Second-quarter earnings reports continued Tuesday with calls held by Brookdale Senior Living and Sabra Health Care REIT.
Brookdale, Welltower amend leases for 74 communities
For Brookdale Senior Living, consolidated senior housing revenue in the quarter grew 11% compared with the second quarter of 2022, Executive Vice President and Chief Financial Officer Dawn L. Kussow said. The change was driven by a 190 basis point increase in occupancy and an 8.8% increase in revenue per occupied room, she said.
Overall, year-over-year adjusted earnings before interest, taxes, depreciation and amortization in the first half increased 61% from a year ago, and adjusted free cash flow improved 85%.
“This is even more impressive,” President and CEO Lucinda “Cindy” Baier said, “considering that as a result of the Omega [Healthcare Investors] and Welltower lease amendments, we had approximately $10 million of lease payments that impacted adjusted EBITDA this year but didn’t affect last year due to changes in lease classifications.”
Under Brookdale’s lease amendments with Welltower, the Brentwood, TN-based operator continues to lease 74 communities from the Toledo, OH-based real estate investment trust, according to a press release issued in conjunction with the earnings call. In connection with the amendments, Brookdale extended the maturity of one lease involving 39 communities from Dec. 31, 2026, until June 30, 2032.
“The amendments did not change the amount of required lease payments over the previous term of the leases or the annual lease escalators,” Brookdale said in the press release. “In addition, Welltower agreed to make available a pool in the aggregate amount of up to $17 million to fund costs associated with certain capital expenditure projects.”
During the second quarter, on May 1, Brookdale completed the sale of its one remaining entrance-fee community. The company received cash proceeds of $12.5 million, net of $29.6 million in mortgage debt repaid and transaction costs.
Monday, Westlake Village, CA-based LTC Properties announced that it has re-leased 10 of the 35 properties in its Brookdale portfolio to the provider under a new master lease. The new master lease includes six properties in Colorado and four in Kansas.
According to Brookdale, the lease will expire Dec. 31, 2029, and is subject to earlier termination if the company exercises the purchase option.
“This 10-community lease is very beneficial to Brookale, because we now have the right to acquire all 10 assets under a favorable purchase option,” Baier said. “Also, LTC has agreed to supply additional landlord-funded cap ex investments for these communities.”
Looking forward, Brookdale expects its third-quarter cash facility operating lease payments to be approximately $65 million, including the full-quarter effect of recent changes in lease classifications.
In the aggregate, Brookdale expects its full-year 2023 nondevelopment capital expenditures, net of anticipated lessor reimbursements, to be approximately $200 million. This amount excludes reimbursable remediation costs at the company’s communities resulting from 2022 natural disasters.
The company anticipates an additional approximately $2 million in reimbursable remediation costs at those communities affected by natural disasters last year. Brookdale expects those costs to be reimbursed from the company’s property and casualty insurance policies in 2023 or 2024.
For more coverage of this earnings call, visit McKnight’s Senior Living.
Sabra Health Care REIT sees occupancy, labor improvements
Occupancy in Sabra Healthcare REIT’s skilled nursing and assisted living portfolios, as well as labor challenges, are slowly improving, “all leading to margin improvements in our primary assets,” CEO and Chair Rick Matros said.
“None of this is happening quickly, but it is happening,” he added.
“Reimbursement trends [in skilled nursing] also remain encouraging, highlighted by Medicaid rate increases that are trending higher than they have been in many years,” Matros said in a press release issued Monday night. On the earnings call, Matros predicted that both Medicaid and Medicare rates would continue to climb in 2024, with the lag from state-level cost reports finally accounting for 2022 inflation peaks and the end a federal Medicare Part A clawback expected to end.
He noted that a 4% increase awarded to SNFs for fiscal 2024 would have been a 6.4% increase without a second year reduction due to the Patient Driven Payment Model parity adjustment.
Earnings before interest, taxes, depreciation, amortization, rent and management fees coverage in the skilled nursing / transitional care area has improved for Sabra over three consecutive quarters.
During the second quarter, the real estate investment trust generated $18 million of gross proceeds from the sale of four skilled nursing facilities
After the quarter ended, on July 6, Sabra transitioned 11 senior living communities that it owns, which formerly were managed by Enlivant, to Inspirit Senior Living, an existing Sabra operator.
Matros said that the transition happened more quickly than Sabra anticipated.
“That portfolio has underperformed in the space,” Matros said. “Prior to the pandemic, that portfolio was in the mid-90s from an occupancy perspective, so it’s 76% or so occupancy today.”
As of June 30, Sabra had approximately $926.7 million of liquidity, consisting of $27.2 million in unrestricted cash and cash equivalents and $899.5 million available to borrow under its revolving credit facility. As of June 30, the Irvine, CA-based REIT also had $500 million available under the at-the-market market.
Net income per diluted common share for the second quarter was $0.09. Normalized funds from operations per diluted common share were $0.33. Adjusted funds from operations per diluted common share, and normalized adjusted funds from operations per diluted common share, were $0.34.
Monday, Sabra’s board of directors declared a quarterly cash dividend of $0.30 per share of common stock. The dividend will be paid Aug. 31 to common stockholders of record as of the close of business on Aug. 17.
For more coverage of this earnings call, see McKnight’s Senior Living.
