Sabra Health Care REIT, Inc. (Form: 10-Q, Received: 05/08/2017 16:16:37)

Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-34950

SABRA HEALTH CARE REIT, INC.

(Exact Name of Registrant as Specified in Its Charter)



Maryland		27-2560479
(State of Incorporation)		(I.R.S. Employer Identification No.)

18500 Von Karman Avenue, Suite 550

Irvine, CA 92612

(888) 393-8248

(Address, zip code and telephone number of Registrant)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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. (Check one):

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. o

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

As of April 26, 2017, there were 65,410,668 shares of the registrant’s $0.01 par value Common Stock outstanding.

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SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES

Index



		Page Numbers
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Income (Loss)	5

	Condensed Consolidated Statements of Comprehensive Income (Loss)	6

	Condensed Consolidated Statements of Equity	7

	Condensed Consolidated Statements of Cash Flows	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1a.	Risk Factors	47

Item 6.	Exhibits	48

Signatures		51

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References throughout this document to “Sabra,” “we,” “our,” “ours” and “us” refer to Sabra Health Care REIT, Inc. and its direct and indirect consolidated subsidiaries and not any other person.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (this “10-Q”) contain “forward-looking” information as that term is defined by the Private Securities Litigation Reform Act of 1995. Any statements that do not relate to historical or current facts or matters are forward-looking statements. Examples of forward-looking statements include all statements regarding our expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, budgets, the expected amounts and timing of dividends and other distributions, projected expenses and capital expenditures, competitive position, growth opportunities, potential investments, plans and objectives for future operations, and compliance with and changes in governmental regulations. You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.

Our actual results may differ materially from those projected or contemplated by our forward-looking statements as a result of various factors, including, among others, the following:


•	our dependence on Genesis Healthcare, Inc. (“Genesis”) and certain wholly owned subsidiaries of Holiday AL Holdings LP (collectively, “Holiday”) until we are able to further diversify our portfolio;


•	our dependence on the operating success of our tenants;


•	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;


•	increases in market interest rates;


•	changes in foreign currency exchange rates;


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


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


•	the effect of changing healthcare regulation and enforcement on our tenants and the dependence of our tenants on reimbursement from governmental and other third-party payors;


•	the relatively illiquid nature of real estate investments;


•	competitive conditions in our industry;


•	the loss of key management personnel or other employees;


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


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


•	uninsured or underinsured losses affecting our properties and the possibility of environmental compliance costs and liabilities;


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


•	the impact of a failure or security breach of information technology in our operations;


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


•	our ability to maintain our status as a real estate investment trust (“REIT”);


•	changes in tax laws and regulations affecting REITs; and


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

Additional factors related to the proposed transaction with Care Capital Properties, Inc. (“CCP”) include, among others, the following:


•	the possibility that the parties may be unable to obtain required stockholder approvals or regulatory approvals or that other conditions to closing the transaction may not be satisfied, such that the transaction will not close or that the closing may be delayed;


•	the potential adverse effect on tenant and vendor relationships, operating results and business generally resulting from the proposed transaction;


•	the proposed transaction will require significant time, attention and resources, potentially diverting attention from the conduct of our business;


•	the amount of debt that will need to be refinanced or amended in connection with the proposed merger and the ability to do so on acceptable terms;


•	changes in healthcare regulation and political or economic conditions;


•	the anticipated benefits of the proposed transaction may not be realized;


•	the anticipated and unanticipated costs, fees, expenses and liabilities related to the transaction;

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•	the outcome of any legal proceedings related to the transaction; and


•	the occurrence of any event, change or other circumstances that could give rise to the termination of the transaction agreement.

We urge you to carefully consider these risks and review the additional disclosures we make concerning risks and other factors that may materially affect the outcome of our forward-looking statements and our future business and operating results, including those made in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2016 (our “ 2016 Annual Report on Form 10-K”) and in Part II, Item 1A, "Risk Factors" of this 10-Q, as such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange Commission (the “SEC”), including subsequent Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. We caution you that any forward-looking statements made in this 10-Q are not guarantees of future performance, events or results, and you should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not intend, and we undertake no obligation, to update any forward-looking information to reflect events or circumstances after the date of this 10-Q or to reflect the occurrence of unanticipated events, unless required by law to do so.

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PART I. FINANCIAL INFORMATION



ITEM 1.	FINANCIAL STATEMENTS

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)



	March 31, 2017			December 31, 2016
	(unaudited)
Assets
Real estate investments, net of accumulated depreciation of $297,405 and $282,812 as of March 31, 2017 and December 31, 2016, respectively	$	1,993,592		$	2,009,939
Loans receivable and other investments, net	96,489			96,036
Cash and cash equivalents	12,814			25,663
Restricted cash	9,151			9,002
Assets held for sale, net	2,073			—
Prepaid expenses, deferred financing costs and other assets, net	126,007			125,279
Total assets	$	2,240,126		$	2,265,919

Liabilities
Mortgage notes, net	$	159,905		$	160,752
Revolving credit facility	17,000			26,000
Term loans, net	336,592			335,673
Senior unsecured notes, net	688,879			688,246
Accounts payable and accrued liabilities	33,397			39,639
Total liabilities	1,235,773			1,250,310

Commitments and contingencies (Note 12)

Equity
Preferred stock, $.01 par value; 10,000,000 shares authorized, 5,750,000 shares issued and outstanding as of March 31, 2017 and December 31, 2016	58			58
Common stock, $.01 par value; 125,000,000 shares authorized, 65,410,668 and 65,285,614 shares issued and outstanding as of March 31, 2017 and December 31, 2016, respectively	654			653
Additional paid-in capital	1,208,907			1,208,862
Cumulative distributions in excess of net income	(203,641		)	(192,201		)
Accumulated other comprehensive loss	(1,628		)	(1,798		)
Total Sabra Health Care REIT, Inc. stockholders’ equity	1,004,350			1,015,574
Noncontrolling interests	3			35
Total equity	1,004,353			1,015,609
Total liabilities and equity	$	2,240,126		$	2,265,919

See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(dollars in thousands, except per share data)

(unaudited)



	Three Months Ended March 31,
	2017			2016
Revenues:
Rental income	$	57,224		$	55,312
Interest and other income	1,945			5,332
Resident fees and services	3,481			1,915

Total revenues	62,650			62,559

Expenses:
Depreciation and amortization	19,137			17,766
Interest	15,788			16,918
Operating expenses	2,420			1,412
General and administrative	6,873			4,714
Provision for doubtful accounts and loan losses	1,770			2,523
Impairment of real estate	—			29,811

Total expenses	45,988			73,144

Other income (expense):
Loss on extinguishment of debt	—			(556		)
Other income	2,129			—
Net loss on sale of real estate	—			(4,602		)

Total other income (expense)	2,129			(5,158		)

Net income (loss)	18,791			(15,743		)

Net loss attributable to noncontrolling interests	32			32

Net income (loss) attributable to Sabra Health Care REIT, Inc.	18,823			(15,711		)

Preferred stock dividends	(2,561		)	(2,561		)

Net income (loss) attributable to common stockholders	$	16,262		$	(18,272	)

Net income (loss) attributable to common stockholders, per:

Basic common share	$	0.25		$	(0.28	)

Diluted common share	$	0.25		$	(0.28	)

Weighted-average number of common shares outstanding, basic	65,354,649			65,248,203

Weighted-average number of common shares outstanding, diluted	65,920,486			65,248,203

See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2017			2016

Net income (loss)	$	18,791		$	(15,743	)
Other comprehensive income (loss):
Foreign currency translation loss	(558		)	(573		)
Unrealized gain (loss) on cash flow hedges	728			(1,492		)

Total other comprehensive income (loss)	170			(2,065		)

Comprehensive income (loss)	18,961			(17,808		)

Comprehensive loss attributable to noncontrolling interest	32			32

Comprehensive income (loss) attributable to Sabra Health Care REIT, Inc.	$	18,993		$	(17,776	)

See accompanying notes to condensed consolidated financial statements.

SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(dollars in thousands, except per share data)

(unaudited)



	Preferred Stock			Common Stock			Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Shares	Amounts		Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2015	5,750,000	$	58	65,182,335	$	652	$	1,202,541		$	(142,148	)	$	(7,333	)	$	1,053,770		$	106		$	1,053,876
Net loss	—	—		—	—		—			(15,711		)	—			(15,711		)	(32		)	(15,743		)
Other comprehensive loss	—	—		—	—		—			—			(2,065		)	(2,065		)	—			(2,065		)
Amortization of stock-based compensation	—	—		—	—		1,938			—			—			1,938			—			1,938
Common stock issuance, net	—	—		90,883	1		(1,089		)	—			—			(1,088		)	—			(1,088		)
Preferred dividends	—	—		—	—		—			(2,561		)	—			(2,561		)	—			(2,561		)
Common dividends ($0.41 per share)	—	—		—	—		—			(26,859		)	—			(26,859		)	—			(26,859		)
Balance, March 31, 2016	5,750,000	$	58	65,273,218	$	653	$	1,203,390		$	(187,279	)	$	(9,398	)	$	1,007,424		$	74		$	1,007,498


	Preferred Stock			Common Stock			Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Shares	Amount		Shares	Amounts		Additional Paid-in Capital			Cumulative Distributions in Excess of Net Income			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2016	5,750,000	$	58	65,285,614	$	653	$	1,208,862		$	(192,201	)	$	(1,798	)	$	1,015,574		$	35		$	1,015,609
Net income (loss)	—	—		—	—		—			18,823			—			18,823			(32		)	18,791
Other comprehensive loss	—	—		—	—		—			—			170			170			—			170
Amortization of stock-based compensation	—	—		—	—		2,860			—			—			2,860			—			2,860
Common stock issuance, net	—	—		125,054	1		(2,815		)	—			—			(2,814		)	—			(2,814		)
Preferred dividends	—	—		—	—		—			(2,561		)	—			(2,561		)	—			(2,561		)
Common dividends ($0.42 per share)	—	—		—	—		—			(27,702		)	—			(27,702		)	—			(27,702		)
Balance, March 31, 2017	5,750,000	$	58	65,410,668	$	654	$	1,208,907		$	(203,641	)	$	(1,628	)	$	1,004,350		$	3		$	1,004,353

