SBRA

Sabra Health Care REIT, Inc. 10-K Summary (Fiscal Year Ended Dec 31, 2010)

Business Context and Reporting Period

Sabra Health Care REIT, Inc. (Sabra) is a self-administered, self-managed realty company that owns and invests in healthcare real estate. The company was formed on November 15, 2010 (the "Separation Date"), following a spin-off and REIT conversion merger from its former parent, Sun Healthcare Group, Inc. ("Old Sun"). Consequently, Sabra had no operations prior to November 15, 2010. The reporting period covers the 46 days from the Separation Date through December 31, 2010.

As of December 31, 2010, Sabra owned a portfolio of 86 properties totaling 9,603 licensed beds across 19 states. The portfolio includes skilled nursing facilities, assisted living, independent living, mental health facilities, and a continuing care retirement community. All properties are leased to subsidiaries of Sun Healthcare Group, Inc. ("New Sun") under triple-net operating leases.

Key Financial Metrics

Debt Structure: Total indebtedness consists of $225.0 million in 8.125% Senior Notes due 2018 and approximately $160.9 million in mortgage indebtedness on 26 properties. Sabra also maintains a $100.0 million senior secured revolving credit facility, with $87.6 million available as of year-end.

Material Changes and Pro Forma Data

Due to the recent separation, historical year-over-year comparisons are not applicable. The filing provides unaudited pro forma financial data for the full year ended December 31, 2010, assuming the separation occurred on January 1, 2010:

• Pro Forma Total Revenues: $70,259 (Annualized rental income of $70.2 million).
• Pro Forma Net Income: $7,378.
• Pro Forma EPS (Diluted): $0.29.

Actual operating results for the 46-day period included $8.8 million in rental revenue, $3.1 million in depreciation, and $3.9 million in interest expense.

Guidance, Outlook, and Risks

Outlook and Strategy: Sabra intends to elect REIT status for the 2011 tax year. The company plans to grow its portfolio through opportunistic acquisitions of healthcare facilities, including skilled nursing, senior housing, and potentially medical office buildings. Management expects to maintain balance sheet strength and liquidity, with a target dividend policy of approximately 80% of Adjusted FFO, subject to the 90% REIT taxable income distribution requirement.

Key Risks:

• Tenant Concentration: 100% of Sabra's revenue is derived from a single tenant, New Sun. Sabra's financial performance is entirely dependent on New Sun's ability to pay rent and maintain operations.
• Indebtedness: Sabra has substantial debt obligations ($385.9 million total principal). High leverage limits flexibility and increases vulnerability to economic downturns or interest rate hikes.
• Regulatory Environment: The healthcare industry is subject to extensive federal and state regulations, including Medicare/Medicaid reimbursement rates and healthcare reform laws, which could impact the tenant's profitability and ability to pay rent.
• REIT Qualification: Failure to qualify or maintain REIT status would result in significant corporate tax liabilities.

Investor Verification Checklist

• Tenant Financial Health: Verify the financial stability and liquidity of New Sun (Sun Healthcare Group, Inc.), as it is the sole source of rental revenue.
• Lease Terms: Review the triple-net lease agreements, specifically the 10-15 year terms, rent escalators (CPI or 2.5%), and renewal options.
• Debt Covenants: Confirm compliance with financial covenants in the Senior Notes indenture and the revolving credit facility, particularly leverage and fixed charge coverage ratios.
• Occupancy Rates: Monitor occupancy trends across the 86 properties, which averaged 88.2% for the period ended Dec 31, 2010.
• Dividend Policy Execution: Track the declaration of the first quarterly dividend in 2011 to ensure alignment with the stated 80% AFFO target and REIT distribution requirements.