Forest Park (3-14 Audit) 8-K


 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
FORM 8-K/A
 
 
  

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 22, 2013
 
 
 
 
SABRA HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Maryland
 
001-34950
 
27-2560479
(State of
Incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
 
18500 Von Karman, Suite 550
Irvine, CA
 
92612
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number including area code: (888) 393-8248
 
(Former name or former address, if changed since last report.)
 
 
 
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 



Explanatory Note

Sabra Health Care REIT, Inc. (“Company”) previously filed a Current Report on Form 8-K dated October 22, 2013 reporting the purchase, through Sabra Texas Holdings, L.P., a subsidiary of the Company, of Forest Park Medical Center - Frisco (“Forest Park - Frisco”), a 54-bed acute care hospital located in Frisco, Texas. This Current Report on Form 8-K/A is being filed solely for the purposes of amending the Form 8-K dated October 22, 2013 to provide the required financial information related to the Company's acquisition of Forest Park - Frisco.

Item 9.01
Financial Statements and Exhibits.
(a)
Financial Statements of Real Estate Acquired
 
Report of Independent Auditors
 
Unaudited Historical Summary of Revenue for the Nine Months Ended September 30, 2013
 
Historical Summary of Revenue for the Year Ended December 31, 2012
 
Notes to Historical Summary of Revenue
 
 
(b)
Unaudited Pro Forma Condensed Consolidated Financial Information
 
Summary of Unaudited Pro Forma Financial Statements
 
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2013
 
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Nine Months Ended September 30, 2013
 
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended December 31, 2012
 
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
 
 
(d)
Exhibits
 
 
23.1
Consent of PricewaterhouseCoopers LLC, Independent Registered Public Accounting Firm





2


Report of Independent Auditors


To The Board of Directors and Stockholders
Sabra Health Care REIT, Inc.
We have audited the accompanying Historical Summary of Revenue of Forest Park Medical Center - Frisco (the “Property”) for the year ended December 31, 2012.
Management’s Responsibility for the Historical Summary of Revenue
Management is responsible for the preparation and fair presentation of the Historical Summary of Revenue in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Historical Summary of Revenue that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the Historical Summary of Revenue based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Historical Summary of Revenue is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Historical Summary of Revenue. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the Historical Summary of Revenue, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Property’s preparation and fair presentation of the Historical Summary of Revenue in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the Historical Summary of Revenue. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Historical Summary of Revenue referred to above presents fairly, in all material respects, the revenues of the Property for the year ended December 31, 2012 in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
We draw attention to Note 2 to the Historical Summary of Revenue, which describes that the accompanying Historical Summary of Revenue of the Property was prepared for the purpose of complying with the rules of the Securities and Exchange Commission and is not intended to be a complete presentation of the Property’s revenues. Our opinion is not modified with respect to this matter.

/s/ PricewaterhouseCoopers LLP
Irvine, California
December 30, 2013






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Forest Park Medical Center - Frisco
Historical Summary of Revenue (Unaudited)
Nine Months Ended September 30, 2013

 
 
 
Revenue
 
Nine Months Ended September 30, 2013
Rental Revenue
 
$
9,823,601

 
 
 

















































The accompanying notes are an integral part of these financial statements.

4


Forest Park Medical Center - Frisco
Historical Summary of Revenue
Year Ended December 31, 2012

 
 
 
Revenue
 
Year Ended December 31, 2012
Rental Revenue
 
$
7,640,578

 
 
 

















































The accompanying notes are an integral part of these financial statements.

5


Forest Park Medical Center - Frisco
Notes to Historical Summary of Revenue

1.
Business

The accompanying historical summary of revenue relates to the operations of Forest Park Medical Center - Frisco (“Forest Park - Frisco”), consisting of the revenue of one 54-bed acute care hospital and parking structure totaling 346,000 square feet in Frisco, Texas. On October 22, 2013, Sabra Texas Holdings, L.P. (“Sabra Texas”), a subsidiary of Sabra Health Care REIT, Inc. (the “Company”), purchased Forest Park - Frisco for total consideration of $119.8 million.
 
2.
Summary of Significant Accounting Policies

The accompanying historical summary of revenue was prepared for the purpose of complying with Rule 3-14 of Regulation S-X as promulgated by the Securities and Exchange Commission in connection with the Company’s acquisition of Forest Park - Frisco. The historical summary is not representative of the actual operations of Forest Park - Frisco for the period presented nor indicative of future operations; however, the Company is not aware of any material factors relating to Forest Park - Frisco that would cause the reported financial information not to necessarily be indicative of future operating results. Certain expenses, primarily amortization and interest expense, which may not be comparable to the expenses to be incurred by the Company in future operations of Forest Park - Frisco, have been excluded. Additionally, the Company’s lease with the tenant is structured in such a way that the tenant is responsible for substantially all of Forest Park - Frisco's operating expenses. As the Company does not expect to incur any operating expenses in the future operations of Forest Park - Frisco, such expenses have been excluded from this historical summary. However, the Company would be required to pay property taxes on Forest Park - Frisco in the event the tenant fails to pay them. The total estimated property taxes for the year ended December 31, 2012 and the nine months ended September 30, 2013 were $1.0 million and $0.9 million (unaudited), respectively.

