I recently wrote an article for Sure Dividend entitled “Consider Equity REITs for Your Next Investment“.In that article, I listed nine equity REITs for dividend investors to consider in light of the drubbing that REIT valuations have recently taken due to fear of rising interest rates and to capitalize on the pass-through provision for REIT income included in the new tax legislation.Both of these topics are covered in some detail in the previous article.This article provides a more complete investment thesis for Sabra Healthcare REIT (SBRA), one of the nine REITs highlighted in the previous article.
Sabra Healthcare REIT
Sabra invests in skilled nursing facilities (SNFs), senior housing, hospitals, and other healthcare facilities owning 728 properties in 45 states.The company’s enterprise value is $6.1B so Sabra is relatively small compared to Ventas (VTR) or Welltower (WELL). As it stands today, Sabra’s revenue mix is 65% skilled nursing,25% senior housing, 8% hospital (and other), and 2% interest and other income.
Sabra is often compared to Omega Healthcare (OHI) because of the concentration of skilled nursing facilities in both.Sabra, however, is a bit different and has an aggressive plan to further differentiate itself.When Sabra was spun off from Sun Healthcare Group in 2011, it was essentially 100% dependent on a single operator of its properties, Genesis (GEN).Today, Genesis only makes up 8% of revenues for Sabra and Sabra plans for that to go to zero by early in 2019.As Sabra transitions away from Genesis, the majority of the proceeds from the sale of Genesis operated properties are being reinvested in senior housing properties.So, not only is Sabra transitioning away from Genesis as an operator, they are lowering their concentration in skilled nursing facilities.
Sabra has also been working aggressively to secure an investment grade credit rating since 2011 and they received that from Fitch in 2017 with a BBB- rating.Sabra isn’t resting on their new rating and continues to build a fortress balance sheet.Today, 87.2% of Sabra’s long term debt has a blended fixed rate of 4.0% and nearly all is unsecured.Sabra has roughly $350M in current liquidity.As you would expect for an investment grade equity, Sabra’s debt metrics are very solid as shown in the chart below.