
Depreciation and amortization of real estate assets related to unconsolidated joint venture | 10,391 | | | 5,439 | | | 21,525 | | | 16,102 | |
Net (gain) loss on sales of real estate | (2,715) | | | 19 | | | (2,828) | | | (1,216) | |
Net (gain) loss on sales of real estate related to unconsolidated joint venture | (7,537) | | | — | | | 3,271 | | | 1,690 | |
Impairment of real estate | 3,154 | | | 13,966 | | | 3,154 | | | 119,102 | |
| | | | | | | |
FFO attributable to common stockholders | 83,962 | | | 85,784 | | | 259,001 | | | 302,357 | |
| | | | | | | |
Merger and acquisition costs | 5 | | | 130 | | | 433 | | | 192 | |
Stock-based compensation expense | 916 | | | 3,259 | | | 5,651 | | | 8,829 | |
Non-cash rental and related revenues | 7,907 | | | (4,958) | | | 1,340 | | | (12,965) | |
Non-cash interest income | (608) | | | (555) | | | (1,743) | | | (1,680) | |
Non-cash interest expense | 2,069 | | | 2,523 | | | 6,527 | | | 7,846 | |
| | | | | | | |
Non-cash portion of loss on extinguishment of debt | 139 | | | 642 | | | 531 | | | 3,866 | |
Provision for loan losses and other reserves | (90) | | | 57 | | | 706 | | | 1,457 | |
Non-cash lease termination income | — | | | — | | | — | | | (9,725) | |
Other non-cash adjustments related to unconsolidated joint venture | 394 | | | 777 | | | 1,337 | | | 2,923 | |
Other non-cash adjustments | 110 | | | (3) | | | 137 | | | 95 | |
| | | | | | | |
AFFO attributable to common stockholders | $ | 94,804 | | | $ | 87,656 | | | $ | 273,920 | | | $ | 303,195 | |
| | | | | | | |
FFO attributable to common stockholders per diluted common share | $ | 0.41 | | | $ | 0.45 | | | $ | 1.25 | | | $ | 1.64 | |
| | | | | | | |
AFFO attributable to common stockholders per diluted common share | $ | 0.46 | | | $ | 0.46 | | | $ | 1.32 | | | $ | 1.63 | |
| | | | | | | |
Weighted average number of common shares outstanding, diluted: | | | | | | | |
FFO attributable to common stockholders | 206,727,167 | | | 191,952,389 | | | 206,442,674 | | | 184,698,411 | |
| | | | | | | |
AFFO attributable to common stockholders | 207,523,386 | | | 192,590,320 | | | 207,288,178 | | | 185,480,674 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income attributable to common stockholders | $ | 23,282 |
| | $ | 35,218 |
| | $ | 29,255 |
| | $ | 288,708 |
|
Depreciation and amortization of real estate assets | 43,092 |
| | 48,468 |
| | 137,517 |
| | 143,301 |
|
Depreciation and amortization of real estate assets related to noncontrolling interests | (14 | ) | | (39 | ) | | (93 | ) | | (119 | ) |
Depreciation and amortization of real estate assets related to unconsolidated joint venture | 5,439 |
| | 5,214 |
| | 16,102 |
| | 15,929 |
|
Net loss (gain) on sales of real estate | 19 |
| | (14 | ) | | (1,216 | ) | | (142,445 | ) |
Net loss on sales of real estate related to unconsolidated joint venture | — |
| | — |
| | 1,690 |
| | — |
|
Impairment of real estate | 13,966 |
| | — |
| | 119,102 |
| | 1,413 |
|
| | | | | | | |
FFO attributable to common stockholders | 85,784 |
| | 88,847 |
| | 302,357 |
| | 306,787 |
|
| | | | | | | |
Merger and acquisition costs | 130 |
| | 151 |
| | 192 |
| | 593 |
|
Stock-based compensation expense | 3,259 |
| | 2,436 |
| | 8,829 |
| | 6,275 |
|
Straight-line rental income adjustments | (3,357 | ) | | (10,652 | ) | | (14,067 | ) | | (34,404 | ) |
Amortization of above and below market lease intangibles, net | (1,601 | ) | | 5,561 |
| | 1,102 |
| | 4,193 |
|
Non-cash interest income adjustments | (555 | ) | | (548 | ) | | (1,680 | ) | | (1,722 | ) |
Non-cash interest expense | 2,523 |
| | 2,551 |
| | 7,846 |
| | 7,548 |
|
Non-cash portion of loss on extinguishment of debt | 642 |
| | — |
| | 3,866 |
| | — |
|
Provision for doubtful straight-line rental income, loan losses and other reserves | 57 |
| | 8,801 |
| | 1,457 |
| | 11,293 |
|
Non-cash lease termination income | — |
| | — |
| | (9,725 | ) | | — |
|
Other non-cash adjustments related to unconsolidated joint venture | 777 |
| | 118 |
| | 2,923 |
| | 1,132 |
|
Other non-cash adjustments | (3 | ) | | 25 |
| | 95 |
| | 55 |
|
| | | | | | | |
AFFO attributable to common stockholders | $ | 87,656 |
| | $ | 97,290 |
| | $ | 303,195 |
| | $ | 301,750 |
|
| | | | | | | |
FFO attributable to common stockholders per diluted common share | $ | 0.45 |
| | $ | 0.50 |
| | $ | 1.64 |
| | $ | 1.72 |
|
| | | | | | | |
AFFO attributable to common stockholders per diluted common share | $ | 0.46 |
| | $ | 0.54 |
| | $ | 1.63 |
| | $ | 1.68 |
|
| | | | | | | |
Weighted average number of common shares outstanding, diluted: | | | | | | | |
FFO attributable to common stockholders | 191,952,389 |
| | 178,941,213 |
| | 184,698,411 |
| | 178,729,853 |
|
| | | | | | | |
AFFO attributable to common stockholders | 192,590,320 |
| | 179,469,883 |
| | 185,480,674 |
| | 179,428,243 |
|
| | | | | | | |
The following table sets forth additional information related to certain other items included in net income attributable to common stockholders above, and the portions of each that are included in FFO and AFFO attributable to common stockholders, 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 September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 |
