10-Q 1 sbra10q2019q1.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 FORM 10-Q
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR 
o
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)
 
 
Maryland
 
27-2560479
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
18500 Von Karman Avenue, Suite 550
Irvine, CA 92612
(888) 393-8248
(Address, zip code and telephone number of Registrant)
Securities registered pursuant to Section 12(b) of the Act:
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 (Nasdaq Global Select Market)
 
 
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  x    No  o
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  x    No  o
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.
Large accelerated filer
 
x
  
Accelerated filer
 
o
Non-accelerated filer
 
o  
  
Smaller reporting company
 
o
 
 
 
 
Emerging growth company
 
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of May 1, 2019, there were 179,501,043 shares of the registrant’s $0.01 par value Common Stock outstanding.



SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES
Index
 

1


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:
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);
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”);
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, 2018 (our “2018 Annual Report on Form 10-K”) and in Part II, Item 1A, “Risk Factors” of this 10-Q, 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,

2


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.


3


PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS
SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)  
 
 
March 31, 2019
 
December 31, 2018
 
(unaudited)
 
 
Assets
 
 
 
Real estate investments, net of accumulated depreciation of $425,962 and $402,338 as of March 31, 2019 and December 31, 2018, respectively
$
5,437,354

 
$
5,853,545

Loans receivable and other investments, net
109,214

 
113,722

Investment in unconsolidated joint venture
335,701

 
340,120

Cash and cash equivalents
22,873

 
50,230

Restricted cash
9,766

 
9,428

Assets held for sale, net
270,780

 

Lease intangible assets, net
119,667

 
131,097

Accounts receivable, prepaid expenses and other assets, net
149,790

 
167,161

Total assets
$
6,455,145

 
$
6,665,303

 
 
 
 
Liabilities
 
 
 
Secured debt, net
$
115,188

 
$
115,679

Revolving credit facility
620,000

 
624,000

Term loans, net
1,187,384

 
1,184,930

Senior unsecured notes, net
1,307,658

 
1,307,394

Accounts payable and accrued liabilities
94,809

 
94,827

Lease intangible liabilities, net
79,328

 
83,726

Total liabilities
3,404,367

 
3,410,556

 
 
 
 
Commitments and contingencies (Note 13)

 

 
 
 
 
Equity
 
 
 
Common stock, $.01 par value; 250,000,000 shares authorized, 178,419,599 and 178,306,528 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
1,784

 
1,783

Additional paid-in capital
3,508,987

 
3,507,925

Cumulative distributions in excess of net income
(462,555
)
 
(271,595
)
Accumulated other comprehensive (loss) income
(1,747
)
 
12,301

Total Sabra Health Care REIT, Inc. stockholders’ equity
3,046,469

 
3,250,414

Noncontrolling interests
4,309

 
4,333

Total equity
3,050,778

 
3,254,747

Total liabilities and equity
$
6,455,145

 
$
6,665,303


See accompanying notes to condensed consolidated financial statements.

4


SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(dollars in thousands, except per share data)  
(unaudited)
 
 
Three Months Ended March 31,
 
2019
 
2018
Revenues:
 
 
 
Rental and related revenues
$
116,387

 
$
144,255

Interest and other income
3,325

 
4,338

Resident fees and services
17,061

 
17,493

 
 
 
 
Total revenues
136,773

 
166,086

 
 
 
 
Expenses:
 
 
 
Depreciation and amortization
44,949

 
48,005

Interest
36,318

 
35,818

Triple-net portfolio operating expenses
5,289

 

Senior housing - managed portfolio operating expenses
12,040

 
12,124

General and administrative
8,178

 
7,867

Merger and acquisition costs
6

 
330

Provision for doubtful accounts, straight-line rental income and loan losses
1,207

 
1,213

Impairment of real estate
103,134

 
532

 
 
 
 
Total expenses
211,121

 
105,889

 
 
 
 
Other (expense) income:
 
 
 
Other income
171

 
2,820

Net loss on sales of real estate
(1,520
)
 
(472
)
 
 
 
 
Total other (expense) income
(1,349
)
 
2,348

 
 
 
 
(Loss) income before (loss) income from unconsolidated joint venture and income tax expense
(75,697
)
 
62,545

 
 
 
 
(Loss) income from unconsolidated joint venture
(1,383
)
 
446

Income tax expense
(612
)
 
(510
)
 
 
 
 
Net (loss) income
(77,692
)
 
62,481

 
 
 
 
Net income attributable to noncontrolling interests
(12
)
 
(10
)
 
 
 