Revenue Recognition

The lease is accounted for as an operating lease, and revenue is recognized on a straight-line basis over the term of the related lease.

Use of Estimates

The preparation of this historical summary in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of revenue during the reporting period. Actual results may differ from these estimates.

Major Tenant

During the year ended December 31, 2012 and for the nine months ended September 30, 2013 (unaudited), Forest Park - Frisco's total rental revenue of $7.6 million and $9.8 million, respectively, was attributable to only one tenant.

 
3.
Lease

On December 6, 2010, Forest Park - Frisco entered into a lease agreement with Forest Park Medical Center at Frisco, LLC for the entire acute care hospital and parking structure, with an effective commencement date of June 1, 2012. The lease had an initial term of 20 years, and the tenant has two five-year renewal options. 


6


As of December 31, 2012, the future minimum rental payments due under under the non-cancelable operating lease was as follows (in thousands):
 
 
 
Year
 
Tenant Lease Payments
2013
 
$
10,260

2014
 
10,526

2015
 
10,799

2016
 
11,081

2017
 
11,372

Thereafter
 
202,029

 
 
$
256,067

 
 
 
 
4.
Unaudited Interim Statements

The historical summary of revenue for the nine months ended September 30, 2013 is unaudited. As a result, this interim historical summary should be read in conjunction with the historical summary and notes included in the December 31, 2012 historical summary of revenue. The interim historical summary reflects all adjustments that management believes are necessary for the fair presentation of the historical summary of revenue for the interim period presented. These adjustments are of a normal recurring nature. The historical summary of revenue for such interim period is not necessarily indicative of the results for the entire year.
 
5.
Subsequent Events

The Company evaluated all events that have occurred subsequent to December 31, 2012, through December 30, 2013, the date the financial statements were issued.

7


SABRA HEALTH CARE REIT, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS

On October 22, 2013, Sabra Texas Holdings, L.P. (“Sabra Texas”), a subsidiary of Sabra Health Care REIT, Inc. (the “Company”), purchased Forest Park Medical Center - Frisco (“Forest Park - Frisco”), a 54-bed acute care hospital and parking structure located in Frisco, Texas, for $119.8 million, excluding related acquisition pursuit costs of $0.7 million. The lease is scheduled to expire on May 31, 2032, is subject to two 5-year renewal options and provides for annual rent escalators equal to 3%. The obligations under the lease are guaranteed by the physician-owners of the tenant.
Approximately $10.5 million of the purchase price is being held in escrow for up to 20 months, the release of which is contingent on the tenant achieving certain performance hurdles. The seller will be paid a fee of $0.5 million per annum during the escrow period. The Company funded this acquisition with available cash on hand and proceeds from the Company's revolving credit facility.
The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of Sabra Health Care REIT, Inc. and the accompanying notes thereto filed on Form 10-K for the year ended December 31, 2012 and on Form 10-Q for the nine months ended September 30, 2013 and the historical summaries of revenue, filed in accordance with Rule 3-14 of Regulation S-X, of Forest Park - Frisco for the year ended December 31, 2012 and for the period from January 1, 2013 through September 30, 2013.
The unaudited pro forma condensed consolidated balance sheet as of September 30, 2013 assumes the acquisition of Forest Park - Frisco occurred on September 30, 2013.
The unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2013 and for the year ended December 31, 2012 assume the acquisition of Forest Park - Frisco occurred on January 1, 2012.
The pro forma condensed consolidated statements of income for the nine months ended September 30, 2013 and for the year ended December 31, 2012 have been prepared to comply with Article 11 of Regulation S-X, as promulgated by the Securities and Exchange Commission. The pro forma condensed consolidated balance sheet as of September 30, 2013 and the pro forma condensed consolidated statements of income for nine months ended September 30, 2013 and the year ended December 31, 2012 are not necessarily indicative of what the actual financial position and operating results would have been had the properties been acquired on September 30, 2013 and January 1, 2012, respectively, nor do they purport to represent the Company’s future financial position or operating results. In addition, the pro forma balance sheet includes pro forma preliminary estimates of the fair value of assets acquired in connection with the Forest Park - Frisco acquisition. These preliminary estimates may be adjusted in the future upon finalization of the purchase accounting.