| Net Income | | FFO | | AFFO | | Net Income | | FFO | | AFFO |
Rental and related revenues: | | | | | | | | | | | | | | | | | | | | | | | |
Reduction of revenues related to non-cash receivable balances / lease intangible write-offs | $ | 14.3 | | | $ | 1.5 | | | $ | 14.3 | | | $ | 1.5 | | | $ | — | | | $ | — | | | $ | 20.8 | | | $ | 7.4 | | | $ | 20.8 | | | $ | 7.4 | | | $ | — | | | $ | — | |
Resident fess and services: | | | | | | | | | | | | | | | | | | | | | | | |
CARES Act grant income | 1.2 | | | — | | | 1.2 | | | — | | | 1.2 | | | — | | | 1.2 | | | — | | | 1.2 | | | — | | | 1.2 | | | — | |
Interest and other income: | | | | | | | | | | | | | | | | | | | | | | | |
Lease termination income | 0.3 | | | — | | | 0.3 | | | — | | | 0.3 | | | — | | | 0.3 | | | 66.9 | | | 0.3 | | | 66.9 | | | 0.3 | | | 57.2 | |
Incremental interest expense related to the redemption of the 2021 Notes | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1.0 | | | — | | | 1.0 | | | — | | | 1.0 | |
Senior housing - managed portfolio operating expenses: | | | | | | | | | | | | | | | | | | | | | | | |
COVID-19 pandemic related expenses | 1.2 | | | — | | | 1.2 | | | — | | | 1.2 | | | — | | | 3.2 | | | — | | | 3.2 | | | — | | | 3.2 | | | — | |
General and administrative expense: | | | | | | | | | | | | | | | | | | | | | | | |
CCP transition expenses | — | | | 0.1 | | | — | | | 0.1 | | | — | | | 0.1 | | | 0.1 | | | 0.2 | | | 0.1 | | | 0.2 | | | 0.1 | | | 0.2 | |
Merger and acquisition costs | — | | | 0.1 | | | — | | | 0.1 | | | — | | | — | | | 0.4 | | | 0.2 | | | 0.4 | | | 0.2 | | | — | | | — | |
(Recovery of) provision for doubtful accounts | (0.1) | | | 0.1 | | | (0.1) | | | 0.1 | | | — | | | — | | | 0.7 | | | 1.5 | | | 0.7 | | | 1.5 | | | — | | | — | |
Loss on extinguishment of debt | 0.1 | | | 0.6 | | | 0.1 | | | 0.6 | | | — | | | — | | | 0.5 | | | 10.8 | | | 0.5 | | | 10.8 | | | — | | | 6.9 | |
Other income | 0.1 | | | 0.2 | | | 0.1 | | | 0.2 | | | 0.2 | | | 0.2 | | | 2.3 | | | 0.4 | | | 2.3 | | | 0.4 | | | 2.3 | | | 0.4 | |
Loss from unconsolidated joint venture: | | | | | | | | | | | | | | | | | | | | | | | |
CARES Act grant income | 3.0 | | | — | | | 3.0 | | | — | | | 3.0 | | | — | | | 3.0 | | | — | | | 3.0 | | | — | | | 3.0 | | | — | |
Deferred income tax benefit (expense) | 0.1 | | | (0.6) | | | 0.1 | | | (0.6) | | | — | | | — | | | (0.3) | | | (1.7) | | | (0.3) | | | (1.7) | | | — | | | — | |
COVID-19 pandemic related expenses | 1.3 | | | — | | | 1.3 | | | — | | | 1.3 | | | — | | | 4.1 | | | — | | | 4.1 | | | — | | | 4.1 | | | — | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 |
| Net Income | | FFO | | AFFO | | Net Income | | FFO | | AFFO |
Reduction of revenues related to straight-line rental income receivable write-offs (1) | $ | 1.5 |
| | $ | — |
| | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1.5 |
| | $ | — |
| | $ | 1.5 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Reduction of revenues related to above/below market lease intangible write-offs (1) | — |
| | 6.3 |
| | — |
| | 6.3 |
| | — |
| | — |
| | 5.9 |
| | 6.3 |
| | 5.9 |
| | 6.3 |
| | — |
| | — |
|
Lease termination income (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 66.9 |
| | — |
| | 66.9 |
| | — |
| | 57.2 |
| | — |
|
Income on repayment of loan (2) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.9 |
| | — |
| | 0.9 |
| | — |
| | 0.9 |
|
Incremental interest expense related to the redemption of the 2021 Notes | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
| | — |
| | 1.0 |
| | — |
|
Previously anticipated Senior Notes refinancing expenses (3) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 0.6 |
| | — |
| | 0.6 |
| | — |
| | 0.6 |
|
CCP transition expenses (3) | 0.1 |
| | 0.3 |
| | 0.1 |
| | 0.3 |
| | 0.1 |
| | 0.3 |
| | 0.2 |
| | 1.2 |
| | 0.2 |
| | 1.2 |
| | 0.2 |
| | 1.2 |
|
Legal fees related to the recovery of previously reserved cash rental income (3) | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.1 |
| | — |
| | 0.7 |
| | — |
| | 0.7 |
| | — |
| | 0.7 |
|
Merger and acquisition costs (3) | 0.1 |
| | 0.2 |
| | 0.1 |
| | 0.2 |
| | — |
| | — |
| | 0.2 |
| | 0.6 |
| | 0.2 |
| | 0.6 |
| | — |
| | — |
|
Provision for (recovery of) doubtful accounts | 0.1 |
| | 8.9 |
| | 0.1 |
| | 8.9 |
| | — |
| | 0.1 |
| | 1.5 |
| | 9.4 |
| | 1.5 |
| | 9.4 |
| | — |
| | (1.9 | ) |
Loss on extinguishment of debt | (0.6 | ) | | — |
| | (0.6 | ) | | — |
| | — |
| | — |
| | (10.8 | ) | | — |
| | (10.8 | ) | | — |
| | (6.9 | ) | | — |
|
Other income | 0.2 |
| | 1.3 |
| | 0.2 |
| | 1.3 |
| | 0.2 |
| | 1.3 |
| | 0.4 |
| | 4.2 |
| | 0.4 |
| | 4.2 |
| | 0.4 |
| | 4.2 |
|
Deferred income tax expense (4) | 0.6 |
| | 0.3 |
| | 0.6 |
| | 0.3 |
| | — |
| | — |
| | 1.7 |
| | 1.4 |
| | 1.7 |
| | 1.4 |
| | — |
| | — |
|
Preferred stock redemption charge (5) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5.5 |
| | — |
| | 5.5 |
| | — |
| | 5.5 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| |
(1)