 
Net (loss) income attributable to Sabra Health Care REIT, Inc.
(77,704
)
 
62,471

 
 
 
 
Preferred stock dividends

 
(2,561
)
 
 
 
 
Net (loss) income attributable to common stockholders
$
(77,704
)
 
$
59,910

 
 
 
 
Net (loss) income attributable to common stockholders, per:
 
 
 
 
 
 
 
Basic common share
$
(0.44
)
 
$
0.34

 
 
 
 
Diluted common share
$
(0.44
)
 
$
0.34

 
 
 
 
Weighted-average number of common shares outstanding, basic
178,385,984

 
178,294,605

 
 
 
 
Weighted-average number of common shares outstanding, diluted
178,385,984

 
178,516,388


See accompanying notes to condensed consolidated financial statements.

5


SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
Net (loss) income
$
(77,692
)
 
$
62,481

Other comprehensive (loss) income:
 
 
 
Unrealized gain (loss), net of tax:
 
 
 
Foreign currency translation loss
(560
)
 
(374
)
Unrealized (loss) gain on cash flow hedges
(13,488
)
 
9,898

 
 
 
 
Total other comprehensive (loss) income
(14,048
)
 
9,524

 
 
 
 
Comprehensive (loss) income
(91,740
)
 
72,005

 
 
 
 
Comprehensive income attributable to noncontrolling interests
(12
)
 
(10
)
 
 
 
 
Comprehensive (loss) income attributable to Sabra Health Care REIT, Inc.
$
(91,752
)
 
$
71,995


See accompanying notes to condensed consolidated financial statements.


6


SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands, except per share data)  
(unaudited)
 
 
 
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
 

 

 

 

 

 
62,471

 

 
62,471

 
10

 
62,481

Other comprehensive income
 

 

 

 

 

 

 
8,729

 
8,729

 

 
8,729

Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 
(37
)
 
(37
)
Amortization of stock-based compensation
 

 

 

 

 
1,398

 

 

 
1,398

 

 
1,398

Common stock issuance, net
 

 

 
26,527

 

 
(202
)
 

 

 
(202
)
 

 
(202
)
Preferred dividends
 

 

 

 

 

 
(2,561
)
 

 
(2,561
)
 

 
(2,561
)
Common dividends ($0.45 per share)
 

 

 

 

 

 
(80,491
)
 

 
(80,491
)
 

 
(80,491
)
Balance, March 31, 2018
 
5,750,000

 
$
58

 
178,282,370

 
$
1,783

 
$
3,638,109

 
$
(238,612
)
 
$
20,813

 
$
3,422,151

 
$
4,415

 
$
3,426,566

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (loss) income
 

 

 

 

 

 
(77,704
)
 

 
(77,704
)
 
12

 
(77,692
)
Other comprehensive loss
 

 

 

 

 

 

 
(14,048
)
 
(14,048
)
 

 
(14,048
)
Distributions to noncontrolling interests
 

 

 

 

 

 

 

 

 
(36
)
 
(36
)
Amortization of stock-based compensation
 

 

 

 

 
3,270

 

 

 
3,270

 

 
3,270

Common stock issuance, net
 

 

 
113,071

 
1

 
(2,208
)
 

 

 
(2,207
)
 

 
(2,207
)
Common dividends ($0.45 per share)
 

 

 

 

 

 
(80,754
)
 

 
(80,754
)
 

 
(80,754
)
Balance, March 31, 2019
 

 
$

 
178,419,599

 
$
1,784

 
$
3,508,987

 
$
(462,555
)
 
$
(1,747
)
 
$
3,046,469

 
$
4,309

 
$
3,050,778

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See accompanying notes to condensed consolidated financial statements.

7


SABRA HEALTH CARE REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
Three Months Ended March 31,

2019
 
2018
Cash flows from operating activities:

 

Net (loss) income
$
(77,692
)
 
$
62,481

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

Depreciation and amortization
44,949

 
48,005

Amortization of above and below market lease intangibles, net
4,304

 
(684
)
Non-cash interest income adjustments
(562
)
 
(570
)
Non-cash interest expense
2,561

 
2,481

Stock-based compensation expense
2,775

 
1,135

Straight-line rental income adjustments
(5,468
)
 
(11,563
)
Provision for doubtful accounts, straight-line rental income and loan losses
1,207

 
1,213

Net loss on sales of real estate
1,520

 
472

Impairment of real estate
103,134

 
532

Loss (income) from unconsolidated joint venture
1,383

 
(446
)
Distributions of earnings from unconsolidated joint venture
3,037

 

Changes in operating assets and liabilities:


 


Accounts receivable, prepaid expenses and other assets, net
(9,924
)
 
(1,658
)
Accounts payable and accrued liabilities
(17,265
)
 
249

Net cash provided by operating activities
53,959

 
101,647

Cash flows from investing activities:

 

Acquisition of real estate

 
(172,001
)
Origination and fundings of loans receivable
(2,776
)
 
(13,232
)
Origination and fundings of preferred equity investments

 
(928
)
Additions to real estate
(5,072
)
 
(11,539
)
Repayments of loans receivable
5,251

 
28,805

Repayments of preferred equity investments
2,087

 
234

Investment in unconsolidated joint venture

 
(354,461
)
Net proceeds from the sales of real estate
6,857

 
6,743

Net cash provided by (used in) investing activities
6,347

 
(516,379
)
Cash flows from financing activities:

 

Net repayments of revolving credit facility
(4,000
)
 
(30,000
)
Principal payments on secured debt
(849
)
 
(1,061
)
Payments of deferred financing costs
(6
)
 
(6
)
Distributions to noncontrolling interests
(36
)
 
(37
)
Issuance of common stock, net
(2,323
)
 
(499
)
Dividends paid on common and preferred stock
(80,260
)
 
(82,789
)
Net cash used in financing activities
(87,474
)
 
(114,392
)
Net decrease in cash, cash equivalents and restricted cash
(27,168
)
 
(529,124
)
Effect of foreign currency translation on cash, cash equivalents and restricted cash
149

 
(155
)
Cash, cash equivalents and restricted cash, beginning of period
59,658

 
587,449

Cash, cash equivalents and restricted cash, end of period
$
32,639

 
$
58,170

Supplemental disclosure of cash flow information:

 

Interest paid
$
42,195

 
$
42,623


See accompanying notes to condensed consolidated financial statements.

8


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 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, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by the Company, the Operating Partnership, PR Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), Care Capital Properties, Inc., a Delaware corporation (“CCP”), and Care Capital Properties, L.P. (“CCPLP”), a Delaware limited partnership and wholly owned subsidiary of CCP, CCP merged with and into Merger Sub, with Merger Sub continuing as the surviving corporation (the “CCP Merger”), following which Merger Sub merged with and into the Company, with the Company continuing as the surviving entity (the “Subsequent Merger”), and, simultaneous with the Subsequent Merger, CCPLP merged with and into the Operating Partnership, with the Operating Partnership continuing as the surviving entity.

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 March 31, 2019 and December 31, 2018 and for the three month periods ended March 31, 2019 and 2018. 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 months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 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

9


(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 March 31, 2019, the Company determined that it was the primary beneficiary of one VIE—a joint venture variable interest entity owning one skilled nursing/transitional care facility—and has consolidated the operations of this entity in the accompanying condensed consolidated financial statements. As of March 31, 2019, the Company determined that the operations of this entity were not material to the Company’s results of operations, financial condition or cash flows.
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 March 31, 2019, none 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 March 31, 2019, 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.
Investment in Unconsolidated Joint Venture
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 included in the Company’s condensed consolidated statements of income. The initial carrying value of the investment is based on the amount paid 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.

10


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 owns 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 interests in the Enlivant Joint Venture by January 2, 2021 and grants the Company the right of first offer if the Company’s partner in the Enlivant Joint Venture desires to transfer its equity interest (which it may do commencing on January 2, 2020). Sabra also has the right to designate three directors on the seven member board of directors of the Enlivant Joint Venture and has other customary minority rights. As of March 31, 2019, the book value of the Company’s investment in the Enlivant Joint Venture was $335.7 million.
Net Investment in Direct Financing Lease
As of March 31, 2019, the Company had a $23.5 million net investment in one 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 total undiscounted rental payments of $5.2 million, plus the estimated unguaranteed residual value of $24.7 million, less the unearned lease income of $6.4 million as of March 31, 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 $0.6 million for the three months ended March 31, 2019 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 March 31, 2019, were as follows: $1.7 million for the remainder of 2019; $2.3 million for 2020; and $2.1 million for 2021.
Recently Issued Accounting Standards Update
Adopted
In February 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 classified as operating leases under previous 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 March 31, 2019, the balances of the lease liability and the corresponding right-of-use asset were $10.0 million and $9.8 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,

11


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 $4.2 million of variable lease revenue and the associated expense during the three months ended March 31, 2019.
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 Topic 842, Leases. ASU 2016-13 and ASU 2018-19 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 is currently evaluating the impact this guidance will have on its consolidated financial statements when adopted.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 updates the fair value measurement disclosure requirements by (i) eliminating certain requirements, including disclosure of the amount of 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 measurement as of the reporting date and (iii) adding certain requirements, including disclosure of the 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.


