INVESTMENT IN REAL ESTATE PROPERTIES

9 Months Ended

Sep. 30, 2022

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

As of September 30, 2022


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	270	30,205	$	3,438,590	$	(476,998)	$	2,961,592
Senior Housing - Leased	52	3,822	673,346		(107,557)		565,789
Senior Housing - Managed	54	5,669	1,115,965		(201,278)		914,687
Behavioral Health	16	965	447,427		(55,706)		391,721
Specialty Hospitals and Other	15	392	225,443		(40,685)		184,758
	407	41,053	5,900,771		(882,224)		5,018,547
Corporate Level			887		(531)		356
			$	5,901,658	$	(882,755)	$	5,018,903

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
Behavioral Health	13	795	417,659		(41,556)		376,103
Specialty Hospitals and Other	15	392	225,348		(36,623)		188,725
	416	41,346	5,993,345		(830,857)		5,162,488
Corporate Level			863		(467)		396
			$	5,994,208	$	(831,324)	$	5,162,884


	September 30, 2022		December 31, 2021
Building and improvements	$	5,061,024	$	5,145,096
Furniture and equipment	262,323		262,969
Land improvements	4,663		4,295
Land	573,648		581,848
Total real estate at cost	5,901,658		5,994,208
Accumulated depreciation	(882,755)		(831,324)
Total real estate investments, net	$	5,018,903	$	5,162,884

Operating Leases

As of September 30, 2022, the substantial majority of the Company’s real estate properties (excluding 54 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 20 years. As of September 30, 2022, the leases had a weighted-average remaining term of eight 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 $13.9 million and $28.6 million as of September 30, 2022 and December 31, 2021, respectively, and letters of credit deposited with the Company totaled approximately $58 million and $63 million as of September 30, 2022 and December 31, 2021, respectively. In addition, the Company’s tenants have deposited with the Company $16.2 million and $16.8 million as of September 30, 2022 and December 31, 2021, 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 $4.3 million and $13.7 million during the three and nine months ended September 30, 2022, respectively, and $4.6 million and $14.2 million during the three and nine months ended September 30, 2021, 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.

In 2021, the Company concluded that its lease with the Avamere Family of Companies (“Avamere”) should no longer be accounted for on an accrual basis and wrote off $25.2 million of straight-line rent receivable balances, and in 2022, Avamere’s lease was amended to, among other things, reduce Avamere’s annual base rent to $30.7 million from $44.1 million effective February 1, 2022.

During the three months ended September 30, 2022, the Company concluded that its leases with North American Health Care, Inc. (“North American”) should no longer be accounted for on an accrual basis and wrote off $15.6 million of straight-line rent receivable balances related to these leases. In addition, during the three months ended September 30, 2022, the Company terminated its leases with North American; however, as of September 30, 2022, North American remained in possession of the buildings and the lease termination was therefore accounted for as a lease modification. As a result of this accounting treatment, the Company adjusted the remaining useful lives of the existing lease intangibles with respect to these leases to reflect the new estimated period of occupancy, which is expected to end as to each property when the Company has obtained all applicable governmental approvals for the transfer of the tenancy of such property to the Ensign Group or Avamere, as applicable.

For the three and nine months ended September 30, 2022, no tenant relationship represented 10% or more of the Company’s total revenues.

As of September 30, 2022, 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):


October 1 through December 31, 2022	$	91,616
2023	353,765
2024	357,255
2025	352,443
2026	337,218
Thereafter	1,344,958
	$	2,837,255

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 include ancillary service revenue of $0.4 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2021, respectively.

During the nine months ended September 30, 2022 and 2021, the Company recognized government grants of $0.1 million and $0.5 million, respectively, in resident fees and services on the accompanying consolidated statements of (loss) income. No government grants were recognized in resident fees and services during the three months ended September 30, 2022 and 2021.

Capital and Other Expenditures

As of September 30, 2022, the Company’s aggregate commitment for future capital and other expenditures associated with facilities leased under triple-net operating leases was approximately $81 million. These commitments are principally for improvements to its facilities.