| Reflected in rental and related revenues on the accompanying condensed consolidated statements of income. |
| |
(2)
| Reflected in interest and other income on the accompanying condensed consolidated statements of income. |
| |
(3)
| Reflected in general and administrative expenses on the accompanying condensed consolidated statements of income. |
| |
(4)
| Reflected in loss from unconsolidated joint venture on the accompanying condensed consolidated statements of income. |
| |
(5)
| Reflected in preferred stock dividends on the accompanying condensed consolidated statements of income. |
Liquidity and Capital Resources
As of September 30, 2019,2020, we had approximately $829.4$979.0 million in liquidity, consisting of unrestricted cash and cash equivalents of $29.4$35.0 million and available borrowings under our Revolving Credit Facility of $800.0$944.0 million. The Credit Agreement also contains an accordion feature that can increase the total available borrowings to $2.75 billion (from U.S. $2.1$2.0 billion plus CAD $125.0 million), subject to terms and conditions.
We have filed a shelf registration statement with the SEC that expires in January 2020,December 2022, 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.
On February 25,December 11, 2019, we entered intoestablished an at-the-market equity distribution agreementoffering program (the “Distribution Agreement”“ATM Program”) withpursuant to which shares of our common stock having an aggregate gross sales price of up to $400.0 million may be sold from time to time (i) by us through a consortium of banks acting as sales agents (the “Sales Agents”)or directly to sell sharesthe banks acting as principals or (ii) by a consortium of our common stock having aggregate gross proceedsbanks acting as forward sellers on behalf of upany forward purchasers pursuant to $500.0 million from time to time through the Sales Agents (the “ATM Program”).a forward sale agreement. During the three months ended September 30, 2019,2020, we sold 4.21.4 million shares under the ATM Program at an average price of $21.82$15.70 per share, generating gross proceeds of $91.2$21.4 million, before $1.3$0.3 million of commissions. During the nine months ended September 30, 2019,2020, we sold 15.31.6 million shares under the ATM Program at an average price of $20.20$16.26 per share, generating gross proceeds of $308.5
$25.3 million, before $4.6$0.4 million of commissions. As of September 30, 2019,2020, we have not utilized the forward feature of the ATM Program and we had $191.5$314.7 million available under the ATM Program. Subject to market conditions, we expect to use proceeds from our ATM Program to reduce our outstanding indebtedness and to finance future investments in properties.
WeBased on our current assessment of the impact of the COVID-19 pandemic on our company, we believe that our available cash, operating cash flows and borrowings available to us under our Revolving Credit Facility provide sufficient funds for our operations, scheduled debt service payments and dividend 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.
Given current market conditions, we expect to use our available liquidity for general corporate purposes and to fund operations as necessary. Recent disruptions in the equity and debt markets have significantly increased our cost of capital and have made it difficult to establish market values for potential real estate investments, and accordingly we do not expect to make any material real estate investments as long as these market conditions persist.
WeShould market conditions improve, we intend to once again invest in additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed, in whole or in part, by our existing cash, borrowings available to us under our Revolving Credit Facility, future borrowings or the proceeds from issuances of common stock (including through our ATM Program), preferred stock, debt or other securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae, Freddie Mac and HUD,the U.S. Department of Housing and Urban Development, in appropriate circumstances in connection with acquisitions. We also use derivative instruments in the normal course of business to mitigate interest rate and foreign currency risk.
Cash Flows from Operating Activities
Net cash provided by operating activities was $277.0$265.5 million for the nine months ended September 30, 2019.2020. 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 investments. In addition, net cash provided by operating activities for the nine months ended September 30, 2019 includes a $57.2 million lease termination payment in connection with the transition of the Holiday Communities to our Senior Housing - Managed portfolio. Operating cash outflows consisted primarily of interest payments on borrowings and payment of general and administrative expenses, including corporate overhead. We expect our annualized cash flows provided by operating activities to fluctuate as a result of completed investment and disposition activity and anticipated future changes in our portfolio.