12


3.     RECENT REAL ESTATE ACQUISITIONS
No acquisitions were completed during the three months ended March 31, 2019. During the three months ended March 31, 2018, the Company acquired 11 Senior Housing - Managed communities, two skilled nursing/transitional care facilities and one senior housing community. Allocation of the consideration was based on certain valuations and analyses and is as follows (in thousands):
 
 
Three Months Ended
 
 
March 31, 2018
Land
 
$
20,552

Building and improvements
 
150,523

Tenant origination and absorption costs intangible assets
 
722

Tenant relationship intangible assets
 
209

 
 
 
Total consideration
 
$
172,006

 
 
 
For the acquisitions completed during the three months ended March 31, 2018, the tenant origination and absorption costs intangible assets and tenant relationship intangible assets had weighted-average amortization periods as of the respective dates of acquisition of 13 years and 23 years, respectively.
For the three months ended March 31, 2018, the Company recognized $9.7 million of total revenues and $0.9 million of net income attributable to common stockholders from the facilities acquired during the three months ended March 31, 2018.

4.    REAL ESTATE PROPERTIES HELD FOR INVESTMENT
The Company’s real estate properties held for investment consisted of the following (dollars in thousands):
As of March 31, 2019
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

 
34,049

 
$
3,716,115

 
$
(234,633
)
 
$
3,481,482

Senior Housing - Leased
 
88

 
7,147

 
1,220,158

 
(133,570
)
 
1,086,588

Senior Housing - Managed
 
23

 
1,603

 
305,173

 
(22,037
)
 
283,136

Specialty Hospitals and Other
 
22

 
1,085

 
621,236

 
(35,394
)
 
585,842

 
 
437

 
43,884

 
5,862,682

 
(425,634
)
 
5,437,048

Corporate Level
 
 
 
 
 
634

 
(328
)
 
306

 
 
 
 
 
 
$
5,863,316

 
$
(425,962
)
 
$
5,437,354

As of December 31, 2018
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
 
90

 
7,332

 
1,237,790

 
(125,902
)
 
1,111,888

Senior Housing - Managed
 
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



13


 
March 31, 2019
 
December 31, 2018
Building and improvements
$
5,044,382

 
$
5,388,102

Furniture and equipment
221,123

 
237,145

Land improvements
1,317

 
1,254

Land
596,494

 
629,382

 
5,863,316

 
6,255,883

Accumulated depreciation
(425,962
)
 
(402,338
)
 
$
5,437,354

 
$
5,853,545

Operating Leases
As of March 31, 2019, the substantial majority of the Company’s real estate properties (excluding 23 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 15 years. As of March 31, 2019, the leases had a weighted-average remaining term of nine 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 $12.6 million and $12.4 million as of March 31, 2019 and December 31, 2018, respectively, and letters of credit deposited with the Company totaled approximately $95 million and $98 million as of March 31, 2019 and December 31, 2018, respectively. In addition, the Company’s tenants have deposited with the Company $14.2 million and $17.5 million as of March 31, 2019 and December 31, 2018, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to the Company’s properties and their operations.
Subsequent to the notices of default and lease termination issued by the Company to Senior Care Centers during the third quarter of 2018, on December 5, 2018, the Company entered into a purchase and sale agreement (as amended in January 2019) to sell 26 skilled nursing/transitional care facilities and two senior housing communities operated by Senior Care Centers for an aggregate sales price of $282.5 million. In addition, on February 15, 2019, the Company entered into a settlement agreement with Senior Care Centers which, in accordance with the order entered by the bankruptcy court in March 2019, provides 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 would be applied to pay post-petition rent. The Company recorded such post-petition rent totaling $5.7 million during the three months ended March 31, 2019 and expects to record an additional $0.5 million of post-petition rent during the second quarter of 2019. On April 1, 2019, the Company completed the sale of the 28 facilities and received gross sales proceeds of $282.5 million as well as $5.0 million of the settlement payments (with the remaining $4.5 million of settlement payments payable on or before July 1, 2019). 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. Of the 10 remaining facilities operated by Senior Care Centers, the Company expects to re-tenant seven facilities to a current operator in the Sabra portfolio and to sell three facilities. During the three months ended March 31, 2019, the Company recorded an impairment charge of $92.2 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. In exchange for terminating the Holiday master lease, the Company received $57.2 million of total cash consideration.
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

14


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.
For the three months ended March 31, 2019, no tenant relationship represented 10% or more of the Company’s total revenues.
The future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases were as follows (in thousands):
As of March 31, 2019
April 1 through December 31, 2019
$
351,250

2020
456,660

2021
452,218

2022
454,086

2023
437,112

Thereafter
2,440,245

 
$
4,591,571

 
 
 

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

 
 
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 includes $0.1 million of ancillary service revenue for each of the three months ended March 31, 2019 and 2018.

