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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of November 1, 2023, there were 231,219,523 shares of the registrant’s $0.01 par value Common Stock outstanding.

 

•pandemics or epidemics, including COVID-19, and the related impact on our tenants, borrowers and Senior Housing - Managed communities;

•increased labor costs and historically low unemployment;

•increases in market interest rates and inflation;

•operational risks with respect to our Senior Housing - Managed communities;

•competitive conditions in our industry;

•the loss of key management personnel;

•uninsured or underinsured losses affecting our properties;

•potential impairment charges and adjustments related to the accounting of our assets;

•the potential variability of our reported rental and related revenues as a result of Accounting Standards Update (“ASU”) 2016-02, Leases, as amended by subsequent ASUs;

•risks associated with our investment in our unconsolidated joint ventures;

•catastrophic weather and other natural or man-made disasters, the effects of climate change on our properties and a failure to implement sustainable and energy-efficient measures;

•increased operating costs and competition for our tenants, borrowers and Senior Housing - Managed communities;

•increased healthcare regulation and enforcement;

•our tenants’ dependency on reimbursement from governmental and other third-party payor programs;

•the effect of our tenants, operators or borrowers declaring bankruptcy or becoming insolvent;

•our ability to find replacement tenants and the impact of unforeseen costs in acquiring new properties;

•the impact of litigation and rising insurance costs on the business of our tenants;

•the impact of required regulatory approvals of transfers of healthcare properties;

•environmental compliance costs and liabilities associated with real estate properties we own;

•our tenants’, borrowers’ or operators’ failure to adhere to applicable privacy and data security laws, or a material breach of our or our tenants’, borrowers’ or operators’ information technology;

•our concentration in the healthcare property sector, particularly in skilled nursing/transitional care facilities and senior housing communities, which makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries;

•the significant amount of and our ability to service our indebtedness;

•covenants in our debt agreements that may restrict our ability to pay dividends, make investments, incur additional indebtedness and refinance indebtedness on favorable terms;

•adverse changes in our credit ratings;

•our ability to make dividend distributions at expected levels;

•our ability to raise capital through equity and debt financings;

•changes and uncertainty in macroeconomic conditions and disruptions in the financial markets;

•risks associated with our ownership of property outside the U.S., including currency fluctuations;

•the relatively illiquid nature of real estate investments;

•our ability to maintain our status as a real estate investment trust (“REIT”) under the federal tax laws;

•compliance with REIT requirements and certain tax and tax regulatory matters related to our status as a REIT;

•changes in tax laws and regulations affecting REITs;

•the ownership limits and takeover defenses in our governing documents and under Maryland law, which may restrict change of control or business combination opportunities; and

•the exclusive forum provisions in our bylaws.

 

 

(unaudited)

 

(unaudited)

(unaudited)

 

(unaudited)

 

(unaudited)

(unaudited)

 

Sabra Health Care REIT, Inc. (“Sabra” or the “Company”) was incorporated on May 10, 2010 as a wholly owned subsidiary of Sun Healthcare Group, Inc. (“Sun”) and commenced operations on November 15, 2010 following Sabra’s separation from Sun. Sabra elected to be treated as a real estate investment trust (“REIT”) with the filing of its United States (“U.S.”) federal income tax return for the taxable year beginning January 1, 2011. Sabra believes that it has been organized and operated, and it intends to continue to operate, in a manner to qualify as a REIT. Sabra’s primary business consists of acquiring, financing and owning real estate property to be leased to third-party tenants in the healthcare sector. Sabra primarily generates revenues by leasing properties to tenants throughout the U.S. and Canada. Sabra owns substantially all of its assets and properties and conducts its operations through Sabra Health Care Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), of which Sabra is the sole general partner and a wholly owned subsidiary of Sabra is currently the only limited partner, or by subsidiaries of the Operating Partnership. The Company’s investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing communities (“Senior Housing - Leased”), behavioral health facilities and specialty hospitals and other facilities, in each case leased to tenants who are responsible for the operations of these facilities; senior housing communities operated by third-party property managers pursuant to property management agreements (“Senior Housing - Managed”); investments in joint ventures; investments in loans receivable; and preferred equity investments.

The accompanying consolidated financial statements include the accounts of Sabra and its wholly owned subsidiaries as of September 30, 2023 and December 31, 2022 and for the three and nine month periods ended September 30, 2023 and 2022. All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification and the rules and regulations of the SEC, including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for financial statements. In the opinion of management, the financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair statement of the results for such periods. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC.