Cash Flows from Investing Activities
During the nine months ended September 30, 2019,2020, net cash provided byused in investing activities was $298.5$130.5 million and included $321.7$92.9 million used for the acquisition of four facilities, $32.4 million used for additions to real estate, $20.1 million used to provide funding for a preferred equity investment and $1.7 million used to provide additional funding for existing loans receivable, partially offset by $8.8 million in sales proceeds related to the disposition of 38seven real estate facilities, $13.8$3.4 million in repayments of preferred equity investments, $3.1 million in repayments of loans receivable and $3.7$1.3 million in repaymentsdistributions in excess of preferred equity investments, partially offset by $16.0 million used for tenant improvements, $15.0 million used for the acquisition of two specialty hospitals/other facilities and $9.4 million used to provide additional funding for existing loans receivable.
We expect to continue using available liquidity and proceedsearnings from sales of our common stock under the ATM Program to fund anticipated future real estate investments, loan originations, preferred equity investments and capital expenditures.unconsolidated joint venture.
Cash Flows from Financing Activities
During the nine months ended September 30, 2019,2020, net cash used in financing activities was $595.7$142.0 million and included the redemption of $500.0 million aggregate principal amount of outstanding 2021 Notes, $247.2$215.7 million of dividends paid to stockholders, $14.0$2.4 million of principal repayments on secured debt and $0.8 million of payments of deferred financing costs, $6.9 million of payments related to extinguishment of debt and $2.6 million of principal repayments on secured debt, partially offset by $302.0$21.0 million of net proceeds from shares sold through our ATM Program, net of payroll tax payments related to the issuance of common stock pursuant to equity compensation arrangements as well as expenses with respect to establishing the ATM Program, and $297.0 million of gross proceeds from the issuance of the 2024 Notes.arrangements. In addition, during the nine months ended September 30, 2019,2020, we repaidborrowed a net amount of $424.0$56.0 million on our Revolving Credit Facility.
In March 2020, we announced a significant reduction to our quarterly dividend, which reduction was implemented by our board of directors on May 6, 2020 when it declared a quarterly cash dividend of $0.30 per share of common stock. We took this step to help focus our capital resources and liquidity on maintaining our balance sheet strength and enhancing our ability to assist our operators in their time of need. We expect that our board of directors will re-evaluate the quarterly dividend once the COVID-19 pandemic has passed.
Please see the accompanying condensed consolidated statements of cash flows for details of our operating, investing and financing cash activities.
Loan Agreements
20212024 Notes. On January 23, 2014,May 29, 2019, the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of Sabra (the(together, the “Issuers”), issued $350.0 million aggregate principal amount of 5.5% senior unsecured notes due 2021 (the “Original 2021 Notes”), providing net proceeds of approximately $340.8 million after deducting underwriting discounts and other offering expenses. On October 10, 2014, the Issuers issued an additional $150.0 million aggregate principal amount of 5.5% senior unsecured notes due 2021 (together with the Original 2021 Notes, the “2021 Notes”), providing net proceeds of approximately $145.6 million (not including pre-issuance accrued interest), after deducting underwriting discounts and other offering expenses. On June 29, 2019, we redeemed the 2021 Notes at a premium of 101.375%, plus accrued and unpaid interest. The redemption resulted in $10.1 million of redemption related costs and write-offs.
2023 Notes. On May 23, 2013, the Issuers issued $200.0 million aggregate principal amount of 5.375% senior notes due 2023 (the “2023 Notes”), providing net proceeds of approximately $194.6 million after deducting underwriting discounts and other offering expenses. On October 27, 2019, we redeemed the 2023 Notes at a premium of 101.792%, plus accrued and unpaid interest. As a result of the redemption, we recognized $5.6 million of redemption related costs and write-offs subsequent to September 30, 2019.
2024 Notes. On May 29, 2019, the Issuers issued $300.0 million aggregate principal amount of 4.80% senior notes due 2024 (the “2024 Notes”), providing net proceeds of approximately $295.3 million after deducting underwriting discounts and other offering expenses. UponIn connection with the October 2019 redemption of other senior notes of the 2023 Notes,Issuers, Sabra Capital Corporation’s obligations as a co-issuer under the 2024 Notes were automatically released and discharged.
2026 and 2027 Notes. In connection with theour merger with CCP, Merger, on August 17, 2017, Sabra assumed $500 million aggregate principal amount of 5.125% senior notes due 2026 (the “2026 Notes”) and $100 million aggregate principal amount of 5.38%5.88% senior notes due 2027 (the “2027 Notes”).
2029 Notes. On October 7, 2019, the Issuers issued $350.0 million aggregate principal amount of 3.90% senior notes due 2029 (the “2029 Notes” and, together with the 2023 Notes, the 2024 Notes, the 2026 Notes and the 2027 Notes, the “Senior Notes”), providing net proceeds of $340.5 million after deducting underwriting discounts and other offering expenses. UponIn connection with the October 2019 redemption of other senior notes of the 2023 Notes,Issuers, Sabra Capital Corporation’s obligations as a co-issuer under the 2029 Notes were automatically released and discharged.
See Note 7, “Debt,” in the Notes to Condensed Consolidated Financial Statements for additional information concerning the Senior Notes, including information regarding the indentures and agreements governing the Senior Notes (the “Senior Notes Indentures”). As of September 30, 2019,2020, we were in compliance with all applicable covenants under the Senior Notes Indentures.