See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net income (loss)	$	18,791		$	(15,743	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	19,137			17,766
Non-cash interest income adjustments	26			222
Amortization of deferred financing costs	1,277			1,221
Stock-based compensation expense	2,588			1,818
Amortization of debt discount	28			27
Loss on extinguishment of debt	—			556
Straight-line rental income adjustments	(4,607		)	(5,593		)
Provision for doubtful accounts and loan losses	1,770			2,523
Change in fair value of contingent consideration	(822		)	—
Net loss on sales of real estate	—			4,602
Impairment of real estate	—			29,811
Changes in operating assets and liabilities:
Prepaid expenses and other assets	(1,414		)	(5,900		)
Accounts payable and accrued liabilities	(4,605		)	(5,430		)
Restricted cash	(731		)	(1,154		)

Net cash provided by operating activities	31,438			24,726
Cash flows from investing activities:
Origination and fundings of loans receivable	(508		)	(5,850		)
Origination and fundings of preferred equity investments	(51		)	(984		)
Additions to real estate	(520		)	(474		)
Repayment of loans receivable	118			8,874
Net proceeds from the sale of real estate	—			398

Net cash (used in) provided by investing activities	(961		)	1,964
Cash flows from financing activities:
Net repayments of revolving credit facility	(9,000		)	(57,000		)
Proceeds from term loans	—			69,360
Principal payments on mortgage notes	(1,021		)	(1,022		)
Payments of deferred financing costs	(109		)	(5,885		)
Issuance of common stock, net	(3,224		)	(1,274		)
Dividends paid on common and preferred stock	(29,993		)	(29,301		)

Net cash used in financing activities	(43,347		)	(25,122		)

Net (decrease) increase in cash and cash equivalents	(12,870		)	1,568
Effect of foreign currency translation on cash and cash equivalents	21			131
Cash and cash equivalents, beginning of period	25,663			7,434

Cash and cash equivalents, end of period	$	12,814		$	9,133
Supplemental disclosure of cash flow information:
Interest paid	$	18,127		$	19,459

See accompanying notes to condensed consolidated financial statements.

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SABRA HEALTH CARE REIT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BUSINESS

Overview

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 (the "Separation Date"). Sabra elected to be treated as a real estate investment trust (“REIT”) with the filing of its 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 and operators throughout the United States 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 Sabra's wholly owned subsidiaries are currently the only limited partners, or by subsidiaries of the Operating Partnership. The Company’s investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing facilities, an acute care hospital leased to third-party operators; senior housing facilities operated by third-party property managers pursuant to property management agreements (“Managed Properties”); investments in loans receivable; and preferred equity investments.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Sabra and its wholly owned subsidiaries as of March 31, 2017 and December 31, 2016 and for the periods ended March 31, 2017 and 2016 . All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited condensed 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 (“ASC”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited condensed 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 months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017 . For further information, refer to the Company’s consolidated financial statements and notes thereto for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 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.

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As of March 31, 2017 , the Company determined it was the primary beneficiary of two variable interest entities—a senior housing facility and an exchange accommodation titleholder variable interest entity—and has consolidated the operations of these facilities in the accompanying condensed consolidated financial statements. As of March 31, 2017 , the Company determined that operations of the entities were not material to the Company’s results of operations, financial condition or cash flows.

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 if 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 March 31, 2017 , none of the Company's investments in loans are accounted for as real estate joint ventures.

As it relates to investments in joint ventures, the Company assesses any limited partners' rights and their impact on the presumption of control of the limited partnership by any single partner. 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, the sole general partner increases or decreases its ownership of limited partnership interests, or there is an increase or decrease in the number of outstanding limited partnership interests. The Company also applies this guidance to managing member interests in limited liability companies.

Use of Estimates

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

Recently Issued Accounting Standards Update

Between May 2014 and May 2016, the FASB issued three Accounting Standards Update (“ASU”) changing the requirements for recognizing and reporting revenue (together, herein referred to as the “Revenue ASUs”): (i) ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), (ii) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”) and (iii) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”). ASU 2014-09 provides guidance for revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2016-12 provides practical expedients and improvements on the previously narrow scope of ASU 2014-09. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 defers the effective date of ASU 2014-09 by one year to fiscal years, and interim periods within, beginning after December 15, 2017. All subsequent ASUs related to ASU 2014-09, including ASU 2016-08 and ASU 2016-12, assumed the deferred effective date enforced by ASU 2015-14. Early adoption of the Revenue ASUs is permitted for annual periods, and interim periods within, beginning after December 15, 2016. A reporting entity may apply the amendments in the Revenue ASUs using either a modified retrospective approach, by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or full retrospective approach. The Company has not yet elected a transition method and is evaluating the complete impact of the adoption of the Revenue ASUs on January 1, 2018 to its consolidated financial position, results of operations and disclosures. The Company expects to complete its evaluation of the impacts of the Revenue ASUs during the second half of 2017. As the primary source of revenue for the Company is generated through leasing arrangements, which are excluded from the Revenue ASUs, the Company expects that the impact of the Revenue ASUs to the Company will be limited to the recognition of non-lease revenue, such as certain resident fees in its Managed Properties structures (a portion of which are not generated through leasing arrangements) and therefore are not expected to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 supersedes guidance related to accounting for leases. ASU 2016-02 updates guidance around the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The objective of ASU 2016-02 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 does not fundamentally change lessor accounting, however, some changes have been made to lessor accounting to conform and align that guidance with the lessee

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guidance and other areas within GAAP. ASU 2016-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact this guidance will have on its consolidated financial statements when adopted.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. When substantially all of the fair value of gross assets acquired is concentrated in a single asset (or a group of similar assets), the assets acquired would not represent a business. To be considered a business, an acquisition would have to include an input and a substantive process that together significantly contribute to the ability to create outputs. To be a business without outputs, there will now need to be an organized workforce. ASU 2017-01 is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2017-01 on October 1, 2016 on a prospective basis. The Company expects that the majority of its future acquisitions of real estate will be accounted for as asset acquisitions under the new guidance. This adoption will impact how the Company accounts for acquisition pursuit costs and contingent consideration which may result in lower expensed acquisition pursuit costs and eliminate fair value adjustments related to future contingent consideration arrangements.

3. REAL ESTATE PROPERTIES HELD FOR INVESTMENT

The Company’s real estate properties held for investment (excluding properties classified as held for sale as of March 31, 2017 ) consisted of the following (dollars in thousands):

As of March 31, 2017



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	96	10,689	$	1,038,815	$	(195,942	)	$	842,873
Senior Housing ⁽¹⁾	75	7,109	1,032,562		(82,451		)	950,111
Managed Properties ⁽¹⁾	10	888	157,573		(7,901		)	149,672
Acute Care Hospital	1	70	61,640		(10,849		)	50,791
	182	18,756	2,290,590		(297,143		)	1,993,447
Corporate Level			407		(262		)	145
			$	2,290,997	$	(297,405	)	$	1,993,592

As of December 31, 2016



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	97	10,819	$	1,042,754	$	(190,038	)	$	852,716
Senior Housing ⁽¹⁾	83	7,855	1,153,739		(80,449		)	1,073,290
Managed Properties	2	134	34,212		(1,682		)	32,530
Acute Care Hospital	1	70	61,640		(10,387		)	51,253
	183	18,878	2,292,345		(282,556		)	2,009,789
Corporate Level			406		(256		)	150
			$	2,292,751	$	(282,812	)	$	2,009,939

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	March 31, 2017			December 31, 2016
Building and improvements	$	1,981,783		$	1,983,769
Furniture and equipment	85,622			85,196
Land improvements	3,475			3,744
Land	220,117			220,042
	2,290,997			2,292,751
Accumulated depreciation	(297,405		)	(282,812		)
	$	1,993,592		$	2,009,939

⁽¹⁾ On March 1, 2017, the Company transitioned eight senior housing facilities into a managed property structure whereby the Company owns the operations of the facilities and the facilities are operated by a third-party property manager.

Contingent Consideration Arrangements

In connection with three of its real estate acquisitions, the Company entered into contingent consideration arrangements. Under the contingent consideration arrangements, the Company may pay out additional amounts based on incremental value created through the improvement of operations of the acquired facility (a contingent consideration liability). The estimated value of the contingent consideration liabilities at the time of purchase was $3.2 million . The contingent consideration amounts would be determined based on portfolio performance and the facility achieving certain performance hurdles during 2017. During the three months ended March 31, 2017 , one earn-out arrangement expired and resulted in a $0 payout and a second earn-out arrangement was terminated in connection with the transition of the eight senior housing facilities to Managed Properties. To determine the value of the remaining contingent consideration arrangement, the Company used significant inputs not observable in the market to estimate the contingent consideration, made assumptions regarding the probability of the facility achieving the incremental value and then applied an appropriate discount rate. As of March 31, 2017 , based on the performance of this facility, the contingent consideration liability had an estimated value of $0 . During the three months ended March 31, 2017 , the Company recorded an adjustment to decrease the contingent consideration liability by $0.8 million and included this amount in other income on the accompanying condensed consolidated statements of income (loss).

Operating Leases

As of March 31, 2017 , nearly all of the Company’s real estate properties (excluding 10 Managed Properties) were leased under triple-net operating leases with expirations ranging from one to 16 years. As of March 31, 2017 , the leases had a weighted-average remaining term of nine years. The leases 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. In addition, 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 in the accompanying condensed consolidated balance sheets and totaled $2.0 million as of March 31, 2017 and $2.7 million as of December 31, 2016 . As of March 31, 2017 , the Company had a $3.3 million reserve for unpaid cash rents and a $1.9 million reserve associated with accumulated straight-line rental income. As of December 31, 2016 , the Company had a $3.2 million reserve for unpaid cash rents and a $3.7 million reserve associated with accumulated straight-line rental income.

The following table provides information regarding significant tenant relationships as of March 31, 2017 (dollars in thousands):



		Three Months Ended March 31, 2017
	Number of Investments	Rental Revenue		% of Total Revenue

Genesis Healthcare, Inc.	78	$	19,955	31.9	%
Holiday AL Holdings, LP	21	9,813		15.7
NMS Healthcare	5	7,505		12.0

The Company has entered into memoranda of understanding with Genesis to market for sale 35 skilled nursing facilities and the Company has made certain other lease and corporate guarantee amendments for the remaining 43 facilities leased to Genesis. On April 1, 2017, the Company completed the sale of one of these facilities. Marketing of the remaining 34 facilities is ongoing and is expected to be completed in the second half of 2017; provided, however that there can be no assurances that the Company will successfully complete these sales on the terms or timing contemplated by the memoranda of understanding, or at all.