8


SABRA HEALTH CARE REIT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2013
(in thousands, except share and per share amounts)

 
Historical
 
Pro Forma Adjustments
 
Pro Forma
 
(unaudited)
 
 
 
 
 
Assets
 
 
 
 
 
 
Real estate investments, net of accumulated depreciation
$
809,271

 
$
117,349

(a)
 
$
926,620

Loans receivable and other investments, net
46,123

 
—

 
 
46,123

Cash and cash equivalents
96,641

 
(93,641
)
(b)
 
3,000

Restricted cash
6,809

 
—

 
 
6,809

Deferred tax assets
24,212

 
—

 
 
24,212

Prepaid expenses, deferred financing costs and other assets
44,194

 
2,431

(c)
 
46,625

Total assets
$
1,027,250

 
$
26,139

 
 
$
1,053,389

 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
Mortgage notes
$
142,241

 
$
—

 
 
$
142,241

Secured revolving credit facility
—

 
26,806

(b)
 
26,806

Senior unsecured notes
414,538

 
—

 
 
414,538

Accounts payable and accrued liabilities
23,069

 
—

 
 
23,069

Tax liability
24,212

 
—

 
 
24,212

Total liabilities
604,060

 
26,806

 
 
630,866

 
 
 
 
 
 
 
Stockholders’ equity
 
 
 
 
 
 
Preferred stock, $.01 par value; 10,000,000 shares authorized, 5,750,000 and zero shares issued and outstanding
58

 
—

 
 
58

Common stock, $.01 par value; 125,000,000 shares authorized, 37,333,943 shares issued and outstanding
373

 
—

 
 
373

Additional paid-in capital
494,802

 


 
 
494,802

Cumulative distributions in excess of net income
(72,043
)
 
(667
)
(d)
 
(72,710
)
Total stockholders’ equity
423,190

 
(667
)
 
 
422,523

Total liabilities and stockholders’ equity
$
1,027,250

 
$
26,139

 
 
$
1,053,389



9


SABRA HEALTH CARE REIT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2013
(in thousands, except share and per share amounts)

 
Historical
 
Pro Forma Adjustments
 
Pro Forma
Revenues:
 
 
 
 
 
 
Rental income
$
94,692

 
$
9,824

(a)
 
$
104,516

Interest and other income
2,531

 
—

 
 
2,531

 
 
 
 
 
 
 
Total revenues
97,223

 
9,824

 
 
107,047

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Depreciation and amortization
24,726

 
3,121

(b)
 
27,847

Interest
29,884

 
1,945

(c)
 
31,829

General and administrative
11,196

 
172

(d)
 
11,368

 
 
 
 
 
 
 
Total expenses
65,806

 
5,238

 
 
71,044

 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
Loss on extinguishment of debt
(10,101
)
 
—

 
 
(10,101
)
Other income (expense)
(600
)
 
—

 
 
(600
)
 
 
 
 
 
 
 
Total other income (expense)
(10,701
)
 
—

 
 
(10,701
)
 
 
 
 
 
 
 
Net income
20,716

 
4,586

 
 
25,302

 
 
 
 
 
 
 
Preferred stock dividends
(5,406
)
 
—

 
 
(5,406
)
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
15,310

 
$
4,586

 
 
$
19,896

 
 
 
 
 
 
 
 
 

 
 

 
 
 
Net income attributable to common stockholders, per:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic common share
$
0.41

 


 
 
$
0.53

 
 
 
 
 
 
 
Diluted common share
$
0.41

 


 
 
$
0.53

 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, basic
37,334,120

 


 
 
37,334,120

 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, diluted
37,777,458

 


 
 
37,777,458

 
 
 
 
 
 
 


10


SABRA HEALTH CARE REIT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2012
(in thousands, except share and per share amounts)

 
Historical
 
Pro Forma Adjustments
 
Pro Forma
Revenues:
 
 
 
 
 
 
Rental income
$
101,742

 
$
13,098

(a)
 
$
114,840

Interest and other income
1,428

 
—

 
 
1,428

 
 
 
 
 
 
 
Total revenues
103,170

 
13,098

 
 
116,268

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Depreciation and amortization
30,263

 
4,161

(b)
 
34,424

Interest
34,335

 
2,593

(c)
 
36,928

General and administrative
16,104

 
459

(d)
 
16,563

Impairment
2,481

 
—

 
 
2,481

 
 
 
 
 
 
 
Total expenses
83,183

 
7,213

 
 
90,396

 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
Loss on extinguishment of debt
(2,670
)
 
—

 
 
(2,670
)
Other income (expense)
2,196

 
—

 
 
2,196

 
 
 
 
 
 
 
Total other income (expense)
(474
)
 
—

 
 
(474
)
 
 
 
 
 
 
 
Net income
19,513

 
5,885

 
 
25,398

 
 
 
 
 
 
 
Preferred stock dividends
—

 
—

 
 
—

 
 