Guarantor Financial Information. The 2024 Notes are issued by the Operating Partnership and fully and unconditionally guaranteed, jointly and severally, by us and one of our non-operating subsidiaries, subject to release under certain customary circumstances as described below. In connection with the Operating Partnership’s assumption of the 2026 Notes, we have fully and unconditionally guaranteed the 2026 Notes, subject to release under certain circumstances as described below. The 2029 Notes are issued by the Operating Partnership and guaranteed, fully and unconditionally, by us.
These guarantees are subordinated to all existing and future senior debt and senior guarantees of the applicable guarantors 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.
A guarantor will be automatically and unconditionally released from its obligations under the guarantee with respect to the 2024 Notes in the event of:
•Any sale of the subsidiary guarantor or of all or substantially all of its assets;
•A merger or consolidation of the subsidiary guarantor with the Operating Partnership or Sabra, provided that the surviving entity remains a guarantor;
•The requirements for legal defeasance or covenant defeasance or to discharge the indentures governing the 2024 Notes have been satisfied;
•A liquidation or dissolution, to the extent permitted under the indenture governing the 2024 Notes, of the subsidiary guarantor;
•The release or discharge of the guaranty that resulted in the creation of the subsidiary guaranty, except a discharge or release by or as a result of payment under such guaranty; or
•If the subsidiary guarantor is not a guarantor or is not otherwise liable in respect of any obligations under any credit facility (as defined in the indenture governing the 2024 Notes) of us or any of our subsidiaries.
We will be automatically and unconditionally released from our obligations under the guarantee with respect to the 2026 Notes in the event of:
•A liquidation or dissolution, to the extent permitted under the indenture governing the 2026 Notes;
•A merger or consolidation, provided that the surviving entity remains a guarantor; or
•The requirements for legal defeasance or covenant defeasance or to discharge the indenture governing the 2026 Notes have been satisfied.
Pursuant to amendments to Regulation S-X, the following aggregate summarized financial information is provided for Sabra, the Operating Partnership and Sabra Health Care, L.L.C. (the guarantor subsidiary of the 2024 Notes). This aggregate summarized financial information has been prepared from the books and records maintained by us, the Operating Partnership
and Sabra Health Care, L.L.C. The aggregate summarized financial information does not include the investments in non-guarantor subsidiaries nor the earnings from non-guarantor subsidiaries and therefore is not necessarily indicative of the results of operations or financial position had the Operating Partnership and Sabra Health Care, L.L.C. operated as independent entities. Intercompany transactions have been eliminated. The aggregate summarized balance sheet information as of September 30, 2020 and December 31, 2019 and aggregate summarized statement of loss information for the nine months ended September 30, 2020 is as follows (in thousands):
| | | | | | | | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
Total assets | | $ | 49,462 | | | $ | 52,597 | |
Total liabilities | | 2,336,531 | | | 2,241,501 | |
| | | | |
| | Nine Months Ended September 30, 2020 | | |
Total revenues | | 342 | | | |
Total expenses | | 88,917 | | | |
Net loss | | (88,963) | | | |
Net loss attributable to common stockholders | | (88,963) | | | |
Credit Agreement. Effective on September 9, 2019, the Operating Partnership and Sabra Canadian Holdings, LLC (together, the “Borrowers”), Sabra and the other parties thereto entered into a fifth amended and restated unsecured credit agreement (the “Credit Agreement”).
The Credit Agreement includes a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), $1.1 billion$955.0 million in U.S. dollar term loans and a CAD $125.0 million Canadian dollar term loan (collectively, the “Term Loans”). Further, up to $175.0 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 September 9, 2023, and includes two six-month extension options. $250.0$105.0 million of the U.S. dollar Term Loans has a maturity date of September 9, 2022, $350.0 million of the U.S. dollar Term Loans has a maturity date of September 9, 2023, and the other Term Loans have a maturity date of September 9, 2024.
As of September 30, 2019, theThe obligations of the Borrowers under the Credit Agreement were guaranteed by us and certain of our subsidiaries. Following the redemption of the 2023 Notes on October 27, 2019, substantially all of the subsidiary guarantors under the Credit Agreement were released; the Credit Agreement remainsare 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.
See Note 7, “Debt,” in the Notes to Condensed Consolidated Financial Statements for additional information concerning the Credit Agreement, including information regarding covenants contained in the Credit Agreement. As of September 30, 2019,2020, we were in compliance with all applicable covenants under the Credit Agreement.
Secured Indebtedness
OfAs of September 30, 2020 and December 31, 2019, 13 and 16 of our434 properties held for investment 16 arewere subject to secured indebtedness to third parties, that, asrespectively. As of September 30, 2019, totaled approximately $115.4 million. As of September 30, 20192020 and December 31, 2018,2019, our secured debt consisted of the following (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Rate Type | | Principal Balance as of September 30, 2020 (1) | | Principal Balance as of December 31, 2019 (1) | | Weighted Average Interest Rate at September 30, 2020 (2) | | Maturity Date |
Fixed Rate | | $ | 80,124 | | | $ | 114,777 | | | 3.68 | % | | December 2021 - August 2051 |
| | | | | | | | |
| | | | | | | | |
(1) Principal balance does not include deferred financing costs, net of $1.1 million and $1.7 million as of September 30, 2020 and December 31, 2019, respectively.