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The Company monitors the creditworthiness of its tenants by reviewing credit ratings (if available) and evaluating the ability of the tenants to meet their lease obligations to the Company based on the tenants’ financial performance, including the evaluation of any parent guarantees (or the guarantees of other related parties) of tenant lease obligations. Because formal credit ratings may not be available for most of the Company’s tenants, the primary basis for the Company’s evaluation of the credit quality of its tenants (and more specifically the tenants’ ability to pay their rent obligations to the Company) is the tenants’ lease coverage ratios. 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 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 tenants’ ability to generate sufficient liquidity to meet its obligations, including its obligation to continue to pay the rent due to the Company.

As of March 31, 2017 , the future minimum rental payments from the Company’s properties held for investment under non-cancelable operating leases was as follows (in thousands):



April 1, 2017 through December 31, 2017	$	155,591
2018	212,860
2019	219,300
2020	225,378
2021	195,307
Thereafter	1,115,867
	$	2,124,303

4. ASSET HELD FOR SALE AND DISPOSITIONS

Asset Held for Sale

As of March 31, 2017 , the Company determined that one skilled nursing/transitional care facility, with a net book value of $2.1 million , met the criteria to be classified as held for sale. On April 1, 2017, the facility was sold for aggregate consideration of $6.1 million .

Dispositions

During the three months ended March 31, 2016 , the Company completed the sale of one skilled nursing/transitional care facility for aggregate consideration of $0.4 million after selling expenses of $0.1 million . The net book value of this facility was $5.0 million , which resulted in a $4.6 million loss on sale. The Company sold no facilities during the three months ended March 31, 2017 .

Excluding the net loss on sale, the Company recognized $0.1 million of net income from the asset held for sale and the sold facility during each of the three months ended March 31, 2017 and 2016. Neither the determination of the held for sale classification nor the sale of the facility above 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 this facility have remained in continuing operations.

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5. LOANS RECEIVABLE AND OTHER INVESTMENTS

As of March 31, 2017 and December 31, 2016 , the Company’s loans receivable and other investments consisted of the following (dollars in thousands):



											March 31, 2017
Investment	Quantity as of March 31, 2017	Facility Type	Principal Balance as of March 31, 2017 ⁽¹⁾		Book Value as of March 31, 2017			Book Value as of December 31, 2016			Weighted Average Contractual Interest Rate / Rate of Return		Weighted Average Annualized Effective Interest Rate / Rate of Return		Maturity Date as of March 31, 2017
Loans Receivable:
Mortgage	4	Skilled Nursing / Senior Housing	$	38,308	$	38,341		$	38,262		9.1	%	8.9	%	11/07/16- 04/30/18
Construction	1	Senior Housing	1,301		1,351			842			8.0	%	7.7	%	03/31/21
Mezzanine	1	Senior Housing	9,640		9,653			9,656			11.0	%	10.8	%	08/31/17
Pre-development	3	Senior Housing	4,085		4,094			4,023			9.0	%	7.2	%	01/28/17-09/09/17
Debtor-in-possession	1	Acute Care Hospital	695		695			813			5.0	%	5.0	%	NA

	10		54,029		54,134			53,596			9.4	%	9.1	%

Loan loss reserve			—		(4,096		)	(2,750		)

			$	54,029	$	50,038		$	50,846
Other Investments:
Preferred Equity	12	Skilled Nursing / Senior Housing	46,079		46,451			45,190			12.9	%	12.9	%	N/A

Total	22		$	100,108	$	96,489		$	96,036		11.0	%	10.9	%

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

As of March 31, 2017 , the Company considered five loan receivable investments to be impaired. The principal balances of the impaired loans were $36.3 million and $36.4 million as of March 31, 2017 and December 31, 2016, respectively. The Company recorded a provision for loan losses of $1.5 million related to three loan receivable investments during the three months ended March 31, 2017 . As of March 31, 2017 , five loans receivable investments totaling $36.3 million were on nonaccrual status. During the three months ended March 31, 2017 , the Company reduced its portfolio-based loan loss reserve by $0.2 million . The Company's specific loan loss reserve and portfolio-based loan loss reserve were $3.9 million and $0.2 million , respectively, as of March 31, 2017 . The Company's specific loan loss reserve and portfolio-based loan loss reserve were $2.3 million and $0.4 million , respectively, as of December 31, 2016.

6. DEBT

Mortgage Indebtedness

The Company’s mortgage notes payable consist of the following (dollars in thousands):



Interest Rate Type	Book Value as of March 31, 2017 ⁽¹⁾		Book Value as of December 31, 2016 ⁽¹⁾		Weighted Average Effective Interest Rate at March 31, 2017 ⁽²⁾		Maturity Date
Fixed Rate	$	162,762	$	163,638	3.87	%	December 2021 - August 2051

⁽¹⁾ Principal balance does not include deferred financing costs of $ 2.9 million as of March 31, 2017 and December 31, 2016 .

⁽²⁾ Weighted average effective interest rate includes private mortgage insurance.

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Senior Unsecured Notes

The Company’s senior unsecured notes consist of the following (dollars in thousands):



		Principal Balance as of
Title	Maturity Date	March 31, 2017 ⁽¹⁾		December 31, 2016 ⁽¹⁾

5.5% senior unsecured notes due 2021 (“2021 Notes”)	February 1, 2021	$	500,000	$	500,000
5.375% senior unsecured notes due 2023 (“2023 Notes”)	June 1, 2023	200,000		200,000

		$	700,000	$	700,000

⁽¹⁾ Principal balance does not include discount of $ 0.5 million as of March 31, 2017 and December 31, 2016 , and also excludes deferred financing costs of $10.6 million and $11.2 million as of March 31, 2017 and December 31, 2016 , respectively.

The 2021 Notes and the 2023 Notes (collectively, the “Senior Notes”) were issued by the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company (the “Issuers”). The 2021 Notes accrue interest at a rate of 5.5% per annum payable semiannually on February 1 and August 1 of each year and the 2023 Notes accrue interest at a rate of 5.375% per annum payable semiannually on June 1 and December 1 of each year.

The obligations under the Senior Notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured basis, by Sabra and certain of Sabra’s other existing and, subject to certain exceptions, future material subsidiaries; provided, however, that such guarantees are subject to release under certain customary circumstances. See Note 11, “Summarized Condensed Consolidating Information” for additional information concerning the circumstances pursuant to which the guarantors will be automatically and unconditionally released from their obligations under the guarantees.

The indentures governing the Senior Notes (the “Senior Notes Indentures”) include customary events of default and require the Company to comply with specified restrictive covenants. As of March 31, 2017 , the Company was in compliance with all applicable financial covenants under the Senior Notes Indentures.

Revolving Credit Facility and Term Loans

On January 14, 2016, the Operating Partnership and Sabra Canadian Holdings, LLC (together, the “Borrowers”), entered into a third amended and restated unsecured credit facility (the “Credit Facility”).

The Credit Facility includes a revolving credit facility (the “Revolving Credit Facility”) and U.S. dollar and Canadian dollar term loans (collectively, the “Term Loans”). The Revolving Credit Facility provides for a borrowing capacity of $500.0 million and, in addition, increases the Company's U.S. dollar and Canadian dollar term loans to $245.0 million and CAD $125.0 million , respectively. Further, up to $125.0 million of the Revolving Credit Facility may be used for borrowings in certain foreign currencies. The Credit Facility also contains an accordion feature that can increase the total available borrowings to $1.25 billion , subject to terms and conditions. In addition, the Canadian dollar term loan was re-designated as a net investment hedge (see Note 7, “Derivative and Hedging Instruments” for further information).

The Revolving Credit Facility has a maturity date of January 14, 2020, and includes two six -month extension options. The Term Loans have a maturity date of January 14, 2021.

As of March 31, 2017 , there was $17.0 million outstanding under the Revolving Credit Facility and $483.0 million available for borrowing.

Borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable percentage plus, at the Operating Partnership's option, either (a) LIBOR or (b) a base rate determined as the greater of (i) the federal funds rate plus 0.5% , (ii) the prime rate, and (iii) one-month LIBOR plus 1.0% (the "Base Rate"). The applicable percentage for borrowings will vary based on the Consolidated Leverage Ratio, as defined in the credit agreement, and will range from 1.80% to 2.40% per annum for LIBOR based borrowings and 0.80% to 1.40% per annum for borrowings at the Base Rate. As of March 31, 2017 , the interest rate on the Revolving Credit Facility was 2.98% . In addition, the Operating Partnership pays an unused facility fee to the lenders equal to 0.25% or 0.30% per annum, which is determined by usage under the Revolving Credit Facility.

The U.S. dollar term loan bears interest on the outstanding principal amount at a rate equal to an applicable percentage plus, at the Operating Partnership’s option, either (a) LIBOR or (b) the Base Rate. The applicable percentage for borrowings will vary based on the Consolidated Leverage Ratio, as defined in the credit agreement, and will range from 1.75% to 2.35% per annum for LIBOR based borrowings and 0.75% to 1.35% per annum for borrowings at the Base Rate. The Canadian dollar

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term loan bears interest on the outstanding principal amount at a rate equal to the Canadian Dollar Offer Rate (“CDOR”) plus 1.75% to 2.35% depending on the Consolidated Leverage Ratio.

On June 10, 2015, the Company entered into an interest rate swap agreement to fix the CDOR portion of the interest rate for this CAD $90.0 million term loan at 1.59% . In addition, CAD $90.0 million of the Canadian dollar term loan was designated as a net investment hedge (see Note 7, “Derivative and Hedging Instruments” for further information). On August 10, 2016, the Company entered into two interest rate swap agreements to fix the LIBOR portion of the interest rate for its $245.0 million U.S. dollar term loan at 0.90% and one interest rate swap agreement to fix the CDOR portion on CAD $35.0 million of its Canadian dollar term loan at 0.93% .