GAAP requires the Company to identify entities for which control is achieved through voting rights or other means and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. If the Company were determined to be the primary beneficiary of the VIE, the Company would consolidate investments in the VIE. The Company may change its original assessment of a VIE due to events such as modifications of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposal of all or a portion of an interest held by the primary beneficiary.

The Company identifies the primary beneficiary of a VIE as the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. The Company performs this analysis on an ongoing basis. As of September 30, 2023, the Company determined that it was not the primary beneficiary of any VIEs.

As it relates to investments in loans, in addition to the Company’s assessment of VIEs and whether the Company is the primary beneficiary of those VIEs, the Company evaluates the loan terms and other pertinent facts to determine whether the loan investment should be accounted for as a loan or as a real estate joint venture. If an investment has the characteristics of a real estate joint venture, including if the Company participates in the majority of the borrower’s expected residual profit, the Company would account for the investment as an investment in a real estate joint venture and not as a loan investment. Expected residual profit is defined as the amount of profit, whether called interest or another name, such as an equity kicker, above a reasonable amount of interest and fees expected to be earned by a lender. At September 30, 2023, none of the Company’s investments in loans were accounted for as real estate joint ventures.

As it relates to investments in joint ventures, the Company assesses any partners’ rights and their impact on the presumption of control of the partnership by any single partner. The Company also applies this guidance to managing member interests in limited liability companies. The Company reassesses its determination of which entity controls the joint venture if: there is a change to the terms or in the exercisability of the rights of any partners or members, the general partner or managing member increases or decreases its ownership interests, or there is an increase or decrease in the number of outstanding ownership interests. As of September 30, 2023, the Company’s determination of which entity controls its investments in joint ventures has not changed as a result of any reassessment.

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates.

Income resulting from insurance recoveries of property damage or business interruption losses is recognized when proceeds are received or contingencies related to the insurance recoveries are resolved.

A vacant facility owned by the Company suffered damages as a result of vandalism and theft. The Company received $6.0 million of net insurance proceeds and recorded a $3.7 million gain related to the property damage during the three and nine months ended September 30, 2023 which is included in other income (expense) on the accompanying consolidated statements of (loss) income.

A fire occurred at one of the Company’s Senior Housing - Managed communities. The Company received $1.1 million of insurance proceeds and recorded $0.5 million of business interruption insurance income during the three and nine months ended September 30, 2023 which is included in other income (expense) on the accompanying consolidated statements of (loss) income. The remaining proceeds were recorded as expense reimbursements in Senior Housing - Managed portfolio operating expenses on the accompanying consolidated statements of (loss) income.

During the nine months ended September 30, 2023, the Company acquired one Senior Housing - Leased community and one Senior Housing - Managed community. During the nine months ended September 30, 2022, the Company acquired three Senior Housing - Managed communities. The Senior Housing - Managed community acquired during the nine months ended September 30, 2023 and two of the Senior Housing - Managed communities acquired during the nine months ended September 30, 2022 were part of the Company’s proprietary development pipeline and were previously reflected as preferred equity investments which had a book value of $4.6 million and $14.3 million, respectively, at the time of acquisition. The consideration was allocated as follows (in thousands):

The tenant origination and absorption costs intangible assets and tenant relationship intangible assets had weighted average amortization periods as of the respective dates of acquisition of one year and 22 years, respectively, for the acquisitions completed during the nine months ended September 30, 2023. The tenant origination and absorption costs intangible assets had an amortization period as of the date of acquisition of one year for the acquisitions completed during the nine months ended September 30, 2022.

For the three and nine months ended September 30, 2023, the Company recognized $2.6 million and $6.8 million of total revenues, respectively, and $46,000 of net loss and less than $1,000 of net income, respectively, from the facilities acquired during the nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, the Company recognized $3.9 million and $6.0 million of total revenues, respectively, and $0.3 million and $0.9 million of net loss, respectively, from the facilities acquired during the nine months ended September 30, 2022.

During the three months ended June 30, 2023, the Company, in accordance with the terms of the agreements pursuant to which it purchased the facilities, paid $17.9 million in additional consideration related to two Senior Housing - Managed communities that achieved certain performance metrics. This amount is included in real estate investments, net of accumulated depreciation on the accompanying consolidated balance sheets.