(2) Weighted average interest rate includes private mortgage insurance.
|
| | | | | | | | | | | | | |
Interest Rate Type | | Principal Balance as of September 30, 2019 (1) | | Principal Balance as of December 31, 2018 (1) | | Weighted Average Interest Rate at September 30, 2019 (2) | | Maturity Date |
Fixed Rate | | $ | 115,370 |
| | $ | 117,464 |
| | 3.67 | % | | December 2021 - August 2051 |
| |
| Principal balance does not include deferred financing costs, net of $1.7 million and $1.8 million as of September 30, 2019 and December 31, 2018, respectively. |
| |
(2)
| Weighted average interest rate includes private mortgage insurance. |
Capital Expenditures
We had $16.0$32.4 million and $21.7$16.0 million of capital expenditures for the nine months ended September 30, 20192020 and 2018,2019, respectively. There are no present plans for the improvement or development of any unimproved or undeveloped property; however, from time to time we may agree to fund improvements our tenants make at our facilities. Accordingly, we anticipate that our aggregate capital expenditure requirements for the next 12 months will principally be for improvements to our facilities and will not exceed $57.0$64 million, of which $43.0$31 million will directly result in incremental rental income.
Dividends
We paid dividends of $247.2$215.7 million on our common stock during the nine months ended September 30, 2019.2020. On October 30, 2019,November 5, 2020, our board of directors declared a quarterly cash dividend of $0.45$0.30 per share of common stock. The dividend will be paid on November 29, 201930, 2020 to common stockholders of record as of November 15, 2019.16, 2020.
Concentration of Credit Risk
Concentrations of credit risk arise when a number of operators, 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 434425 real estate properties held for investment as of September 30, 20192020 is diversified by location across the United States and Canada.
For the three and nine months ended September 30, 2019,2020, no tenant relationship represented 10% or more of our total revenues.
Skilled Nursing Facility Reimbursement Rates
For the nine months ended September 30, 20192020 (excluding the one-time lease termination income of $66.9$0.3 million), 56.5%53.1% 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. The
Prior to October 1, 2019, the amount to be paid iswas determined by classifying each patient into one of 66 Resource Utilization Group (“RUG”) categories that representrepresented the level of services required to treat different conditions and levels of acuity.
The current system of 66 RUG categories, or Resource Utilization Group, version IV (“RUG IV”), became effective as of October 1, 2010. RUG IV resulted from research performed by the Centers for Medicare & Medicaid Services (“CMS”) and was part of CMS’s continuing effort to increase the correlation of the cost of services to the condition of individual patients.
On July 31, 2018, CMS issued a final rule, CMS-1696-F, which includes changes to the case-mix classification system used under the PPS and fiscal year 2019 Medicare payment updates.
CMS-1696-F includes a new case-mix classification system called the skilled nursing facility Patient-Driven Payment Model (“PDPM”) that will becomebecame effective on October 1, 2019. PDPM reflects significant changes to the Resident Classification System, Version I (“RCS-I”) that was being considered to replace RUG IV as outlined in an Advanced Notice of Proposed Rulemaking released by CMS in May 2017.
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.
Based on changes contained within CMS-1696-F, CMS estimates that the fiscal year 2019 aggregate impact will be an increase of $820 million in Medicare payments to skilled nursing facilities, resulting from the fiscal year 2019 market basket update required to be 2.4% by the Bipartisan Budget Act of 2018. Absent the application of this statutory requirement, the fiscal year 2019 market basket update factor would have been 2.0% (comprised of a market basket index of 2.8% less the productivity
adjustment of 0.8%). This 2.0% update would have resulted in an estimated aggregate increase of $670 million in Medicare payments to skilled nursing facilities. The new payment rates became effective on October 1, 2018.
On July 30, 2019, CMS released final fiscal year 2020 Medicare rates for skilled nursing facilities providing an estimated net increase of 2.4% over fiscal year 2019 payments (comprised of a market basket increase of 2.8% less the productivity adjustment of 0.4%). The new payment rates became effective on October 1, 2019.
On July 31, 2020, CMS released final fiscal year 2021 Medicare rates for skilled nursing facilities providing an estimated net increase of 2.2% over fiscal year 2020 payments (comprised of a market basket increase of 2.2% and no productivity adjustment). The new payment rates became effective on October 1, 2020.
In response to the COVID-19 pandemic, several federal relief packages were approved that could benefit our tenants, especially our tenants that operate skilled nursing/transitional care facilities.
On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (“Families First Act”). Under the Families First Act, a temporary 6.2% increase in Federal Medical Assistance Percentages (“FMAP”) was approved retroactive to January 1, 2020, and several states have directed FMAP funds to skilled nursing/transitional care facilities.
On March 27, 2020, President Trump signed into law The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act provides for a $175 billion fund for eligible health care providers, which includes skilled nursing/transitional care operators, and as of September 1, 2020 also includes assisted living facility operators. The CARES Act also includes a temporary suspension of 2% Medicare sequestration cut beginning May 1, 2020 through December 31, 2020, a deferral of the employer’s Social Security remittances through December 31, 2020, and the establishment of the Paycheck Protection Program, a Small Business Administration loan to businesses with fewer than 500 employees that may be partially forgivable.
In addition to the above, there have been other actions taken that benefit skilled nursing/transitional care operators, including the waiver of the requirement for skilled nursing/transitional care patients to have stayed in a hospital for three days in order for services rendered in a skilled nursing/transitional care facility to qualify for Medicare Part A, the acceleration and advance of three months of Medicare billing, and relaxation of certification requirements for employees performing non-clinical services in these facilities.
The Department of Health and Human Services (“HHS”) extended the COVID-19 Public Health Emergency for another 90 days, effective October 23, 2020, which allows HHS to continue providing temporary regulatory waivers and new rules to equip skilled nursing facilities and some assisted living operators with flexibility to respond to the COVID-19 pandemic. The extension of the COVID-19 Public Health Emergency also extends the Federal Medical Assistance Percentages funding increase through March 31, 2021.
