Both REITs did an excellent job managing their cash and debt while navigating the impact the COVID-19 pandemic had on their portfolios.
Sabra managed to finish 2020 in a stronger financial position than it did in 2019, both in terms of cash and debt. The company had just over $59 million in cash and equivalents on its books at the end of the year, which is almost $20 million more than the end of 2019. It also lowered its net secured debt by roughly $34 million in 2020.
CareTrust’s cash position remained fairly consistent from the end of 2019 to the end of 2020, at $20.3 million and $18.9 million, respectively. It also paid down its unsecured revolving credit line by $10 million over the same period.
While both companies are in a healthy financial position, CareTrust has remained significantly more conservative with its debt. Their net debt to adjusted EBITDA ratio is only 3.3x, compared to Sabra’s at 5.49x.
Its conservative debt strategy has left CareTrust with an easy debt maturity schedule, which only has $50 million due through 2024. While Sabra’s debt is still well staggered, it’ll have over $1.4 billion due through 2024.
One of the best ways to compare the value of REITs is to look at their FFO multiples, or p/FFO. Sabra is currently trading at a significantly cheaper valuation, with an FFO multiple of 10.6x compared to CareTrust that’s currently priced at 16.7x.
To better understand the value of these REITs, we’ll look at the FFO multiples of the five other largest senior housing health care REITs. These REITs are currently valued with multiples between roughly 13x and 29x, with the average being around 18x.
While both REITs are attractively priced compared to their peers, Sabra is clearly the best value in terms of price to FFO.