Sabra Provides Update on Genesis and Signature Rental Revenue Recognition
Sabra Health Care REIT, Inc. (“Sabra,” the “Company” or “we”) (Nasdaq: SBRA) provided an update regarding its recognition of rental revenues under leases with Genesis Healthcare, Inc. (“Genesis”) and Signature Healthcare (“Signature”) in light of recent events.
In the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 that Genesis filed with the Securities and Exchange Commission on August 10, 2020, Genesis stated that the impact of COVID-19 on its future results of operations, its current financial condition and liquidity sources, and uncertainty regarding future governmental funding support raises substantial doubt about its ability to continue as a going concern.
On September 11, 2020, we learned that subsidiaries of Signature that lease facilities from the Company will be issued an audit report containing a qualified opinion due to substantial doubt about their ability to continue as a going concern in relation to the uncertainty around future cashflows caused by the COVID-19 pandemic.
To date, Sabra has received no rent relief requests from either Genesis or Signature and both tenants remain current on their rental obligations. As of June 30, 2020, our exposure to Signature was 7.2% of Sabra’s annualized cash NOI and our exposure to Genesis was 2.5% of Sabra’s annualized cash NOI exclusive of residual rents from previously completed sales representing 2.0% of Sabra’s annualized cash NOI.
Sabra and its auditors are evaluating the circumstances giving rise to the going concern issues for these tenants as it relates to the proper accounting under GAAP, including the potential need to transition the method of recognizing rental revenue generated by leases with these two tenants from accrual basis accounting, with straight-line rental receivable, to cash-basis accounting. In the event we transition the leases with these tenants to cash-basis accounting, we would write-off approximately $14.4 million of straight-line rental receivables and lease-related intangible assets, which would be recorded as a reduction to rental revenues but would have no impact on Normalized FFO, AFFO, Normalized AFFO and distributable cash flow; if this change were to occur, we expect rental revenues to initially increase by an immaterial amount. We expect to complete this evaluation during our third quarter reporting cycle.