5.    IMPAIRMENT OF REAL ESTATE, ASSETS HELD FOR SALE AND DISPOSITIONS
2019
Impairment of Real Estate
During the three months ended March 31, 2019, the Company recognized a $103.1 million real estate impairment, of which amount $92.2 million related to the 28 Senior Care Centers facilities sold on April 1, 2019 and the three Senior Care Centers facilities that the Company expects to sell, and the remaining $10.9 million related to four additional skilled nursing/transitional care facilities.

15


Assets Held for Sale
As of March 31, 2019, the Company determined that 28 skilled nursing/transitional care facilities and two senior housing communities, with an aggregate net book value of $270.8 million, met the criteria to be classified as assets held for sale. Subsequent to March 31, 2019, the Company completed the sale of 29 of the facilities for an aggregate gross sales price of $282.6 million.
Dispositions
During the three months ended March 31, 2019, the Company completed the sale of three skilled nursing/transitional care facilities for aggregate consideration, net of closing costs, of $6.9 million. The net carrying value of the assets and liabilities of these facilities was $8.4 million, which resulted in an aggregate $1.5 million net loss on sale.
Excluding the net loss on sale, the Company recognized $0.5 million and $17,000 of net income during the three months ended March 31, 2019 and 2018, respectively, 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 three months ended March 31, 2018, the Company recognized a $0.5 million real estate impairment related to one senior housing community sold during the second quarter of 2018.
Dispositions
During the three months ended March 31, 2018, the Company completed the sale of one skilled nursing/transitional care facility for consideration, net of closing costs, of $6.8 million. The net carrying value of the assets and liabilities of this facility was $7.2 million, which resulted in a $0.4 million net loss on sale. The Company also recognized an additional $0.1 million of selling expenses for sales completed in 2017.
Excluding the net loss on sale, the Company recognized $0.1 million of net income during the three months ended March 31, 2018 from this facility. The sale of this facility 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 this facility have remained in continuing operations.


16


6.    LOANS RECEIVABLE AND OTHER INVESTMENTS
As of March 31, 2019 and December 31, 2018, the Company’s loans receivable and other investments consisted of the following (dollars in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
March 31, 2019
 
 
Investment
 
Quantity
as of
March 31, 2019
 
Property Type
 
Principal Balance
as of
March 31,
2019 (1)
 
Book Value
as of
March 31, 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
March 31, 2019
Loans Receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage
 
1

 
Specialty Hospital
 
$
19,000

 
$
19,000

 
$
18,577

 
10.0
%
 
10.0
%
 
01/31/27
Construction
 
2

 
Senior Housing
 
4,887

 
4,945

 
4,629

 
8.0
%
 
7.7
%
 
04/30/21- 09/30/22
Mezzanine
 

 
Skilled Nursing
 

 

 
2,188

 
N/A

 
N/A

 
N/A
Other
 
17

 
Multiple
 
47,633

 
43,611

 
45,324

 
7.1
%
 
7.7
%
 
02/28/19- 08/31/28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20

 
 
 
71,520

 
67,556

 
70,718

 
7.9
%
 
8.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan loss reserve
 
 
 

 
(1,767
)
 
(1,258
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
71,520

 
$
65,789

 
$
69,460

 
 
 
 
 
 
Other Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Equity
 
9

 
Skilled Nursing / Senior Housing
 
43,014

 
43,425

 
44,262

 
12.0
%
 
12.0
%
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
29

 
 
 
$
114,534

 
$
109,214

 
$
113,722

 
9.4
%
 
9.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 
Principal balance includes amounts funded and accrued but unpaid interest / preferred return and excludes capitalizable fees.
As of March 31, 2019 and December 31, 2018, the Company had six and seven loans receivable investments, respectively, with an aggregate principal balance of $3.4 million and $27.7 million, respectively, that were considered to have deteriorated credit quality. As of March 31, 2019 and December 31, 2018, the book value of the outstanding loans with deteriorated credit quality was $1.8 million and $4.2 million, respectively. During the three months ended March 31, 2019, one loan with deteriorated credit quality was repaid.
The following table presents changes in the accretable yield for the three months ended March 31, 2019 and 2018 (in thousands):
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Accretable yield, beginning of period
 