 
 
 
 
 
Net income attributable to common stockholders
$
19,513

 
$
5,885

 
 
$
25,398

 
 
 
 
 
 
 
 
 

 
 

 
 
 
Net income attributable to common stockholders, per:
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic common share
$
0.53

 


 
 
$
0.69

 
 
 
 
 
 
 
Diluted common share
$
0.52

 


 
 
$
0.68

 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, basic
37,061,111

 


 
 
37,061,111

 
 
 
 
 
 
 
Weighted-average number of common shares outstanding, diluted
37,321,517

 


 
 
37,321,517

 
 
 
 
 
 
 


11


SABRA HEALTH CARE REIT, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Adjustments to Unaudited Pro Forma Condensed Consolidated Balance Sheet

The unaudited pro forma condensed consolidated balance sheet as of September 30, 2013 reflects the following adjustments:
(a)
 
Represents the acquisition of Forest Park Medical Center - Frisco. The purchase price was $119.8 million plus acquisition pursuit costs of $0.7 million. The cost of land, building and improvements acquired in the acquisition are measured at their acquisition-date fair values. The purchase price allocation for this acquisition is preliminary and subject to change. The table below is a preliminary estimate of the allocated values (in thousands):
 
 
 
 
 
 
 
 
 
 
Land
 
$
4,965

 
 
 
 
Building and improvements
 
112,384

 
 
 
 
 
 
 
 
 
 
 
Total real estate
 
$
117,349

 
 
 
 
 
 
 
 
(b)
 
The Company used available cash and proceeds from the Company's revolving credit facility to fund the acquisition of Forest Park - Frisco.
(c)
 
The Company determined the cost of tangible assets and identifiable intangible assets (consisting of tenant relationship and origination and absorption costs) acquired in the business combination based on their estimated fair values. The purchase accounting for this acquisition is preliminary and subject to change. The table below is a preliminary estimate of the allocated values (in thousands):
 
 
 
 
 
 
 
 
 
 
Tenant Origination and Absorption Costs
 
$
2,103

 
 
 
 
Tenant Relationship
 
328

 
 
 
 
Total intangibles
 
$
2,431

 
 
 
 
 
 
 
 
(d)
 
In connection with the acquisition of Forest Park - Frisco, the Company incurred $0.7 million of acquisition pursuit costs which are not reflected in the historical balance sheet.
 
 
 
 
 
 
 

12


Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of Income

The unaudited pro forma condensed consolidated statements of income for the nine months ended September 30, 2013 and for the year ended December 31, 2012 reflect the following adjustments:
(a)
 
Represents the pro forma adjustment for rental income for Forest Park - Frisco assuming the property was acquired as of January 1, 2012. The lease commencement date was June 1, 2012; however, for purposes of the pro forma presentation we assumed a lease commencement date of January 1, 2012. Rental income from January 1, 2012 through May 31, 2012 was $5.5 million. Base rent is recognized on a straight-line basis over the term of the related lease.
(b)
 
Represents the pro forma adjustment for depreciation and amortization expense that would have been recorded assuming Forest Park - Frisco was acquired as of January 1, 2012. Depreciation expense on the purchase price of buildings is recognized using the straight-line method and a 40-year life. Depreciation expense on improvements and fixtures is recognized using the straight-line method and a 10-year life, which is the shorter of the life of the lease or expected useful life of the improvement. Amortization expense on tenant relationship and origination and absorption costs is recognized using the straight-line method and a 29-year life and 19-year life, respectively. The purchase price allocation for this acquisition is preliminary and subject to change.
(c)
 
Represents the pro forma adjustment for interest expense related to borrowings under the Company's revolving credit facility assuming they were completed January 1, 2012. The effect of a 1/8 percent variance in the interest rate on net income is $34,000 and $25,000 for the year ended December 31, 2012 and the nine months ended September 30, 2013, respectively, as a result of these borrowings.
(d)
 
Approximately $10.5 million of the purchase price is being held in escrow for up to 20 months, the release of which is contingent on the tenant achieving certain performance hurdles. The seller will be paid a fee of $0.5 million per annum during the escrow period. The pro forma adjustment represents the fee associated with the purchase price being held in escrow. In addition, the historical statement of income for the nine months ended September 30, 2013 includes $0.2 million of non-recurring acquisition pursuit costs related to the Forest Park - Frisco acquisition. The $0.2 million of non-recurring acquisitions costs are eliminated in the pro forma adjustment column for the nine months ended September 30, 2013.
 
 
 
 


13


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
SABRA HEALTH CARE REIT, INC.
 
 
 
/S/    HAROLD W. ANDREWS, JR.
 
Name:
 
Harold W. Andrews, Jr.
 
Title:
 
Executive Vice President, Chief Financial Officer and Secretary
Dated: December 30, 2013


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