INVESTMENT IN REAL ESTATE PROPERTIES

12 Months Ended

Dec. 31, 2022

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

As of December 31, 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	264	29,136	$	3,385,221	$	(492,495)	$	2,892,726
Senior Housing - Leased	47	3,550	590,694		(97,716)		492,978
Senior Housing - Managed	59	5,942	1,205,283		(222,089)		983,194
Behavioral Health	17	965	465,143		(58,481)		406,662
Specialty Hospitals and Other	15	392	225,443		(42,038)		183,405
	402	39,985	5,871,784		(912,819)		4,958,965
Corporate Level			904		(526)		378
			$	5,872,688	$	(913,345)	$	4,959,343

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


	As of December 31,
	2022		2021
Building and improvements	$	5,034,470	$	5,145,096
Furniture and equipment	262,644		262,969
Land improvements	7,085		4,295
Land	568,489		581,848
Total real estate at cost	5,872,688		5,994,208
Accumulated depreciation	(913,345)		(831,324)
Total real estate investments, net	$	4,959,343	$	5,162,884

Operating Leases

As of December 31, 2022, the substantial majority of the Company’s real estate properties (excluding 59 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, 2022, 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 $13.1 million and $28.6 million as of December 31, 2022 and 2021, respectively, and letters of credit deposited with the Company totaled approximately $57 million and $63 million as of December 31, 2022 and 2021, respectively. In addition, the Company’s tenants have deposited with the Company $13.3 million and $16.8 million as of December 31, 2022 and 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 $17.7 million, $18.0 million and $20.9 million during the years ended December 31, 2022, 2021 and 2020, 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 third quarter of 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 third quarter of 2022, the Company terminated its leases with North American; however, 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. The facilities were transitioned to the Ensign Group or Avamere, as applicable, effective February 1, 2023.

For the year ended December 31, 2022, no tenant relationship represented 10% or more of the Company’s total revenues.

As of December 31, 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):


2023	$	342,132
2024	344,577
2025	339,396
2026	324,028
2027	301,038
Thereafter	1,068,916
	$	2,720,087

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 $1.5 million, $1.3 million and $0.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Capital and Other Expenditures

As of December 31, 2022, the Company’s aggregate commitment for future capital and other expenditures associated with facilities leased under triple-net operating leases was approximately $73 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 December 31, 2022	Ownership as of December 31, 2022 (1)		Book Value as of December 31,
					2022		2021
Sienna Joint Venture	Senior Housing - Managed	12	50	%	$	120,269	$	—
Marlin Spring Joint Venture	Senior Housing - Managed	3	85	%	14,693		—
Enlivant Joint Venture (2)	Senior Housing - Managed	157	49	%	—		96,680
					$	134,962	$	96,680

(1) These investments are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.

(2) As of 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 $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.

During 2022, the Company formed a joint venture with Marlin Spring (the “Marlin Spring Joint Venture”), and the Marlin Spring Joint Venture completed the acquisition of three senior housing communities that are being managed by third-party property managers. The gross investment by the Marlin Spring Joint Venture totaled CAD $82.5 million, excluding acquisition costs. In addition, the Marlin Spring Joint Venture financed and assumed an aggregate CAD $65.0 million of debt.

During 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 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.

During the fourth quarter of 2022, due to the confluence of labor shortages, increased labor costs, elevated interest rates and a slower than anticipated recovery in the operating performance of the underlying facilities, the Company concluded that the estimated fair value of its investment in the Enlivant Joint Venture had further declined to zero based on updated future cash flow analyses. Given the Company’s intent to sell the portfolio, the Company believes it is unlikely that it will hold its investment in the Enlivant Joint Venture 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 totaling $57.8 million during the three months ended December 31, 2022. This impairment is included in loss from unconsolidated joint ventures on the accompanying consolidated statements of (loss) income.

Determining the estimated fair value of the Company’s investment as of December 31, 2022 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, using a holding period of 1.5 years, terminal capitalization rate of 7.00% and discount rate of 11.25%. The assumptions to determine fair value are Level 3 inputs in accordance with the hierarchy established under the GAAP fair value framework.

Summarized Financial Information

The following tables present summarized financial information for the Company’s investments in unconsolidated joint ventures (in thousands).


	As of December 31,
	2022		2021
Total assets	$	754,220	$	467,762
Total liabilities	894,969		822,063
Member’s deficit	(140,749)		(354,301)


	Year Ended December 31,
	2022		2021		2020
Total revenues	$	351,073	$	274,693	$	299,031
Operating expenses (1)	324,462		265,194		240,331
Net (loss) income	(66,171)		(35,276)		5,196

Company’s share of net (loss) income	$	(32,581)	$	(17,184)	$	2,546
Basis adjustments	7,673		10,771		19,145
Other-than-temporary impairment	57,778		164,126		—
Loss from unconsolidated joint venture	$	(98,032)	$	(192,081)	$	(16,599)

(1) During the years ended December 31, 2022 and 2021, TPG caused the Enlivant Joint Venture to fund $25.0 million and $20.0 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 the 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 have been reclassified to conform to Sabra’s presentation. For the Enlivant Joint Venture, except for basis adjustments, other-than-temporary impairment and loss from unconsolidated joint venture, the financial information reflects the historical cost basis of the assets which pre-dated the Company’s investment in the Enlivant Joint Venture. In addition, the Company’s share of net (loss) income in the Enlivant Joint Venture 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 December 31, 2022, the Company had a $25.5 million net investment in one skilled nursing/transitional care facility leased to a tenant 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 $0.8 million, plus the estimated purchase price of $25.6 million, less the unearned lease income of $0.8 million and allowance for credit losses of $0.1 million as of December 31, 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 $2.5 million, $2.4 million and $2.7 million for the years ended December 31, 2022, 2021 and 2020, 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, 2022 and 2020, the Company reduced its allowance for credit losses by $0.1 million, and during the year ended December 31, 2021, the Company increased 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, 2022, were $0.8 million for 2023.