$
449

 
$
2,483

Accretion recognized in earnings
 
(218
)
 
(599
)
Reduction due to payoff
 
(33
)
 

Accretable yield, end of period
 
$
198

 
$
1,884

 
 
 
 
 
During the three months ended March 31, 2019, the Company recorded a $1.2 million provision for specific loan losses and recorded a $27,000 reduction to its provision for portfolio-based loan losses.
As of March 31, 2019, the Company had a $1.2 million specific loan loss reserve and a $0.5 million portfolio-based loan loss reserve. As of March 31, 2019, the Company considered one loan receivable investment to be impaired, which had a principal balance of $4.3 million as of each of March 31, 2019 and December 31, 2018. As of March 31, 2019, three loans receivable investments with an aggregate book value of $4.3 million were on nonaccrual status. As of March 31, 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 one loan receivable investment with a principal balance of $1.3 million to be impaired, and two 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 one 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.

17


During the three months ended March 31, 2018, the Company recorded no provision for specific loan losses and increased its portfolio-based loan loss reserve by $0.1 million.

7.    DEBT
Secured Indebtedness
The Company’s secured debt consists of the following (dollars in thousands):
Interest Rate Type
Principal Balance as of
March 31, 2019
(1)
 
Principal Balance as of
December 31, 2018
 (1)
 
Weighted Average
Effective Interest Rate at
March 31, 2019
(2)
 
Maturity
Date
Fixed Rate
$
116,954

 
$
117,464

 
3.66
%
 
December 2021 - 
August 2051
(1)  
Principal balance does not include deferred financing costs, net of $1.8 million as of each of March 31, 2019 and December 31, 2018.
(2)  
Weighted average effective 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
 
March 31, 2019 (1)
 
December 31, 2018 (1)
 
 
 
 
 
 
 
5.5% senior unsecured notes due 2021 (“2021 Notes”)
 
February 1, 2021
 
$
500,000

 
$
500,000

5.375% senior unsecured notes due 2023 (“2023 Notes”)
 
June 1, 2023
 
200,000

 
200,000

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

 
 
 
 
$
1,300,000

 
$
1,300,000

 
 
 
 
 
 
 
(1) 
Principal balance does not include premium, net of $14.1 million and deferred financing costs, net of $6.5 million as of March 31, 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 2021 Notes and the 2023 Notes were issued by the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company (the “Issuers”). The 2021 Notes accrue interest at a rate of 5.5% per annum payable semiannually on February 1 and August 1 of each year, and the 2023 Notes accrue interest at a rate of 5.375% per annum payable semiannually on June 1 and December 1 of each year.
The 2026 Notes and the 2027 Notes were assumed as a result of the CCP Merger and accrue interest at a rate of 5.125% and 5.38%, 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.
The obligations under the 2021 Notes, 2023 Notes and 2027 Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain subsidiaries of Sabra; provided, however, that such guarantees are subject to release under certain customary circumstances. The obligations under the 2026 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 2021 Notes, 2023 Notes, 2026 Notes and 2027 Notes (collectively, the “Senior Notes”) include customary events of default and require the Company to comply with specified restrictive covenants. As of March 31, 2019, the Company was in compliance with all applicable financial covenants under the Senior Notes Indentures.
Credit Facility
Effective on August 17, 2017, 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 facility (the “Credit Facility”).