In the event that Sabra achieves investment grade ratings from at least two of S&P, Moody’s and/or Fitch, the Operating Partnership can elect to reduce the applicable percentage for LIBOR or Base Rate borrowings. If the Operating Partnership makes this election, the applicable percentage for borrowings will vary based on the Debt Ratings at each Pricing Level, as defined in the credit agreement, and will range from 0.90% to 1.70% per annum for LIBOR based borrowings under the Revolving Credit Facility, 1.00% to 1.95% per annum for LIBOR or CDOR based borrowings under the Term Loans, 0.00% to 0.70% per annum for borrowings at the Base Rate under the Revolving Credit Facility, and 0.00% to 0.95% per annum for borrowings at the Base Rate under the U.S. dollar term loan. In addition, should the Operating Partnership elect this option, the unused fee will no longer apply and a facility fee ranging between 0.125% and 0.300% per annum will take effect based on the borrowing capacity regardless of amounts outstanding under the Revolving Credit Facility.

The obligations of the Borrowers under the Credit Facility are guaranteed by Sabra and certain subsidiaries of Sabra.

The Credit Facility contains customary covenants that include restrictions or limitations on the ability to make acquisitions and other investments, pay dividends, incur additional indebtedness, engage in non-healthcare related business activities, enter into transactions with affiliates and sell or otherwise transfer certain assets as well as customary events of default. The Credit Facility also requires Sabra, through the Operating Partnership, to comply with specified financial covenants, which include a maximum leverage ratio, a minimum fixed charge coverage ratio and a minimum tangible net worth requirement. As of March 31, 2017 , the Company was in compliance with all applicable financial covenants under the Credit Facility.

Interest Expense

During the three months ended March 31, 2017 and 2016, the Company incurred interest expense of $15.8 million and $16.9 million , respectively. Interest expense includes financing costs amortization of $1.3 million and $1.2 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016 , the Company had $9.6 million and $ 13.8 million , respectively, of accrued interest included in accounts payable and accrued liabilities on the accompanying condensed consolidated balance sheets.

Maturities

The following is a schedule of maturities for the Company’s outstanding debt as of March 31, 2017 (in thousands):



	Mortgage Indebtedness			Revolving Credit Facility ⁽¹⁾		Term Loans			Senior Notes			Total
April 1, 2017 through December 31, 2017	$	3,111		$	—	$	—		$	—		$	3,111
2018	4,270			—		—			—			4,270
2019	4,412			—		—			—			4,412
2020	4,560			17,000		—			—			21,560
2021	19,529			—		338,775			500,000			858,304
Thereafter	126,880			—		—			200,000			326,880
Total Principal Balance	162,762			17,000		338,775			700,000			1,218,537
Discount	—			—		—			(487		)	(487		)
Deferred financing costs	(2,857		)	—		(2,183		)	(10,634		)	(15,674		)
Total Debt, net	$	159,905		$	17,000	$	336,592		$	688,879		$	1,202,376

⁽¹⁾ Revolving Credit Facility is subject to two six -month extension options.

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7. DERIVATIVE AND HEDGING INSTRUMENTS

The Company is exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign exchange rates. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and foreign exchange rates. The Company’s derivative financial instruments are used to manage differences in the amount of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

Certain of the Company’s foreign operations expose the Company to fluctuations of foreign interest rates and exchange rates. These fluctuations may impact the value in the Company’s functional currency, the U.S. dollar, of the Company’s investment in foreign operations, the cash receipts and payments related to these foreign operations and payments of interest and principal under Canadian dollar denominated debt. The Company enters into derivative financial instruments to protect the value of its foreign investments and fix a portion of the interest payments for certain debt obligations. The Company does not enter into derivatives for speculative purposes.

Cash Flow Hedges

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Approximately $3.0 million of losses, which are included in accumulated other comprehensive loss, as of March 31, 2017 , are expected to be reclassified into earnings in the next 12 months. In 2016 the Company terminated its interest rate cap, generating cash proceeds of $0.3 million . The balance of the loss in other comprehensive income will be reclassified to earnings through 2019.

Net Investment Hedges

The Company is exposed to fluctuations in foreign exchange rates on investments it holds in Canada. The Company uses cross currency interest rate swaps to hedge its exposure to changes in foreign exchange rates on these foreign investments.

The following presents the notional amount of derivatives instruments as of the dates indicated (in thousands):



	March 31, 2017		December 31, 2016
Derivatives designated as cash flow hedges:
Denominated in U.S. Dollars	$	245,000	$	245,000
Denominated in Canadian Dollars	$	125,000	$	125,000

Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	55,889	$	56,300

Financial instrument designated as net investment hedge:
Denominated in Canadian Dollars	$	125,000	$	125,000

Derivatives not designated as net investment hedges:
Denominated in Canadian Dollars	$	411	$	—

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Derivative and Financial Instruments Designated as Hedging Instruments

The following is a summary of the derivative and financial instruments designated as hedging instruments held by the Company at March 31, 2017 and December 31, 2016 (in thousands):



			Fair Value				Maturity Dates
Type	Designation	Count	March 31, 2017		December 31, 2016		Maturity Dates	Balance Sheet Location
Assets:
Interest rate swap	Cash Flow	3	8,505		8,083		2021	Prepaid expenses, deferred financing costs and other assets, net
Cross currency interest rate swaps	Net Investment	2	2,178		3,157		2025	Prepaid expenses, deferred financing costs and other assets, net
			$	10,683	$	11,240

Liabilities:
Interest rate swap	Cash Flow	1	$	747	$	716	2020 - 2021	Accounts payable and accrued liabilities
CAD Term Loan	Net Investment	1	93,775		93,000		2020	Term loans, net
			$	94,522	$	93,716

The following presents the effect of the Company’s derivative and financial instruments designated as hedging instruments on the condensed consolidated statements of income and the condensed consolidated statements of equity for the three months ended March 31, 2017 :



	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)						Income Statement Location
	Three Months Ended March 31,
	2017			2016

Cash Flow Hedges:
Interest Rate Products	$	259		$	(1,540	)	Interest Expense
Net Investment Hedges:
Foreign Currency Products	(916		)	(2,503		)	N/A
CAD Term Loan	(775		)	7,138			N/A

	$	(1,432	)	$	3,095



	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)						Income Statement Location
	Three Months Ended March 31,
	2017			2016

Cash Flow Hedges:
Interest Rate Products	$	(470	)	$	(173	)	Interest Expense
Net Investment Hedges:
Foreign Currency Products	—			—			N/A
CAD Term Loan	—			—			N/A

	$	(470	)	$	(173	)

During the three months ended March 31, 2017 , the Company determined that a portion of a cash flow hedge was ineffective and recognized $0.1 million of unrealized losses related to its interest rate swaps to other income in the condensed consolidated statements of income (loss). During the three months ended March 31, 2016, the Company recorded no hedge ineffectiveness in the condensed consolidated statements of income (loss).

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Derivatives Not Designated as Hedging Instruments

As of March 31, 2017 , the Company had one outstanding cross currency interest rate swap not designated as a hedging instrument in an asset position with a fair value of $16,000 and included this amount in prepaid expenses, deferred financing costs and other assets, net on the condensed consolidated balance sheets. During the three months ended March 31, 2017 , the Company recorded $7,000 of other expense related to this derivative not designated as a hedging instrument. As of December 31, 2016, the Company's derivatives were all designated as hedging instruments.

Offsetting Derivatives

The Company enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2017 and December 31, 2016 :



	As of March 31, 2017
							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets / Liabilities presented in the Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Offsetting Assets:
Derivatives	$	10,908	$	—	$	10,908	$	(996	)	$	—	$	9,912
Offsetting Liabilities:
Derivatives	$	996	$	—	$	996	$	(996	)	$	—	$	—



	As of December 31, 2016
							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts of Recognized Assets / Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Assets / Liabilities presented in the Balance Sheet		Financial Instruments			Cash Collateral Received		Net Amount
Offsetting Assets:
Derivatives	$	11,240	$	—	$	11,240	$	(716	)	$	—	$	10,524
Offsetting Liabilities:
Derivatives	$	716	$	—	$	716	$	(716	)	$	—	$	—

Credit-risk-related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

As of March 31, 2017 , the Company had no derivatives with a fair value in a net liability position.

8. FAIR VALUE DISCLOSURES

Financial Instruments

The fair value for certain financial instruments is derived using a combination of market quotes, pricing models and other valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments.

Financial instruments for which actively quoted prices or pricing parameters are available and whose markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments whose markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The carrying values of cash and cash equivalents, restricted cash, accounts payable,

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accrued liabilities and the Credit Facility are reasonable estimates of fair value because of the short-term maturities of these instruments. Fair values for other financial instruments are derived as follows:

Loans receivable : These instruments are presented in the accompanying condensed consolidated balance sheets at their amortized cost and not at fair value. The fair value of the loans receivable were estimated using an internal valuation model that considered the expected cash flows for the loans receivable, the underlying collateral value and other credit enhancements. As such, the Company classifies these instruments as Level 3.

Preferred equity investments : These instruments are presented in the accompanying condensed consolidated balance sheets at their cost and not at fair value. The fair value of the preferred equity investments were estimated using an internal valuation model that considered the expected future cash flows for the preferred equity investment, the underlying collateral value and other credit enhancements. As such, the Company classifies these instruments as Level 3.

Derivative instruments : The Company’s derivative instruments are presented at fair value on the accompanying condensed consolidated balance sheets. The Company estimates the fair value of derivative instruments, including its interest rate swap and cross currency swaps, using the assistance of a third party using inputs that are observable in the market, which includes forward yield curves and other relevant information. Although the Company has determined that the majority of the inputs used to value its derivative financial instruments fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivative financial instruments utilize level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. As a result, the Company has determined that its derivative financial instruments valuations in their entirety are classified in level 2 of the fair value hierarchy.

Senior Notes : These instruments are presented in the accompanying condensed consolidated balance sheets at their outstanding principal balance, net of unamortized deferred financing costs and premiums (discounts) and not at fair value. The fair values of the Senior Notes were determined using third-party market quotes derived from orderly trades. As such, the Company classifies these instruments as Level 2.

Mortgage indebtedness : These instruments are presented in the accompanying condensed consolidated balance sheets at their outstanding principal balance, net of unamortized deferred financing costs and premiums (discounts) and not at fair value. The fair values of the Company’s mortgage notes payable were estimated using a discounted cash flow analysis based on management’s estimates of current market interest rates for instruments with similar characteristics, including remaining loan term, loan-to-value ratio, type of collateral and other credit enhancements. As such, the Company classifies these instruments as Level 3.