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

As of September 30, 2023, the substantial majority of the Company’s real estate properties (excluding 61 Senior Housing - Managed communities) were leased under triple-net operating leases with expirations ranging from less than one year to 19 years. As of September 30, 2023, 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 $17.0 million and $13.0 million as of September 30, 2023 and December 31, 2022, respectively, and letters of credit deposited with the Company totaled approximately $57 million as of each of September 30, 2023 and December 31, 2022. In addition, the Company’s tenants have deposited with the Company $11.6 million and $13.3 million as of September 30, 2023 and December 31, 2022, 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 $3.8 million and $11.4 million during the three and nine months ended September 30, 2023, respectively, and $4.3 million and $13.7 million during the three and nine months ended September 30, 2022, 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.

During the third quarter of 2022, the Company concluded that its leases with North American Health Care, Inc. 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. The facilities were transitioned to the Ensign Group or Avamere, as applicable, effective February 1, 2023.

For the three and nine months ended September 30, 2023, no tenant relationship represented 10% or more of the Company’s total revenues.

As of September 30, 2023, 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):

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 $1.4 million for the three and nine months ended September 30, 2023, respectively, and $0.4 million and $1.0 million for the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023, the Company’s aggregate commitment for future capital and other expenditures associated with facilities leased under triple-net operating leases was approximately $44 million. These commitments are principally for improvements to its facilities.

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

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

During the nine months ended September 30, 2023, the Company’s joint venture with Marlin Spring (the “Marlin Spring Joint Venture”) completed the acquisition of one additional senior housing community that is being managed by a third-party property manager. The gross investment in the additional acquisition was CAD $30.0 million, excluding acquisition costs. In addition, the Marlin Spring Joint Venture assumed and financed an aggregate CAD $23.6 million of debt associated with the additional acquisition. The Company’s equity investment in the additional acquisition was CAD $6.1 million.

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 its joint venture with affiliates of TPG Real Estate, the real estate platform of TPG (the “Enlivant Joint Venture”) had declined to zero based on updated future cash flow analyses.

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.

Effective January 1, 2023, the Company discontinued applying the equity method of accounting to the Enlivant Joint Venture, in which it had a 49% equity interest. Effective May 1, 2023, the Company withdrew and resigned its membership in the Enlivant Joint Venture and accordingly, no longer has an equity interest in the Enlivant Joint Venture as of such date.

During the nine months ended September 30, 2022, the Enlivant Joint Venture was a significant equity method investee of the Company. The following table presents summarized financial information for the Enlivant Joint Venture and, except for basis adjustments 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):

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.

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. During the three months ended March 31, 2023, the tenant purchased the skilled nursing/transitional care facility for net proceeds of $25.5 million as obligated under the terms of the lease.

During the nine months ended September 30, 2023, the Company recognized $7.1 million of real estate impairment related to one skilled nursing/transitional care facility that has sold.

During the nine months ended September 30, 2022, the Company recognized $72.6 million of real estate impairment related to ten skilled nursing/transitional care facilities that have sold.

To estimate the fair value of the impaired facilities, the Company utilized a market approach which considered binding sale agreements, non-binding offers from unrelated third parties or model-derived valuations with significant unobservable inputs (Level 3 measurements), as applicable.

The Company continues to evaluate additional assets for sale as part of its initiative to recycle capital and further improve its portfolio quality. This could lead to a shorter hold period and could result in the determination that the full amount of the Company’s investment is not recoverable, resulting in an impairment charge or loss on sale which could be material.

The following table summarizes the Company’s dispositions for the periods presented (dollars in millions):

(1)    In addition to net loss on sale, net loss includes impairment of real estate of $7.1 million and $65.8 million for the nine months ended September 30, 2023 and 2022, respectively.

The sale of the disposition facilities does not represent a strategic shift that has or will have a major effect on the Company’s operations and financial results, and therefore the results of operations attributable to these facilities have remained in continuing operations.

As of September 30, 2023 and December 31, 2022, the Company’s loans receivable and other investments consisted of the following (dollars in thousands):

(1)    Principal balance includes amounts funded and accrued but unpaid interest / preferred return and excludes capitalizable fees.

Additional information regarding the Company’s loans receivable is as follows (dollars in thousands):

As of September 30, 2023 and December 31, 2022, the Company did not consider any preferred equity investments to be impaired, and no preferred equity investments were on nonaccrual status.

The Company’s secured debt consists of the following (dollars in thousands):