Investment in Unconsolidated Joint Ventures

The following is a summary of the Company’s investment in unconsolidated joint ventures (dollars in thousands):


	Property Type	Number of Properties as of September 30, 2022	Ownership as of September 30, 2022		Book Value
					September 30, 2022		December 31, 2021
Enlivant Joint Venture (1)	Senior Housing - Managed	157	49	%	$	87,400	$	96,680
Sienna Joint Venture	Senior Housing - Managed	12	50	%	120,216		—
					$	207,616	$	96,680

(1) As of September 30, 2022 and December 31, 2021, the book value of the Company’s investment in the Enlivant Joint Venture (as defined below) includes an unamortized basis difference of $288.0 million and $293.7 million, respectively. 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.

During the nine months ended September 30, 2022, the Company formed a joint venture with Sienna Senior Living (the “Sienna Joint Venture”), and the Sienna Joint Venture completed the acquisition of 12 senior housing communities that are being managed by Sienna Senior Living. The gross investment by the Sienna Joint Venture totaled CAD $379.0 million, excluding acquisition costs. In addition, the Sienna Joint Venture assumed CAD $53.4 million of debt.

During the three and nine months ended September 30, 2022, the Company recognized government grants of $0.1 million and $3.5 million, respectively, in loss from unconsolidated joint ventures on the accompanying consolidated statements of (loss) income. No government grants were recognized in loss from unconsolidated joint ventures during the three and nine months ended September 30, 2021.

During the second quarter of 2021, the Company re-evaluated its plans with respect to its joint venture with affiliates of TPG Real Estate, the real estate platform of TPG (the “Enlivant Joint Venture”) and determined that it intends to eventually exit its 49% stake. The Company concluded that the carrying value exceeded the estimated fair value of the investment and deemed the decline to be other-than-temporary. This resulted in the Company recording an impairment charge totaling $164.1 million during the three months ended June 30, 2021.

TPG also owns Enlivant, the senior housing management platform that manages the portfolio owned by the Enlivant Joint Venture. 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 September 30, 2022.

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


	Nine Months Ended September 30,
	2022		2021
Total revenues	$	237,144	$	200,927
Operating expenses (1)	215,293		182,777
Net loss	(7,177)		(14,036)

Company’s share of net loss	$	(3,525)	$	(6,739)
Basis adjustments	5,755		7,952
Other-than-temporary impairment	—		164,126
Loss from unconsolidated joint venture	$	(9,280)	$	(178,817)

(1) During the nine months ended September 30, 2022 and 2021, TPG caused the Enlivant Joint Venture to fund $12.0 million and $5.0 million, respectively, of payments to Enlivant beyond amounts contractually required under the management agreement. These payments were to support the operations of Enlivant and are reflected as operating expenses. Funding for support payments did not require capital contributions from Sabra but rather were funded with proceeds received by the Enlivant Joint Venture from TPG for the issuance of senior preferred interests or with cash on hand at the Enlivant Joint Venture.

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 in the Enlivant Joint Venture reflects its 49% equity interest and excludes certain

equity-like compensation expense and the related income tax impact as such expense is not the responsibility of the Company under the terms of the joint venture agreement.

Net Investment in Sales-Type Lease

As of September 30, 2022, the Company had a $25.4 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 $1.3 million, plus the estimated purchase price of $25.6 million, less the unearned lease income of $1.4 million and allowance for credit losses of $0.1 million as of September 30, 2022. 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 $0.6 million and $1.9 million for the three and nine months ended September 30, 2022, respectively, and $0.6 million and $1.8 million for the three and nine months ended September 30, 2021, respectively, and is reflected in interest and other income on the accompanying consolidated statements of (loss) income. During the three and nine months ended September 30, 2022, the Company reduced its allowance for credit losses by $32,000 and $0.1 million, respectively. During the three and nine months ended September 30, 2021, the Company reduced its allowance for credit losses by $26,000 and increased its allowance for credit losses by $0.1 million, respectively. During the nine months ended September 30, 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 September 30, 2022 were as follows: $0.6 million for the remainder of 2022 and $0.8 million for 2023.