The following are the face values, carrying amounts and fair values of the Company’s financial instruments as of March 31, 2017 and December 31, 2016 whose carrying amounts do not approximate their fair value (in thousands):



	March 31, 2017						December 31, 2016
	Carrying Amount ⁽¹⁾		Face Value ⁽²⁾		Fair Value		Carrying Amount ⁽¹⁾		Face Value ⁽²⁾		Fair Value
Financial assets:
Loans receivable	$	54,134	$	54,029	$	50,069	$	53,596	$	53,484	$	51,914
Preferred equity investments	46,451		46,079		47,363		45,190		44,882		48,332
Financial liabilities:
Senior Notes	688,879		700,000		707,500		688,246		700,000		709,500
Mortgage indebtedness	159,905		162,762		149,270		160,752		163,638		150,091

⁽¹⁾ Carrying amounts represent the book value of financial instruments, including unamortized premiums (discounts), but excluding related reserves.

⁽²⁾ Face value represents amounts contractually due under the terms of the respective agreements.

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The Company determined the fair value of financial instruments as of March 31, 2017 whose carrying amounts do not approximate their fair value with valuation methods utilizing the following types of inputs (in thousands):



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Loans receivable	$	50,069	$	—	$	—	$	50,069
Preferred equity investments	47,363		—		—		47,363
Financial liabilities:
Senior Notes	707,500		—		707,500		—
Mortgage indebtedness	149,270		—		—		149,270

Disclosure of the fair value of financial instruments is based on pertinent information available to the Company at the applicable dates and requires a significant amount of judgment. Despite increased capital market and credit market activity, transaction volume for certain financial instruments remains relatively low. This has made the estimation of fair values difficult and, therefore, both the actual results and the Company’s estimate of fair value at a future date could be materially different.

Items Measured at Fair Value on a Recurring Basis

During the three months ended March 31, 2017 , the Company recorded the following amounts measured at fair value (in thousands):



			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Recurring Basis:
Financial assets:
Interest rate swap	$	8,505	$	—	$	8,505	$	—
Cross currency swap	2,194		—		2,194		—
Financial liabilities:
Interest rate swap	747		—		747		—

The Company entered into contingent consideration arrangements as a result of three acquisitions of real estate (see Note 3, “Real Estate Properties Held for Investment”). During the three months ended March 31, 2017 , one earn-out arrangement expired and resulted in a $0 payout and a second earn-out arrangement was terminated in connection with the transition of the eight senior housing facilities to Managed Properties. In order to determine the fair value of the Company’s remaining contingent consideration arrangements, the Company used significant inputs not observable in the market to estimate the contingent consideration. The Company used financial information provided by the facility to estimate the possible payout. As of March 31, 2017 , the total contingent consideration liability had an estimated value of $0 .

The following reconciliation provides the details of activity for contingent consideration liability recorded at fair value using Level 3 inputs (in thousands):



Balance as of December 31, 2016	$	818
Decrease in contingent consideration liability	(822		)
Foreign currency translation	4
Balance as of March 31, 2017	$	—

A corresponding amount equal to the decrease in the contingent consideration liability was included as other income on the accompanying consolidated statements of income (loss) for the three months ended March 31, 2017 .

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9. EQUITY

Preferred Stock

On March 21, 2013, the Company completed an underwritten public offering of 5.8 million shares of 7.125% Series A Cumulative Redeemable Preferred Stock (the "Series A Preferred Stock") at a price of $25.00 per share, pursuant to an effective registration statement. The Company received net proceeds of $138.3 million from the offering, after deducting underwriting discounts and other offering expenses. The Company classified the par value as preferred equity on its condensed consolidated balance sheets with the balance of the liquidation preference, net of any issuance costs, recorded as an increase in paid-in capital.

The holders of the Company’s Series A Preferred Stock rank senior to the Company’s common stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up of its affairs. At March 31, 2017 , there were no dividends in arrears.

The Series A Preferred Stock does not have a stated maturity date, but the Company may redeem the Series A Preferred Stock on or after March 21, 2018, for $25.00 per share, plus any accrued and unpaid dividends. The Company may redeem the Series A Preferred Stock prior to March 21, 2018, in limited circumstances to preserve its status as a REIT or pursuant to a specified change of control. Upon the occurrence of a specified change of control, each holder of Series A Preferred Stock will have the right to convert some or all of the shares of Series A Preferred Stock held by such holder into a number of shares of the Company’s common stock equivalent to $25.00 plus accrued and unpaid dividends, but not to exceed a cap of 1.7864 shares of common stock per share of Series A Preferred Stock (subject to certain adjustments).

Common Stock

The following table lists the cash dividends on common stock declared and paid by the Company during the three months ended March 31, 2017 :



Declaration Date	Record Date	Amount Per Share		Dividend Payable Date
February 3, 2017	February 15, 2017	$	0.42	February 28, 2017

During the three months ended March 31, 2017 , the Company issued 0.1 million shares of common stock as a result of restricted stock unit vestings and in connection with amounts payable under the Company's 2016 Bonus Plan pursuant to an election by certain participants to receive their bonus in the form of an equity award.

Upon any payment of shares as a result of restricted stock unit vestings, the participant is required to satisfy the related tax withholding obligation. The 2009 Performance Incentive Plan provides that the Company has the right at its option to (a) require the participant to pay such tax withholding or (b) reduce the number of shares to be delivered by a number of shares necessary to satisfy the related minimum applicable statutory tax withholding obligation. During the three months ended March 31, 2017 , pursuant to advance elections made by certain participants, the Company incurred $2.6 million in tax withholding obligations on behalf of its employees that were satisfied through a reduction in the number of shares delivered to those participants.

Accumulated Other Comprehensive Loss

The following is a summary of the Company’s accumulated other comprehensive loss (in thousands):



	March 31, 2017			December 31, 2016
Foreign currency translation loss	$	(3,625	)	$	(3,067	)
Unrealized gains on cash flow hedges	1,997			1,269

Total accumulated other comprehensive loss	$	(1,628	)	$	(1,798	)

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10. EARNINGS PER COMMON SHARE

The following table illustrates the computation of basic and diluted earnings per share for the three months ended March 31, 2017 and 2016 (in thousands, except share and per share amounts):



	Three Months Ended March 31,
	2017		2016
Numerator
Net income (loss) attributable to common stockholders	$	16,262	$	(18,272	)

Denominator
Basic weighted average common shares and common equivalents	65,354,649		65,248,203
Dilutive restricted stock units	565,837		—

Diluted weighted average common shares	65,920,486		65,248,203

Net income (loss) attributable to common stockholders, per:

Basic common share	$	0.25	$	(0.28	)

Diluted common share	$	0.25	$	(0.28	)

During the three months ended March 31, 2017 and 2016, approximately 130 and 54,000 restricted stock units, respectively, were not included in computing diluted earnings per share because they were considered anti-dilutive.

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11. SUMMARIZED CONDENSED CONSOLIDATING INFORMATION

In connection with the offerings of the Senior Notes by the Issuers, the Company and certain 100% owned subsidiaries of the Company (the “Guarantors”) have, jointly and severally, fully and unconditionally guaranteed the Senior Notes, subject to release under certain customary circumstances as described below. These guarantees are subordinated to all existing and future senior debt and senior guarantees of the Guarantors and are unsecured. The Company conducts all of its business through and derives virtually all of its income from its subsidiaries. Therefore, the Company’s ability to make required payments with respect to its indebtedness (including the Senior Notes) and other obligations depends on the financial results and condition of its subsidiaries and its ability to receive funds from its subsidiaries.

A Guarantor will be automatically and unconditionally released from its obligations under the guarantees with respect to the Senior Notes in the event of:


•	Any sale of the subsidiary Guarantor or of all or substantially all of its assets;


•	A merger or consolidation of a subsidiary Guarantor with an issuer of the Senior Notes or another Guarantor, provided that the surviving entity remains a Guarantor;


•	A subsidiary Guarantor is declared “unrestricted” for covenant purposes under the Senior Notes Indentures;


•	The requirements for legal defeasance or covenant defeasance or to discharge the Senior Notes Indentures have been satisfied;


•	A liquidation or dissolution, to the extent permitted under the Senior Notes Indentures, of a subsidiary Guarantor; and


•	The release or discharge of the guaranty that resulted in the creation of the subsidiary guaranty, except a discharge or release by or as a result of payment under such guaranty.

Pursuant to Rule 3-10 of Regulation S-X, the following summarized condensed consolidating information is provided for the Company (the “Parent Company”), the Issuers, the Guarantors, and the Company’s non-Guarantor subsidiaries with respect to the Senior Notes. This summarized financial information has been prepared from the books and records maintained by the Company, the Issuers, the Guarantors and the non-Guarantor subsidiaries. The summarized financial information may not necessarily be indicative of the results of operations or financial position had the Issuers, the Guarantors or non-Guarantor subsidiaries operated as independent entities. Sabra’s investments in its consolidated subsidiaries are presented based upon Sabra's proportionate share of each subsidiary's net assets. The Guarantor subsidiaries’ investments in the non-Guarantor subsidiaries and non-Guarantor subsidiaries’ investments in Guarantor subsidiaries are presented under the equity method of accounting. Intercompany activities between subsidiaries and the Parent Company are presented within operating activities on the condensed consolidating statement of cash flows.