18


The Credit Facility includes a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), $1.1 billion 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 Facility also contains an accordion feature that can increase the total available borrowings to $2.5 billion, subject to terms and conditions.
The Revolving Credit Facility has a maturity date of August 17, 2021, and includes two six-month extension options. $200.0 million of the U.S. dollar Term Loans has a maturity date of August 17, 2020, and the other Term Loans have a maturity date of August 17, 2022.
As of March 31, 2019, there was $620.0 million outstanding under the Revolving Credit Facility and $380.0 million available for borrowing.
Borrowings under the Revolving Credit Facility bear 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 credit agreement), and Sabra elected to use the ratings-based applicable interest margin for borrowings which will vary based on the Debt Ratings, as defined in the credit agreement, and will range 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. As of March 31, 2019, the interest rate on the Revolving Credit Facility was 3.74%. 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 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 will vary based on the Debt Ratings, as defined in the credit agreement, and will range 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 Term Loan bears interest on the outstanding principal amount at a rate equal to the Canadian Dollar Offered Rate (“CDOR”) plus an interest margin that will range from 0.90% to 1.90% depending on the Debt Ratings.
On June 10, 2015, the Company entered into an 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 two 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 one 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 eight interest rate swap agreements that fix the LIBOR portion of the interest rate for $600 million of the Company’s U.S. dollar Term Loans at a weighted average rate of 1.31%. See Note 8, “Derivative and Hedging Instruments” for further information.
The obligations of the Borrowers under the Credit Facility are guaranteed by Sabra and certain subsidiaries of Sabra.
The Credit Facility contains customary covenants that include restrictions or limitations on the ability to make acquisitions and other investments, 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 Facility also requires Sabra, through the Operating Partnership, to comply with specified financial covenants, which include a maximum leverage ratio, a minimum fixed charge coverage ratio, a maximum unsecured leverage ratio and a minimum tangible net worth requirement. As of March 31, 2019, the Company was in compliance with all applicable financial covenants under the Credit Facility.
Interest Expense
During the three months ended March 31, 2019 and 2018, the Company incurred interest expense of $36.3 million and $35.8 million, respectively. Interest expense includes non-cash interest expense of $2.6 million and $2.5 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, the Company had $15.6 million and $24.0 million, respectively, of accrued interest included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.

19


Maturities
The following is a schedule of maturities for the Company’s outstanding debt as of March 31, 2019 (in thousands): 
 
 
Secured
Indebtedness 
 
Revolving Credit
    Facility (1)
 
Term Loans
 
Senior Notes
 
Total
April 1 through December 31, 2019
 
$
2,584

 
$

 
$

 
$

 
$
2,584

2020
 
3,541

 

 
200,000

 

 
203,541

2021
 
18,446

 
620,000

 

 
500,000

 
1,138,446

2022
 
3,185

 

 
993,625

 

 
996,810

2023
 
3,282

 

 

 
200,000

 
203,282

Thereafter
 
85,916

 

 

 
600,000

 
685,916

Total Debt
 
116,954

 
620,000

 
1,193,625

 
1,300,000

 
3,230,579

Premium, net
 

 

 

 
14,135

 
14,135

Deferred financing costs, net
 
(1,766
)
 

 
(6,241
)
 
(6,477
)
 
(14,484
)
Total Debt, Net
 
$
115,188

 
$
620,000

 
$
1,187,384

 
$
1,307,658

 
$
3,230,230

(1) 
Revolving Credit Facility is subject to two 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 as part of its interest rate risk management strategy. As of March 31, 2019, approximately $6.7 million of gains, 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.

20


The following presents the notional amount of derivative instruments as of the dates indicated (in thousands):
 
 
March 31, 2019
 
December 31, 2018
Derivatives designated as cash flow hedges:
 
 
 
 
Denominated in U.S. Dollars (1)
 
$
1,100,000

 
$
1,045,000

Denominated in Canadian Dollars
 
$
125,000

 
$
125,000

 
 
 
 
 
Derivatives designated as net investment hedges:
 
 
 
 
Denominated in Canadian Dollars
 
$
56,050

 
$
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
 
$
250

 
$
899

 
 
 
 
 
(1) Balance includes forward starting interest rate swaps having an effective date of June 2019 that were entered into as of March 31, 2019 to hedge $255.0 million of anticipated fixed-rate debt issuance to occur sometime during 2019.
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 March 31, 2019 and December 31, 2018 (dollars in thousands):    
 
 
 
 
Count as of March 31, 2019
 
Fair Value
 
Maturity Dates
 
 
Type
 
Designation
 
 
March 31, 2019
 
December 31, 2018
 
 
Balance Sheet Location
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Cash flow
 
12

 
$
18,057

 
$
25,184

 
2020 - 2023
 
Accounts receivable, prepaid expenses and other assets, net
Cross currency interest rate swaps
 
Net investment
 
2

 
2,883

 
4,160

 
2025
 
Accounts receivable, prepaid expenses and other assets, net
 
 
 
 
 
 
$
20,940

 
$
29,344

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Forward starting interest rate swaps
 
Cash flow
 
3

 
$
11,926

 
$
4,529

 
2029
 
Accounts payable and accrued liabilities
CAD term loan
 
Net investment
 
1

 
93,625

 
91,700

 
2022
 
Term loans, net
 
 
 
 
 
 
$
105,551

 
$
96,229

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 months ended March 31, 2019 and 2018 (in thousands):
 
 
(Loss) Gain Recognized in Other Comprehensive (Loss) Income
 

 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
Income Statement Location
 
 
 
 
 
 
 
Cash Flow Hedges:
 
 
 
 
 
