INVESTMENT IN REAL ESTATE PROPERTIES

12 Months Ended

Dec. 31, 2021

Real Estate Investments

The Company’s real estate properties held for investment consisted of the following (dollars in thousands):

As of December 31, 2021


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	279	30,920	$	3,617,359	$	(474,534)	$	3,142,825
Senior Housing - Leased	60	4,099	720,581		(104,046)		616,535
Senior Housing - Managed	49	5,140	1,012,398		(174,098)		838,300
Specialty Hospitals and Other	28	1,187	643,007		(78,179)		564,828
	416	41,346	5,993,345		(830,857)		5,162,488
Corporate Level			863		(467)		396
			$	5,994,208	$	(831,324)	$	5,162,884

As of December 31, 2020


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	287	31,761	$	3,644,470	$	(385,094)	$	3,259,376
Senior Housing - Leased	65	4,282	707,634		(87,600)		620,034
Senior Housing - Managed	47	4,924	942,996		(142,538)		800,458
Specialty Hospitals and Other	27	1,092	670,793		(66,021)		604,772
	426	42,059	5,965,893		(681,253)		5,284,640
Corporate Level			802		(404)		398
			$	5,966,695	$	(681,657)	$	5,285,038


	As of December 31,
	2021		2020
Building and improvements	$	5,145,096	$	5,120,598
Furniture and equipment	262,969		249,034
Land improvements	4,295		2,220
Land	581,848		594,843
Total real estate at cost	5,994,208		5,966,695
Accumulated depreciation	(831,324)		(681,657)
Total real estate investments, net	$	5,162,884	$	5,285,038

Operating Leases

As of December 31, 2021, the substantial majority of the Company’s real estate properties (excluding 49 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 20 years. As of December 31, 2021, the leases had a weighted-average remaining term of seven 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 consolidated balance sheets and totaled $28.6 million and $17.5 million as of December 31, 2021 and 2020, respectively, and letters of credit deposited with the Company totaled approximately $63 million and $85 million as of December 31, 2021 and 2020, respectively. In addition, the Company’s tenants have deposited with the Company $16.8 million and $16.9 million as of December 31, 2021 and 2020, respectively, for future real estate taxes, insurance expenditures and tenant improvements related to the Company’s properties and their operations, and these amounts are included in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.

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 variable lease revenue and the associated expense of $18.0 million, $20.9 million and $17.6 million during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company monitors the creditworthiness of its tenants by evaluating the ability of the tenants to meet their lease obligations to the Company based on the tenants’ financial performance, including, as applicable and appropriate, the evaluation of any parent guarantees (or the guarantees of other related parties) of such lease obligations. 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 as supplemented by 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 financial and operational information from the majority of 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.

Avamere leases 27 facilities from the Company (primarily in Oregon, Colorado and Washington). Oregon, Colorado and Washington have been hit particularly hard by the spike in COVID-19 cases as a result of the Delta variant which, combined with state mandated admissions limitations associated with any COVID-19 cases occurring in skilled nursing facilities in those states and increased labor pressure, has resulted in recent census declines, labor cost increases and cash flow constraints for Avamere. In response to these constraints, the Company used Avamere’s $11.9 million letter of credit to fund rent for September through November 2021 and a portion of December 2021. Accordingly, the Company concluded that its lease with Avamere should no longer be accounted for on an accrual basis and wrote off $25.2 million of straight-line rent receivable balances related to this lease as of September 30, 2021. Additionally, the Company determined further assistance was necessary, and effective February 1, 2022, Avamere’s annual base rent was reduced to $30.7 million from $44.1 million. The Company shortened the useful life of its above market lease intangible, leading to the acceleration of the amortization of the remaining $18.6 million balance during the year ended December 31, 2021. The write-off of the straight-line rent receivable balances and the above market lease intangible amortization acceleration reduced rental and related revenues by $43.8 million for the year ended December 31, 2021 versus the prior year.

For the year ended December 31, 2021, no tenant relationship represented 10% or more of the Company’s total revenues.

As of December 31, 2021, the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases were as follows and may materially differ from actual future rental payments received (in thousands):


2022	$	424,942
2023	403,471
2024	404,353
2025	396,638
2026	379,716
Thereafter	1,472,488
	$	3,481,608

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 ancillary service revenue of $1.3 million, $0.9 million and $0.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Investment in Unconsolidated Joint Venture

The Company has a 49% equity interest in a joint venture (the “Enlivant Joint Venture”) with affiliates of TPG Real Estate, the real estate platform of TPG. TPG also owns Enlivant, the senior housing management platform that manages the portfolio owned by the Enlivant Joint Venture. As of December 31, 2021, the Enlivant Joint Venture owned 158 senior housing communities.