Condensed consolidating financial statements for the Company and its subsidiaries, including the Parent Company only, the Issuers, the combined Guarantor subsidiaries and the combined non-Guarantor subsidiaries, are as follows:

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CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2017

(in thousands)

(unaudited)



	Parent Company			Issuers		Combined Guarantor Subsidiaries		Combined Non- Guarantor Subsidiaries			Elimination			Consolidated
Assets
Real estate investments, net of accumulated depreciation	$	146		$	—	$	1,845,293	$	148,153		$	—		$	1,993,592
Loans receivable and other investments, net	(222		)	—		96,711		—			—			96,489
Cash and cash equivalents	5,285			—		3,707		3,822			—			12,814
Restricted cash	—			—		67		9,084			—			9,151
Assets held for sale	—			—		2,073		—			—			2,073
Prepaid expenses, deferred financing costs and other assets, net	2,556			17,106		97,831		10,403			(1,889		)	126,007
Intercompany	345,081			664,771		—		—			(1,009,852		)	—
Investment in subsidiaries	663,960			942,039		11,712		—			(1,617,711		)	—
Total assets	$	1,016,806		$	1,623,916	$	2,057,394	$	171,462		$	(2,629,452	)	$	2,240,126

Liabilities
Mortgage notes, net	$	—		$	—	$	—	$	159,905		$	—		$	159,905
Revolving credit facility	—			17,000		—		—			—			17,000
Term loans, net	—			243,711		92,881		—			—			336,592
Senior unsecured notes, net	—			688,879		—		—			—			688,879
Accounts payable and accrued liabilities	12,456			10,366		9,128		3,336			(1,889		)	33,397
Intercompany	—			—		1,036,134		(26,282		)	(1,009,852		)	—
Total liabilities	12,456			959,956		1,138,143		136,959			(1,011,741		)	1,235,773

Total Sabra Health Care REIT, Inc. stockholders' equity	1,004,350			663,960		919,251		34,500			(1,617,711		)	1,004,350
Noncontrolling interests	—			—		—		3			—			3
Total equity	1,004,350			663,960		919,251		34,503			(1,617,711		)	1,004,353
Total liabilities and equity	$	1,016,806		$	1,623,916	$	2,057,394	$	171,462		$	(2,629,452	)	$	2,240,126

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CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2016

(in thousands)

(unaudited)



	Parent Company			Issuers		Combined Guarantor Subsidiaries		Combined Non- Guarantor Subsidiaries		Elimination			Consolidated
Assets
Real estate investments, net of accumulated depreciation	$	150		$	—	$	1,860,850	$	148,939	$	—		$	2,009,939
Loans receivable and other investments, net	(410		)	—		96,446		—		—			96,036
Cash and cash equivalents	18,168			—		2,675		4,820		—			25,663
Restricted cash	—			—		57		8,945		—			9,002
Prepaid expenses, deferred financing costs and other assets, net	2,859			18,023		96,301		10,005		(1,909		)	125,279
Intercompany	368,281			687,493		—		25,125		(1,080,899		)	—
Investment in subsidiaries	640,238			907,136		12,364		—		(1,559,738		)	—
Total assets	$	1,029,286		$	1,612,652	$	2,068,693	$	197,834	$	(2,642,546	)	$	2,265,919

Liabilities
Mortgage notes, net	$	—		$	—	$	—	$	160,752	$	—		$	160,752
Revolving credit facility	—			26,000		—		—		—			26,000
Term loans, net	—			243,626		92,047		—		—			335,673
Senior unsecured notes, net	—			688,246		—		—		—			688,246
Accounts payable and accrued liabilities	13,712			14,542		11,606		1,688		(1,909		)	39,639
Intercompany	—			—		1,080,899		—		(1,080,899		)	—
Total liabilities	13,712			972,414		1,184,552		162,440		(1,082,808		)	1,250,310

Total Sabra Health Care REIT, Inc. stockholders' equity	1,015,574			640,238		884,141		35,359		(1,559,738		)	1,015,574
Noncontrolling interests	—			—		—		35		—			35
Total equity	1,015,574			640,238		884,141		35,394		(1,559,738		)	1,015,609
Total liabilities and equity	$	1,029,286		$	1,612,652	$	2,068,693	$	197,834	$	(2,642,546	)	$	2,265,919

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CONDENSED CONSOLIDATING STATEMENT OF INCOME

For the Three Months Ended March 31, 2017

(dollars in thousands, except per share amounts)

(unaudited)



	Parent Company			Issuers		Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Elimination			Consolidated
Revenues:
Rental income	$	—		$	—	$	53,039	$	4,969	$	(784	)	$	57,224
Interest and other income	7			—		1,938		—		—			1,945
Resident fees and services	—			—		—		3,481		—			3,481
Total revenues	7			—		54,977		8,450		(784		)	62,650
Expenses:
Depreciation and amortization	216			—		16,956		1,965		—			19,137
Interest	—			13,409		728		1,651		—			15,788
Operating expenses	—			—		—		3,204		(784		)	2,420
General and administrative	5,916			15		797		145		—			6,873
Provision for (recovery of) doubtful accounts and loan losses	(145		)	—		1,915		—		—			1,770
Total expenses	5,987			13,424		20,396		6,965		(784		)	45,988

Other income (expense):
Other income (loss)	1,367			35		727		—		—			2,129

Total other income (expense)	1,367			35		727		—		—			2,129

Income in subsidiary	23,436			36,825		1,779		—		(62,040		)	—

Net income	18,823			23,436		37,087		1,485		(62,040		)	18,791

Net loss attributable to noncontrolling interests	—			—		—		32		—			32

Net income attributable to Sabra Health Care REIT, Inc.	18,823			23,436		37,087		1,517		(62,040		)	18,823

Preferred stock dividends	(2,561		)	—		—		—		—			(2,561		)

Net income attributable to common stockholders	$	16,262		$	23,436	$	37,087	$	1,517	$	(62,040	)	$	16,262

Net loss attributable to common stockholders, per:
Basic common share													$	0.25
Diluted common share													$	0.25
Weighted-average number of common shares outstanding, basic													65,354,649
Weighted-average number of common shares outstanding, diluted													65,920,486

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CONDENSED CONSOLIDATING STATEMENT OF LOSS

For the Three Months Ended March 31, 2016

(dollars in thousands, except per share amounts)

(unaudited)



	Parent Company			Issuers			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries				Elimination			Consolidated
Revenues:
Rental income	$	—		$	—		$	50,748		$	4,800			$	(236	)	$	55,312
Interest and other income	—			119			5,395			—				(182		)	5,332
Resident fees and services	—			—			—			1,915				—			1,915
Total revenues	—			119			56,143			6,715				(418		)	62,559
Expenses:
Depreciation and amortization	183			—			16,015			1,568				—			17,766
Interest	—			14,302			1,019			1,716				(119		)	16,918
Operating expenses	—			—			—			1,648				(236		)	1,412
General and administrative	4,473			10			177			54				—			4,714
Provision for doubtful accounts and loan losses	233			—			2,290			—				—			2,523
Impairment of real estate	—			—			29,811			—			—	—			29,811
Total expenses	4,889			14,312			49,312			4,986				(355		)	73,144

Other income (expense):
Loss on extinguishment of debt	—			(468		)	(88		)	—				—			(556		)
Other income (loss)	—			500			(450		)	(50		)		—			—
Net loss on sales of real estate	—			—			(4,602		)	—				—			(4,602		)

Total other income (expense)	—			32			(5,140		)	(50		)		—			(5,158		)

Income in subsidiary	(10,759		)	3,402			—			—				7,357			—

Net (loss) income	(15,648		)	(10,759		)	1,691			1,679				7,294			(15,743		)

Net loss attributable to noncontrolling interests	—			—			—			32				—			32

Net (loss) income attributable to Sabra Health Care REIT, Inc.	(15,648		)	(10,759		)	1,691			1,711				7,294			(15,711		)

Preferred stock dividends	(2,561		)	—			—			—				—			(2,561		)

Net (loss) income attributable to common stockholders	$	(18,209	)	$	(10,759	)	$	1,691		$	1,711			$	7,294		$	(18,272	)

Net loss attributable to common stockholders, per:
Basic common share																	$	(0.28	)
Diluted common share																	$	(0.28	)
Weighted-average number of common shares outstanding, basic																	65,248,203
Weighted-average number of common shares outstanding, diluted																	65,248,203

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CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2017

(dollars in thousands)

(unaudited)



	Parent Company		Issuers			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Elimination			Consolidated

Net income	$	18,823	$	23,436		$	37,087	$	1,485	$	(62,040	)	$	18,791
Other comprehensive income (loss):
Foreign currency translation (loss) income	—		(953		)	299		96		—			(558		)
Unrealized gain on cash flow hedge	285		443			—		—		—			728

Total other comprehensive (loss) income	285		(510		)	299		96		—			170

Comprehensive income	19,108		22,926			37,386		1,581		(62,040		)	18,961

Comprehensive loss attributable to noncontrolling interest	—		—			—		32		—			32

Comprehensive income attributable to Sabra Health Care REIT, Inc.	$	19,108	$	22,926		$	37,386	$	1,613	$	(62,040	)	$	18,993

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CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE LOSS

For the Three Months Ended March 31, 2016

(dollars in thousands)

(unaudited)



	Parent Company			Issuers			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Elimination		Consolidated

Net (loss) income	$	(15,648	)	$	(10,759	)	$	1,691	$	1,679	$	7,294	$	(15,743	)
Other comprehensive (loss) income:
Foreign currency translation (loss) income	—			(2,643		)	1,516		554		—		(573		)
Unrealized loss on cash flow hedge	—			(1,492		)	—		—		—		(1,492		)

Total other comprehensive (loss) income	—			(4,135		)	1,516		554		—		(2,065		)

Comprehensive (loss) income	(15,648		)	(14,894		)	3,207		2,233		7,294		(17,808		)

Comprehensive loss attributable to noncontrolling interest	—			—			—		32		—		32

Comprehensive (loss) income attributable to Sabra Health Care REIT, Inc.	$	(15,648	)	$	(14,894	)	$	3,207	$	2,265	$	7,294	$	(17,776	)

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2017

(in thousands)

(unaudited)



	Parent Company			Issuers			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination			Consolidated
Net cash provided by operating activities	$	27,886		$	—		$	1,017		$	2,535		$	—		$	31,438
Cash flows from investing activities:
Fundings of loans receivable	—			—			(508		)	—			—			(508		)
Fundings of preferred equity investments	—			—			(51		)	—			—			(51		)
Additions to real estate	(1		)	—			(474		)	(45		)	—			(520		)
Repayment of loans receivable	—			—			118			—			—			118
Distribution from subsidiary	2,474			2,474			—			—			(4,948		)	—
Intercompany financing	(10,025		)	(916		)	—			—			10,941			—
Net cash (used in) provided by investing activities	(7,552		)	1,558			(915		)	(45		)	5,993			(961		)
Cash flows from financing activities:
Net repayments from revolving credit facility	—			(9,000		)	—			—			—			(9,000		)
Principal payments on mortgage notes	—			—			—			(1,021		)	—			(1,021		)
Payments of deferred financing costs	—			(109		)	—			—			—			(109		)
Issuance of common stock	(3,224		)	—			—			—			—			(3,224		)
Dividends paid on common and preferred stock	(29,993		)	—			—			—			—			(29,993		)
Distribution to parent	—			(2,474		)	—			(2,474		)	4,948			—
Intercompany financing	—			10,025			916			—			(10,941		)	—
Net cash (used in) provided by financing activities	(33,217		)	(1,558		)	916			(3,495		)	(5,993		)	(43,347		)
Net (decrease) increase in cash and cash equivalents	(12,883		)	—			1,018			(1,005		)	—			(12,870		)
Effect of foreign currency translation on cash and cash equivalents	—			—			14			7			—			21
Cash and cash equivalents, beginning of period	18,168			—			2,675			4,820			—			25,663
Cash and cash equivalents, end of period	$	5,285		$	—		$	3,707		$	3,822		$	—		$	12,814