Obligations and Commitments
The following table summarizes our contractual obligations and commitments in future years, including our secured indebtedness to third parties on certain of our properties, our Revolving Credit Facility, our Term Loans, our Senior Notes and our operating leases. The following table is presented as of September 30, 20192020 (in thousands):
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| | | October 1 through December 31, 2020 | | | | Year Ending December 31, | | | | |
| Total | | | 2021 | | 2022 | | 2023 | | 2024 | | After 2024 |
Secured indebtedness (1) | $ | 105,872 | | | $ | 1,280 | | | $ | 20,062 | | | $ | 4,161 | | | $ | 4,161 | | | $ | 4,161 | | | $ | 72,047 | |
Revolving Credit Facility (2) | 65,543 | | | 818 | | | 3,243 | | | 3,243 | | | 58,239 | | | — | | | — | |
Term Loans (3) | 1,136,413 | | | 6,292 | | | 26,177 | | | 130,370 | | | 370,390 | | | 603,184 | | | — | |
Senior Notes (4) | 1,635,885 | | | 16,715 | | | 59,055 | | | 59,055 | | | 59,055 | | | 359,055 | | | 1,082,950 | |
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Operating leases | 2,561 | | | 108 | | | 445 | | | 467 | | | 507 | | | 529 | | | 505 | |
Total | $ | 2,946,274 | | | $ | 25,213 | | | $ | 108,982 | | | $ | 197,296 | | | $ | 492,352 | | | $ | 966,929 | | | $ | 1,155,502 | |
(1)Secured indebtedness includes principal payments and interest payments through the applicable maturity dates. Total interest on secured indebtedness, based on contractual rates, is $25.7 million, which is attributable to fixed rate debt.
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| | | October 1 through December 31, 2019 | | | | Year Ending December 31, | | | | |
| Total | | | 2020 | | 2021 | | 2022 | | 2023 | | After 2023 |
Secured indebtedness (1) | $ | 163,668 |
| | $ | 1,822 |
| | $ | 7,288 |
| | $ | 22,203 |
| | $ | 6,154 |
| | $ | 6,154 |
| | $ | 120,047 |
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Revolving Credit Facility (2) | 235,325 |
| | 2,257 |
| | 8,978 |
| | 8,954 |
| | 8,954 |
| | 206,182 |
| | — |
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Term Loans (3) | 1,342,462 |
| | 8,032 |
| | 32,338 |
| | 35,713 |
| | 283,588 |
| | 375,502 |
| | 607,289 |
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Senior Notes (4) | 1,444,735 |
| | 15,385 |
| | 56,155 |
| | 56,155 |
| | 56,155 |
| | 250,780 |
| | 1,010,105 |
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Operating leases | 2,982 |
| | 103 |
| | 426 |
| | 445 |
| | 467 |
| | 507 |
| | 1,034 |
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Total | $ | 3,189,172 |
| | $ | 27,599 |
| | $ | 105,185 |
| | $ | 123,470 |
| | $ | 355,318 |
| | $ | 839,125 |
| | $ | 1,738,475 |
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(2)Revolving Credit Facility includes interest payments and payments related to the facility fee due to the lenders based on the amount of commitments under the Revolving Credit Facility through the maturity date (assuming no exercise of our two six-month extension options) totaling $9.5 million. | |
(1)
| Secured indebtedness includes principal payments and interest payments through the applicable maturity dates. Total interest on secured indebtedness, based on contractual rates, is $48.3 million, which is attributable to fixed rate debt. |
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(2)
| Revolving Credit Facility includes payments related to the facility fee due to the lenders based on the amount of commitments under the Revolving Credit Facility and also includes interest payments through the maturity date (assuming no exercise of our two six-month extension options). Total interest on the Revolving Credit Facility is $35.3 million. |
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(3)
| Term Loans includes interest payments through the applicable maturity dates totaling $148.1 million, which reflects the impact of interest rate swaps. |
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(4)
| Senior Notes includes interest payments through the applicable maturity dates totaling $344.7(3)Term Loans includes interest payments through the applicable maturity dates totaling $87.9 million, which reflects the impact of interest rate swaps. (4)Senior Notes includes interest payments through the applicable maturity dates totaling $385.9 million. |
In addition to the above, as of September 30, 2019,2020, we have committed to provide up to $3.0$2.2 million of future funding related to four loans receivable investments with maturity dates ranging from March 20202021 to December 2022.
Off-Balance Sheet Arrangements
We have a 49% interest in an unconsolidated joint venture. See Note 2, “Summary of Significant Accounting Policies”4, “Investment in Real Estate Properties—Investment in Unconsolidated Joint Venture,” in the Notes to Condensed Consolidated Financial Statements for additional
information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, primarily related to adverse changes in interest rates and the exchange rate for Canadian dollars. We use derivative instruments in the normal course of business to mitigate interest rate and foreign currency risk. We do not use derivative financial instruments for speculative or trading purposes. See Note 8, “Derivative and Hedging Instruments,” in the Notes to Condensed Consolidated Financial Statements for further discussion of our derivative instruments.
Interest rate risk. As of September 30, 2019,2020, our indebtedness included $1.1$1.3 billion aggregate principal amount of Senior Notes outstanding, $115.4$80.1 million of secured indebtedness to third parties on certain of the properties that our subsidiaries own, $1.2$1.0 billion in Term Loans and $200.0$56.0 million outstanding under the Revolving Credit Facility. As of September 30, 2019,2020, we had $1.4$1.1 billion of outstanding variable rate indebtedness and $800.0$944.0 million available for borrowing under our Revolving Credit Facility. Additionally, as of September 30, 2019,2020, our share of unconsolidated joint venture debt was $376.0 million, all of which was variable rate indebtedness.
We expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness. We also may manage, or hedge, interest rate risks related to our borrowings through interest rate swap agreements. As of September 30, 2019,2020, we had interest rate swaps that fix the LIBOR portion of the interest rate for $845.0 million of LIBOR-based borrowings under the U.S. dollar Term Loans at a weighted average rate of 1.19%1.24% and twoan interest rate swapsswap that fixfixes the Canadian Dollar Offered Rate (“CDOR”) portion of the interest rate for CAD $90.0 million and CAD $35.0$125.0 million of CDOR-based borrowings under the Canadian dollar Term Loan at 1.59% anda rate of 0.93%, respectively.. As of September 30, 2019,2020, our share of unconsolidated joint venture debt included $368.4 million of LIBOR-based borrowings subject to interest rate cap agreements that cap the LIBOR portion of the interest rate at a weighted average rate of 2.89%.
From time to time, we may borrow under the Revolving Credit Facility to finance future investments in properties, including any improvements or renovations of current or newly acquired properties, or for other purposes. Because borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable interest margin plus, at our option, either (a) LIBOR or (b) a base rate determined as the greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) one-month LIBOR plus 1.0%, the interest rate we will be required to pay on any such borrowings will depend on then applicable rates and may vary. An increase in interest rates could make the financing of any investment by us more costly. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.
Assuming a 100 basis point increase or decrease inAs of September 30, 2020, the interest rate related toindex underlying our variable rate debt includingand our share of unconsolidated joint venture debt was below 100 basis points. Assuming a 100 basis point increase in the index or a reduction of this index to zero, and after giving effect to the impact of interest rate derivative instruments, net income would decrease by $7.8$5.4 million or increase by $8.3$0.8 million, respectively, for the twelve months following September 30, 2019.
2020.
Foreign currency risk. We are exposed to changes in foreign exchange rates as a result of our investments in Canadian real estate. Our foreign currency exposure is partially mitigated through the use of Canadian dollar denominated debt totaling CAD $146.4$145.7 million and cross currency swap instruments. Based on our operating results for the three months ended September 30, 2019,2020, if the value of the Canadian dollar relative to the U.S. dollar were to increase or decrease by 10% compared to the average exchange rate during the three months ended September 30, 2019,2020, our cash flows would have decreased or increased, as applicable, by $0.2$0.1 million.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 20192020 to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None of the Company or any of its subsidiaries is a party to, and none of their respective property is the subject of, any material legal proceeding, although we are from time to time party to legal proceedings that arise in the ordinary course of our business.
ITEM 1A. RISK FACTORS
There have been no material changes in our assessment of our risk factors from those set forth in Part I, Item 1A of our 20182019 Annual Report on Form 10-K, as updated by the risk factor set forth in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019.
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Ex. | | Description |
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2.1 | | Agreement and Plan of Merger, dated as of May 7, 2017, by and among Sabra Health Care REIT, Inc., PR Sub, LLC, Sabra Health Care Limited Partnership, Care Capital Properties, Inc. and Care Capital Properties, LP (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on May 8, 2017). |
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3.23.1.2 | | |
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3.2 | | |
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4.122.1 | | Ninth Supplemental Indenture, dated October 7, 2019, among Sabra Health Care Limited Partnership, Sabra Capital Corporation,List of Subsidiary Issuers and Guarantors of Sabra Health Care REIT, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporatedInc. (incorporated by reference to Exhibit 4.222.1 of the CurrentQuarterly Report on Form 8-K10-Q filed by Sabra Health Care REIT, Inc. on October 7, 2019)August 5, 2020). |
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10.131.1* | | Fifth Amended and Restated Credit Agreement, dated September 9, 2019, among Sabra Health Care Limited Partnership and Sabra Canadian Holdings, LLC, as Borrowers; Sabra Health Care REIT, Inc., as a guarantor; the other guarantors party thereto; the lenders party thereto; Bank of America, N.A., as Administrative Agent and L/C Issuer; Citizens Bank, National Association, Crédit Agricole Corporate and Investment Bank and Wells Fargo Bank, National Association, as Co-Syndication Agents and L/C Issuers; BMO Harris Bank, N.A., The Bank of Nova Scotia, MUFG Bank, Ltd., Barclays Bank PLC, Citibank, N.A., BBVA USA, Fifth Third Bank, JPMorgan Chase Bank, N.A., Morgan Stanley Senior Funding, Inc., Sumitomo Mitsui Banking Corporation and Suntrust Bank, as Co-Documentation Agents; BofA Securities, Inc., as Joint Lead Arranger and Sole Bookrunner; and Citizens Bank, National Association, Crédit Agricole Corporate and Investment Bank and Wells Fargo Securities, LLC, as Joint Lead Arrangers (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on September 11, 2019). |
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101.INS* | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH* | | XBRL Taxonomy Extension Schema Document. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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Ex.101.SCH* | | DescriptionXBRL Taxonomy Extension Schema Document. |
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101.DEF*101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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104* | | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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* | Filed herewith. |
** | Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| SABRA HEALTH CARE REIT, INC. |
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Date: November 5, 2020 | SABRA HEALTH CARE REIT, INC. |
By: | | |
Date: October 30, 2019 | By: | /S/ RICHARD K. MATROS |
| | Richard K. Matros |
| | Chairman, President and |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
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Date: October 30, 2019November 5, 2020 | By: | /S/ HAROLD W. ANDREWS, JR. |
| | Harold W. Andrews, Jr. |
| | Executive Vice President, |
| | Chief Financial Officer and Secretary |
| | (Principal Financial and Accounting Officer) |