Sabra Health Care REIT Stock: Ultra-High-Yielder at Record High, But Has 27%+ Upside
August 8, 2024
Sabra Health Care REIT Stock Up 20% in 2024
Sabra Health Care REIT stock is flashing on my radar; let me tell you why.
Higher interest rates might be good at curbing inflation, but they’re brutal for real estate investment trusts (REITs). That’s because higher interest rates make it more costly to borrow, and REITs borrow a lot of money to increase their portfolios. And those increased costs cut into their profit.
But with traders pricing in a 100% chance of a Federal Reserve rate cut this September, investors are beginning to look at REITs again.
One REIT that has been doing quite well, in spite of higher interest rates, is Sabra Health Care REIT Inc (NASDAQ:SBRA).
Sabra Health Care is a self-administered, self-managed REIT that owns and invests in the health-care industry in the U.S. and Canada. (Source: “Investor Presentation,” Sabra Health Care REIT Inc, last accessed July 29, 2024.)
The company’s portfolio consists of 374 properties, including:
- 237 skilled nursing/transitional care facilities
- 66 managed senior housing properties
- 38 leased senior housing properties
- 18 behavioral health facilities
- 15 specialty hospitals and other properties
(Source: “Portfolio,” Sabra Health Care REIT Inc, last accessed July 29, 2024.)
The outlook for seniors’ health-care REITs like Sabra remains robust. Since 2000, the 85-or-older population has grown by 55% compared to an 11% decline in skilled nursing beds. Rising daily Medicaid and Medicare rates have also increased substantially since the 2020 health crisis.
By 2040, roughly 20% of Americans will be age 65 or older, up from 12.5% (or one in eight) in 2000. Between 2020 and 2040, the number of Americans aged 65 and older will more than double, reaching 80 million in 2040. The number of American adults aged 85 and older, the group that often needs the most help with personal care, is expected to quadruple by 2040. (Source: “The US Population Is Aging,” Urban Institute, last accessed July 29, 2024.)
Reports Strong Q1, Reiterates Full-Year Guidance
For the first quarter ended March 31, 2024, Sabra reported net income of $0.11 per share, up from a loss of $0.04 per share in the same period last year. (Source: “Sabra Reports First Quarter 2024 Results; Reiterates 2024 Guidance,” Sabra Health Care REIT Inc, May 8, 2024.)
First-quarter funds from operations (FFO) were flat at $0.32, while normalized FFO increased slightly to $0.34 per share. Adjusted FFO (AFFO) and normalized AFFO both grew to $0.35.
Commenting on the first-quarter results, Rick Matros, Sabra’s chief executive officer and chair, said, “As has been evident for several quarters, Sabra’s portfolio continues to grow stronger, whether looking at coverage, occupancy, or NOI. Our balance sheet remains strong and is poised to support future growth.”
Looking ahead, management reiterated its 2024 earnings guidance ranges as follows:
- Net Income: $0.53–$0.57
- FFO: $1.33–$1.37
- Normalized FFO: $1.34–$1.38
- AFFO: $1.38–$1.42
- Normalized AFFO: $1.39–$1.43
This guidance assumes no 2024 acquisitions or sales.
Sabra did note that its investment pipeline has improved, so it expects to announce new investments on its second-quarter earnings call. The company will be releasing its second-quarter results after the markets close on August 7, 2024. This could result in improved guidance.
It certainly has the liquidity to enhance its portfolio, with ample liquidity of over $900.0 million, plus $500.0 million available under its at-the-market (ATM) equity offering program.
Declares Quarterly Cash Dividend of $0.30 Per Share
Before the 2020 health crisis, Sabra had a history of raisings its annual dividend. In fact, it did so eight times, going from $0.96 per share in 2011 to $1.80 per share in 2019. The company held it there in 2019, then cut it to $1.35 per share in 2020 and to $1.20 per share in 2021. Not a big surprise; the 2020 health crisis had a huge impact on health-care REITs.
In May, Sabra Health Care REIT stock declared a quarterly cash dividend of $0.30 per share, or $1.20 on an annual basis, for a current yield of 7.23%.
The big question is: when will Sabra’s board begin to raise its quarterly distributions again?
The company’s balance sheet remains solid, but its operations have not fully recovered from the pandemic, so Sabra Health Care REIT stock investors may have to contend with a quarterly payout of $0.30 per share for a little while longer.
Sabra Health Care REIT Stock Hits New Record High
While shareholders patiently wait for Sabra to hike its quarterly distribution, they can take solace in knowing its share price is thrashing the broader market. Sabra Health Care REIT stock is up:
- 27.5% over the last six months
- 20.5% year-to-date
- 38.9% year-over-year
SBRA stock actually hit a new record intraday high of $16.89 on July 24. Moreover, the outlook remains robust. Analysts have provided a 12-month record-high estimate of $21.00 per share, which points to implied upside of more than 27%.
There’s reason to be optimistic with Sabra Health Care REIT stock. The seven analysts providing guidance on Sabra project that earnings will climb from $0.06 in 2023 to $0.56 in 2024, and then hit $0.64 in 2025. (Source: “Sabra Health Care REIT, Inc. (SBRA),” Yahoo! Finance, last accessed July 29, 2024.)
Chart courtesy of StockCharts.com
The Lowdown on Sabra Health Care REIT Stock
Sabra is a health-care REIT with a strong balance sheet that continues to rebound from its pandemic lows with improved occupancy rates and growing revenue and earnings. The company reported solid first-quarter results and reaffirmed its full-year guidance, though acquisitions could mean revising that guidance upward.
Even without near-term acquisitions, the company’s strong free cash flow generation should help Sabra Health Care REIT stock to not only continue to pay a dividend (14 years and counting) but also eventually raise that payout.