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2016

(in thousands)

(unaudited)



	Parent Company			Issuers			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination			Consolidated
Net cash provided by operating activities	$	21,718		$	—		$	1,430		$	1,578		$	—		$	24,726
Cash flows from investing activities:
Origination and fundings of loans receivable	—			—			(5,850		)	—			—			(5,850		)
Origination and fundings of preferred equity investments	—			—			(984		)	—			—			(984		)
Additions to real estate	(74		)	—			(400		)	—			—			(474		)
Repayment of loans receivable	—			—			8,874			—			—			8,874
Investment in subsidiaries	(200		)	(200		)	—			—			400			—
Net proceeds from the sale of real estate	—			—			398			—			—			398
Distribution from subsidiaries	2,025			2,025			—			—			(4,050		)	—
Intercompany financing	8,347			25,621			—			—			(33,968		)	—
Net cash provided by investing activities	10,098			27,446			2,038			—			(37,618		)	1,964
Cash flows from financing activities:
Net repayments from revolving credit facility	—			(57,000		)	—			—			—			(57,000		)
Proceeds from term loan	—			45,000			24,360			—			—			69,360
Principal payments on mortgage notes	—			—			(38		)	(984		)	—			(1,022		)
Payments of deferred financing costs	—			(5,274		)	(611		)	—			—			(5,885		)
Issuance of common stock	(1,274		)	—			—			—			—			(1,274		)
Dividends paid on common and preferred stock	(29,301		)	—			—			—			—			(29,301		)
Contribution from parent	—			200			—			200			(400		)	—
Distribution to parent	—			(2,025		)	—			(2,025		)	4,050			—
Intercompany financing	—			(8,347		)	(25,621		)	—			33,968			—
Net cash used in financing activities	(30,575		)	(27,446		)	(1,910		)	(2,809		)	37,618			(25,122		)
Net increase (decrease) in cash and cash equivalents	1,241			—			1,558			(1,231		)	—			1,568
Effect of foreign currency translation on cash and cash equivalents	—			—			70			61			—			131
Cash and cash equivalents, beginning of period	2,548			—			456			4,430			—			7,434
Cash and cash equivalents, end of period	$	3,789		$	—		$	2,084		$	3,260		$	—		$	9,133

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12. COMMITMENTS AND CONTINGENCIES

Environmental

As an owner of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of properties in the vicinity of the Company’s properties, the activities of its tenants and other environmental conditions of which the Company is unaware with respect to the properties could result in future environmental liabilities. As of March 31, 2017 , the Company does not expect that compliance with existing environmental laws will have a material adverse effect on the Company’s financial condition and results of operations.

Legal Matters

From time to time, the Company is party to legal proceedings that arise in the ordinary course of its business. Management is not aware of any legal proceedings where the likelihood of a loss contingency is reasonably possible and the amount or range of reasonably possible losses is material to the Company's results of operations, financial condition or cash flows.

13. SUBSEQUENT EVENTS

The Company evaluates subsequent events up until the date the condensed consolidated financial statements are issued.

Dividend Declaration

On May 8, 2017 , the Company announced that its board of directors declared a quarterly cash dividend of $0.43 per share of common stock. The dividend will be paid on May 31, 2017 to common stockholders of record as of the close of business on May 18, 2017 .

On May 8, 2017 , the Company also announced that its board of directors declared a quarterly cash dividend of $0.4453125 per share of Series A Preferred Stock. The dividend will be paid on May 31, 2017 to preferred stockholders of record as of the close of business on May 18, 2017 .

Pending Merger with CCP

On May 7, 2017, the Company and the Operating Partnership entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Care Capital Properties, Inc., a Delaware corporation (“CCP”), PR Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (“Merger Sub”), and Care Capital Properties, L.P. (“CCPLP”), a Delaware limited partnership and wholly-owned subsidiary of CCP. Pursuant to the Merger Agreement, CCP will be merged with and into Merger Sub (the “Merger”), with Merger Sub continuing as the surviving entity in the Merger. Following the Merger, also pursuant to the Merger Agreement, Merger Sub will be merged with and into the Company (the “Subsequent Merger”), with the Company continuing as the surviving entity in the Subsequent Merger. Simultaneously with the Subsequent Merger, also pursuant to the Merger Agreement, CCPLP will be merged with and into Sabra LP (the “Partnership Merger”), with Sabra LP continuing as the surviving entity in the Partnership Merger.

Upon the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each share of CCP common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the Merger (other than shares of CCP common stock owned directly by CCP, the Company or their respective subsidiaries, in each case not held on behalf of third parties) will be converted into the right to receive 1.123 (the “Exchange Ratio”) newly issued shares of Company common stock, par value $0.01 per share.

The parties’ obligations to consummate the Merger are subject to certain conditions, including, without limitation, (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of CCP common stock entitled to vote at a special meeting of the CCP stockholders held for that purpose, (ii) the approval of the issuance of Company common stock in connection with the Merger by a majority of the votes cast by the holders of Company common stock at a special meeting of the Company stockholders held for that purpose, (iii) the shares of Company common stock to be issued in connection with the Merger will have been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance, (iv) the effectiveness of the registration statement on Form S-4 to be filed by the Company for purposes of registering the issuance of shares of Company common stock issuable in connection with the Merger, (v) the Company and CCP each having received

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certain tax opinions and (vi) the absence of any order or injunction preventing the consummation of the Merger or any material law rendering the consummation of the Merger illegal.

The Company, Merger Sub and CCP have made customary representations and warranties in the Merger Agreement and agreed to certain customary covenants, including, among others, covenants by each party to use commercially reasonable efforts to conduct its business in the ordinary course of business consistent with past practice during the period between the execution of the Merger Agreement and the consummation of the Merger.

The closing of the Merger is expected to occur during the third calendar quarter of 2017, subject to the satisfaction of certain closing conditions. There can be no assurance that all closing conditions will be satisfied or waived by the parties, that the Merger will close on during the third calendar quarter of 2017 or that the Merger will be consummated at all.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The discussion below contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those which are discussed in the “Risk Factors” section in Part I, Item 1A of our 2016 Annual Report on Form 10-K and Part II, Item 1A of this 10-Q. Also see “Statement Regarding Forward-Looking Statements” preceding Part I.

The following discussion and analysis should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto.

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations is organized as follows:


•	Overview


•	Critical Accounting Policies


•	Recently Issued Accounting Standards Update


•	Results of Operations


•	Liquidity and Capital Resources


•	Concentration of Credit Risk


•	Skilled Nursing Facility Reimbursement Rates


•	Obligations and Commitments


•	Off-Balance Sheet Arrangements

Overview

We operate as a self-administered, self-managed REIT that, through our subsidiaries, owns and invests in real estate serving the healthcare industry.

Our primary business consists of acquiring, financing and owning real estate property to be leased to third party tenants in the healthcare sector using triple-net operating leases. We primarily generate revenues by leasing properties to tenants and operators throughout the United States and Canada.

Our investment portfolio is primarily comprised of skilled nursing/transitional care facilities, senior housing facilities, an acute care hospital leased to third-party operators; senior housing facilities operated under third-party management agreements (“Managed Properties”); debt investments; and preferred equity investments.

Our objectives are to grow our investment portfolio while diversifying our portfolio by tenant, asset class and geography within the healthcare sector. We plan to achieve these objectives primarily through making investments directly or indirectly in healthcare real estate. We may also achieve our objective of diversifying our portfolio by tenant and asset class through select asset sales and other arrangements with Genesis and other tenants. We have entered into memoranda of understanding with Genesis to market for sale 35 skilled nursing facilities and we have made certain other lease and corporate guarantee amendments for the remaining 43 facilities leased to Genesis. Upon completion of the sales, these asset sales and amendments will have the benefit of reducing our net operating income concentration in Genesis and skilled nursing facilities, as well as strengthening our remaining Genesis-operated portfolio through the lease term extensions and guarantee enhancements; provided, however that there can be no assurances that we will successfully complete these sales on the terms or timing contemplated by the memoranda of understanding, or at all, in which event we may not achieve the anticipated benefits from such sales. On April 1, 2017, we completed the sale of one of these facilities. Marketing of the remaining 34 facilities is ongoing and is expected to be completed in the second half of 2017.

We expect to continue to grow our portfolio primarily through the acquisition of assisted living, independent living and memory care facilities in the U.S. and Canada and through the acquisition of skilled nursing/transitional care facilities in the U.S. We have and will continue to opportunistically acquire other types of healthcare real estate, originate financing secured directly or indirectly by healthcare facilities and invest in the development of senior housing and skilled nursing/transitional care facilities. We also expect to expand our portfolio through the development of purpose-built healthcare facilities through pipeline agreements and other arrangements with select developers. We further expect to work with existing operators to identify strategic development opportunities. These opportunities may involve replacing or renovating facilities in our portfolio that may have become less competitive and new development opportunities that present attractive risk-adjusted returns. In addition to pursuing acquisitions with triple-net leases, we expect to continue to pursue other forms of investment, including investments in Managed Properties, mezzanine and secured debt investments, and joint ventures for senior housing and skilled nursing/transitional care facilities.

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In general, we originate loans and make preferred equity investments when an attractive investment opportunity is presented and either (a) the property is in or near the development phase or (b) the development of the property is completed but the operations of the facility are not yet stabilized. A key component of our strategy related to loan originations and preferred equity investments is our having the option to purchase the underlying real estate that is owned by our borrowers (and that directly or indirectly secures our loan investments) or by the entity in which we have an investment. These options become exercisable upon the occurrence of various criteria, such as the passage of time or the achievement of certain operating goals, and the method to determine the purchase price upon exercise of the option is set in advance based on the same valuation methods we use to value our investments in healthcare real estate. This strategy allows us to diversify our revenue streams and build relationships with operators and developers, and provides us with the option to add new properties to our existing real estate portfolio if we determine that those properties enhance our investment portfolio and stockholder value at the time the options are exercisable.