 
Interest rate products
 
$
(11,611
)
 
$
9,123

 
Interest expense
Net Investment Hedges:
 
 
 
 
 
 
Foreign currency products
 
(1,234
)
 
607

 
N/A
CAD term loan
 
(1,925
)
 
2,675

 
N/A
 
 
 
 
 
 
 
 
 
$
(14,770
)
 
$
12,405

 
 
 
 
 
 
 
 
 

21


 
 
Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
Income Statement Location
 
 
 
Cash Flow Hedges:
 
 
 
 
 
 
Interest rate products
 
$
1,913

 
$
(50
)
 
Interest expense
 
 
 
 
 
 
 
The gain (loss) in the table above related to interest rate products was reclassified from accumulated other comprehensive income into interest expense. Interest expense totaled $36.3 million and $35.8 million for the three months ended March 31, 2019 and 2018, respectively.
During the three months ended March 31, 2019 and 2018, no cash flow hedges were determined to be ineffective.
Derivatives Not Designated as Hedging Instruments
As of March 31, 2019, the Company had one outstanding cross currency interest rate swap not designated as a hedging instrument in an asset position with a fair value of $13,000 and included this amount in accounts receivable, prepaid expenses and other assets, net on the condensed consolidated balance sheets. During the three months ended March 31, 2019, the Company recorded $6,000 of other expense related to this derivative 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 March 31, 2019 and December 31, 2018 (in thousands):
 
 
As of March 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
 
 
 
 
 
 
 
Financial Instruments
 
Cash Collateral Received
 
Net Amount
Offsetting Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
20,940

 
$

 
$
20,940

 
$
(6,349
)
 
$

 
$
14,591

Offsetting Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives
 
$
11,926

 
$

 
$
11,926

 
$
(6,349
)
 
$

 
$
5,577

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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-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 March 31, 2019, 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 $5.3 million. As of March 31, 2019, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at March 31, 2019, it could have been required to settle its obligations under the agreements at their termination value of $5.3 million.


22


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 Facility 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. 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. 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. As such, the Company classifies these instruments as Level 3.

23


The following are the face values, carrying amounts and fair values of the Company’s financial instruments as of March 31, 2019 and December 31, 2018 whose carrying amounts do not approximate their fair value (in thousands):
 
March 31, 2019
 
December 31, 2018
 
Face
Value
(1)
 
Carrying
Amount (2)
 
Fair
Value
 
Face
Value
(1)
 
Carrying
Amount
(2)
 
Fair
Value
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
Loans receivable
$
71,520

 
$
65,789

 
$
66,146

 
$
96,492

 
$
69,460

 
$
65,797

Preferred equity investments
43,014

 
43,425

 
43,834

 
43,851

 
44,262

 
43,825

Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
Senior Notes
1,300,000

 
1,307,658

 
1,301,575

 
1,300,000

 
1,307,394

 
1,270,877

Secured indebtedness
116,954

 
115,188

 
104,244

 
117,464

 
115,679

 
101,820

(1) 
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 March 31, 2019 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
$
66,146

 
$

 
$

 
$
66,146

Preferred equity investments
43,834

 

 

 
43,834

Financial liabilities:
 
 
 
 
 
 
 
Senior Notes
1,301,575

 

 
1,301,575

 

Secured indebtedness
104,244

 

 

 
104,244

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, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, 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 three months ended March 31, 2019, 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:
 
 
 
 
 
 
 
Interest rate swap
$
18,057

 
$

 
$
18,057

 
$

Cross currency swap
2,883

 

 
2,883

 

Financial liabilities:
 
 
 
 
 
 
 
Interest rate swap
11,926

 

 
11,926

 



24


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, 2019, the Company entered into an equity distribution agreement (the “Distribution Agreement”) with 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”).
Pursuant to the terms of the Distribution Agreement, the shares may be sold by any method permitted by law deemed to be an “at-the-market” offering, including, without limitation, sales made directly 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 sales of shares sold pursuant to the Distribution Agreement. The offering of shares pursuant to the Distribution Agreement will terminate upon the earlier of (i) 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. The offering of shares pursuant to the Distribution Agreement may also be suspended as permitted therein.
The Company sold no shares under the ATM Program during the three months ended March 31, 2019. As of March 31, 2019, the Company had $500.0 million available under the ATM Program.
The following table lists the cash dividends on common stock declared and paid by the Company during the three months ended March 31, 2019:
Declaration Date
 
Record Date
 
Amount Per Share
 
Dividend Payable Date
February 5, 2019
 
February 15, 2019
 
$
0.45

 
February 28, 2019
During the