During the second quarter of 2021, TPG reached out to Sabra to explore the Company acquiring TPG’s 51% interest in the Enlivant Joint Venture. The parties were not able to reach mutually acceptable terms for a transaction, in part due to modifications requested by TPG in the Enlivant management fee structure. At that time, TPG informed the Company of its intent to re-evaluate its plans with respect to the management company. Furthermore, decreased occupancy and revenues and increased operating costs during the COVID-19 pandemic have had a significant negative impact on the financial performance of the Enlivant Joint Venture. As a result, the Company re-evaluated its plans with respect to the Enlivant Joint Venture and determined that it would no longer seek to acquire TPG’s majority interest in the Enlivant Joint Venture and that it expects to sell its 49% equity interest should TPG secure a buyer for the portfolio sometime in the future. In connection with this re-evaluation and the Company’s eventual intent to exit its 49% stake, the Company revisited its estimate of the fair value of its investment in the Enlivant Joint Venture and believes that it has declined below its investment basis. The Company also believes that, given the Company’s intent to sell the portfolio, it is unlikely that the Company will hold its investment for an adequate period of time to recover this estimated decline in value. As such, this decline was deemed to be other-than-temporary and the Company recorded an impairment charge for the amount that the carrying value exceeded the estimated fair value of the investment totaling $164.1 million during the three months ended June 30, 2021. This impairment is included in loss from

unconsolidated joint venture on the accompanying consolidated statements of (loss) income. As of December 31, 2021, the book value of the Company’s investment in the Enlivant Joint Venture was $96.7 million and includes an unamortized basis difference of $293.7 million. The unamortized basis difference is related to the difference between the amount the Company purchased its interest in the Enlivant Joint Venture for and the historical cost basis of the assets. The Company’s book value of the Enlivant Joint Venture is presented net of the debt at the joint venture level.

Determining the estimated fair value of the Company’s investment as of June 30, 2021 was based on significant unobservable assumptions. The Company estimated the then current fair value of its investment in the Enlivant Joint Venture based on a discounted cash flow analysis, management fee ranging from 6.0% to 7.0% and using a holding period of three years, terminal capitalization rates ranging from 6.75% to 7.25% and discount rates ranging from 11.0% to 11.5%. The assumptions to determine fair value under the income approach are Level 3 inputs in accordance with the fair value hierarchy established by Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” The ongoing operating performance of the Enlivant Joint Venture, as well as whether TPG is able to secure a buyer on favorable terms or at all, will impact the ultimate amounts realized from the Enlivant Joint Venture and may require the Company to recognize an additional impairment charge in the future with respect to this investment. Accordingly, the amount ultimately realized by the Company for its investment in the Enlivant Joint Venture could materially differ from its estimated fair value as reflected in the consolidated balance sheets as of December 31, 2021.

The following tables present summarized financial information for the Enlivant Joint Venture and, except for basis adjustments, other-than-temporary impairment and loss from unconsolidated joint venture, reflect the historical cost basis of the assets which pre-dated the Company’s investment in the Enlivant Joint Venture (in thousands):


	As of December 31,
	2021		2020
Total assets	$	467,762	$	490,541
Total liabilities	822,063		824,410
Member’s deficit	(354,301)		(333,869)


	Year Ended December 31,
	2021		2020		2019
Total revenues	$	274,693	$	299,031	$	312,055
Operating expenses (1)	265,194		240,331		231,659
Net (loss) income	(35,276)		5,196		13,161

Company’s share of net (loss) income	$	(17,184)	$	2,546	$	6,449
Basis adjustments	10,771		19,145		13,245
Other-than-temporary impairment	164,126		—		—
Loss from unconsolidated joint venture	$	(192,081)	$	(16,599)	$	(6,796)

(1) During the year ended December 31, 2021, TPG caused the Enlivant Joint Venture to fund $20.0 million of payments to Enlivant, the senior housing management platform that manages the portfolio owned by the Enlivant Joint Venture, beyond amounts contractually required under the management agreement. These payments were to support the operations of Enlivant and are reflected as operating expenses.

Certain amounts in the financial information for the Enlivant Joint Venture have been reclassified to conform to Sabra’s presentation. The Company’s share of net (loss) income in the Enlivant Joint Venture reflects its 49% equity interest and excludes certain equity-like compensation expense and the related income tax impact as per the joint venture agreement such expense is not the responsibility of the Company.

Net Investment in Sales-Type Lease

As of December 31, 2021, the Company had a $25.3 million net investment in one skilled nursing/transitional care facility leased to an operator under a sales-type lease, as the tenant is obligated to purchase the property at the end of the lease term. The net investment in sales-type lease is recorded in accounts receivable, prepaid expenses and other assets, net on the accompanying consolidated balance sheets and represents the present value of total rental payments of $3.0 million, plus the estimated purchase price of $25.6 million, less the unearned lease income of $3.1 million and allowance for credit losses of $0.2 million as of December 31, 2021. 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 sales-type lease was $2.4 million, $2.7 million and $2.7 million for the years ended December 31, 2021, 2020 and

2019, respectively, and is reflected in interest and other income on the accompanying consolidated statements of (loss) income. During each of the years ended December 31, 2021 and 2020, the Company reduced its allowance for credit losses by $0.1 million. During the year ended December 31, 2021, the Company was required to recognize a $1.0 million gain on sale of real estate prior to the sale to the tenant as a result of a lease modification and reassessing the classification of the lease and determining it should be accounted for as a sales-type lease. Future minimum lease payments contractually due under the sales-type lease at December 31, 2021, were as follows: $2.4 million for 2022 and $0.8 million for 2023.