We employ a disciplined, opportunistic approach in our healthcare real estate investment strategy by investing in assets that provide attractive opportunities for dividend growth and appreciation of asset values, while maintaining balance sheet strength and liquidity, thereby creating long-term stockholder value.

We elected to be treated as a REIT with the filing of our U.S. federal income tax return for the taxable year beginning January 1, 2011. We believe that we have been organized and have operated, and we intend to continue to operate, in a manner to qualify as a REIT. We operate through an umbrella partnership, commonly referred to as an UPREIT structure, in which substantially all of our properties and assets are held by Sabra Health Care Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), in which we are the sole general partner and our wholly owned subsidiaries are currently the only limited partners, or by subsidiaries of the Operating Partnership.

Pending Merger with CCP

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Managed Properties

On March 1, 2017, we terminated the lease of eight senior housing real estate investments in Canada and concurrently entered into a management agreement with Sienna Senior Living (“Sienna”), whereby we will own the operations, through a wholly-owned foreign taxable REIT subsidiary, of the facilities and the facilities will be operated by Sienna.

Critical Accounting Policies

Our condensed consolidated interim financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results is included in our 2016 Annual Report on Form 10-K filed with the SEC. Except as described in Note 2, “Summary of Significant Accounting Policies,” in the Notes to Condensed Consolidated Financial Statements, there have been no significant changes to our critical accounting policies during the three months ended March 31, 2017 .

Recently Issued Accounting Standards Update

See Note 2, “Summary of Significant Accounting Policies,” in the Notes to Condensed Consolidated Financial Statements for information concerning recently issued accounting standards updates.

Results of Operations

As of March 31, 2017 , our investment portfolio included 182 real estate properties held for investment, one asset held for sale, 10 investments in loans receivable and 12 preferred equity investments. As of March 31, 2016 , our investment portfolio included 178 real estate properties held for investment, one asset held for sale, 17 investments in loans receivable and 10 preferred equity investments. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of owning acquired investments for an entire period and the anticipated future acquisition of additional investments. The results of operations presented are not directly comparable due to ongoing acquisition activity.

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Comparison of results of operations for the three months ended March 31, 2017 versus the three months ended March 31, 2016 (dollars in thousands):



	Three Months Ended March 31,					Increase / (Decrease)			Percentage Difference		Variance due to Acquisitions, Originations and Dispositions ⁽¹⁾			Remaining Variance ⁽²⁾
	2017		2016			Increase / (Decrease)			Percentage Difference					Remaining Variance ⁽²⁾
Revenues:
Rental income	$	57,224	$	55,312		$	1,912		3	%	$	2,963		$	(1,051	)
Interest and other income	1,945		5,332			(3,387		)	(64	)%	(2,902		)	(485		)
Resident fees and services	3,481		1,915			1,566			82	%	1,543			23
Expenses:
Depreciation and amortization	19,137		17,766			1,371			8	%	(433		)	1,804
Interest	15,788		16,918			(1,130		)	(7	)%	—			(1,130		)
Operating expenses	2,420		1,412			1,008			71	%	1,025			(17		)
General and administrative	6,873		4,714			2,159			46	%	474			1,685
Provision for doubtful accounts and loan losses	1,770		2,523			(753		)	(30	)%	—			(753		)
Impairment of real estate	—		29,811			(29,811		)	NM		(29,811		)	—
Other income (expense):
Loss on extinguishment of debt	—		(556		)	556			NM		—			556
Other income	2,129		—			2,129			NM		—			2,129
Net loss on sale of real estate	—		(4,602		)	4,602			NM		4,602			—

⁽¹⁾ Represents the dollar amount increase (decrease) for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 as a result of investments/dispositions made after January 1, 2016 .

⁽²⁾ Represents the dollar amount increase (decrease) for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 that is not a direct result of investments/dispositions made after January 1, 2016 .

Rental Income

During the three months ended March 31, 2017 , we recognized $57.2 million of rental income compared to $55.3 million for the three months ended March 31, 2016 . The $1.9 million increase in rental income is primarily due to an increase of $3.7 million from properties acquired after January 1, 2016 , offset by a decrease of $0.7 million from properties disposed of after January 1, 2016 and a decrease of $0.8 million due to the eight senior housing facilities that were transitioned to Managed Properties on March 1, 2017. Amounts due under the terms of all of our lease agreements are subject to contractual increases, and contingent rental income may be derived from certain lease agreements. No material contingent rental income was derived during the three months ended March 31, 2017 and 2016.

Interest and Other Income

Interest and other income primarily consists of income earned on our loans receivable investments and preferred returns earned on our preferred equity investments. During the three months ended March 31, 2017 , we recognized $1.9 million of interest and other income compared to $5.3 million for the three months ended March 31, 2016 . The decrease of $3.4 million is primarily due to interest income recognized at the default rate and late fees related to our investment in the Forest Park - Fort Worth construction loan during the three months ended March 31, 2016 . This loan was repaid in 2016.

Resident Fees and Services

During the three months ended March 31, 2017 , we recognized $3.5 million of resident fees and services compared to $1.9 million for the three months ended March 31, 2016 . The increase of $1.6 million is primarily due to the eight senior housing facilities that were transitioned to Managed Properties on March 1, 2017.

Depreciation and Amortization

During the three months ended March 31, 2017 , we incurred $19.1 million of depreciation and amortization expense compared to $17.8 million for the three months ended March 31, 2016 . The $1.4 million net increase in depreciation and amortization expense was due to an increase of $1.2 million from properties acquired after January 1, 2016 and an increase of

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$1.8 million due to the acceleration of the lease intangible amortization related to the eight senior housing facilities transitioned to Managed Properties, partially offset by a decrease of $1.6 million from properties disposed of after January 1, 2016 .

Interest Expense

We incur interest expense comprised of costs of borrowings plus the amortization of deferred financing costs related to our indebtedness. During the three months ended March 31, 2017 , we incurred $15.8 million of interest expense compared to $16.9 million for the three months ended March 31, 2016 . The $1.1 million net decrease is primarily related to (i) a $1.2 million decrease in interest expense related to lower borrowings outstanding on the Revolving Credit Facility and (ii) a $0.2 million decrease in interest expense primarily due to the decreased average balance outstanding on mortgage note borrowings, partially offset by a $0.3 million increase in amortization expense related to our interest rate hedges.

Operating Expenses

During the three months ended March 31, 2017 , we recognized $2.4 million of operating expenses compared to $1.4 million for the three months ended March 31, 2016 . The increase of $1.0 million is primarily due to the eight senior housing facilities that were transitioned to Managed Properties on March 1, 2017.

General and Administrative Expenses

General and administrative expenses include compensation-related expenses as well as professional services, office costs, and other costs associated with acquisition pursuit activities and asset management. During the three months ended March 31, 2017 , general and administrative expenses were $6.9 million compared to $4.7 million during the three months ended March 31, 2016 . The $2.2 million increase is primarily related to (i) an $0.8 million increase in stock-based compensation, (ii) a $0.7 million increase in legal and professional fees primarily due the increased number of investments and (iii) a $0.5 million increase in expensed acquisition pursuit costs from $0.1 million during the three months ended March 31, 2016 to $0.6 million during the three months ended March 31, 2017 primarily due to the Merger with CCP. The increase in stock-based compensation expense, from $1.8 million during the three months ended March 31, 2016 to $2.6 million during the three months ended March 31, 2017 , is primarily related to the change in our stock price during the three months ended March 31, 2017 (an increase of $3.51 per share) compared to the three months ended March 31, 2016 (a decrease of $0.14 per share). We issued stock to employees who elected to receive annual bonuses in stock rather than in cash and therefore changes in our stock price will result in changes to our bonus expense.

Provision for Doubtful Accounts and Loan Losses

During the three months ended March 31, 2017 , we recognized $1.8 million in provision for doubtful accounts and loans losses. Of the $1.8 million provision, $0.1 million is due to an increase in reserves on cash rental income, $1.6 million is due to an increase in loan loss reserves and a $44,000 increase in reserves on straight-line rental income. During the three months ended March 31, 2016 , we recognized $2.5 million in provision for doubtful accounts. Of the $2.5 million provision, $0.1 million is due to an increase in general reserves on straight-line rental income and $2.4 million is due to an increase in loan loss reserves.

Impairment of Real Estate

During the three months ended March 31, 2017 , no impairment of real estate was recorded. During the three months ended March 31, 2016 , we recognized $29.8 million of impairment of real estate related to the sale of the Forest Park - Frisco hospital.

Loss on Extinguishment of Debt

We did not recognize any loss on extinguishment of debt during the three months ended March 31, 2017 . During the three months ended March 31, 2016 , we recognized $0.6 million of loss on extinguishment of debt related to write-offs of deferred financing costs in connection with amending the Prior Revolving Credit Facility and Prior Canadian Term Loan (defined below).

Other Income

During the three months ended March 31, 2017 , we recognized $2.1 million of other income. The $2.1 million in other income is due to $1.3 million amortization of lease termination payments related to a memoranda of understanding entered into with Genesis regarding five Genesis facilities (of which three were owned as of March 31, 2017 ) and $0.8 million is a result of adjusting the fair value of our contingent consideration liability related to the acquisition of a senior housing facility. During the three months ended March 31, 2016 , we did not incur any other income/loss.

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Net Gain (Loss) on Sales of Real Estate

There were no real estate sales during the three months ended March 31, 2017 . During the three months ended March 31, 2016 , we recognized a loss on the sale of real estate of $4.6 million related to the disposition of one skilled nursing/transitional care facility. See Note 4, “Assets Held for Sale and Dispositions” for additional information.

Funds from Operations and Adjusted Funds from Operations

We believe that net income attributable to common stockholders as defined by GAAP is the most appropriate earnings measure. We also believe that funds from operations attributable to common stockholders (“FFO”), as defined in accordance with the definition used by the National Association of Real Estate Investment Trusts (“NAREIT”), and adjusted funds from operations attributable to common stockholders (“AFFO”) (and related per share amounts) are important non-GAAP supplemental measures of our operating performance. Because the historical cost accounting convention used for real estate assets requires straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that uses historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income attributable to common stockholders, as defined by GAAP. FFO is defined as net income attributable to common stockholders, computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and real estate impairment charges. AFFO is defined as FFO excluding straight-line rental income adjustments, stock-based compensation expense, amortization of deferred financing costs and expensed acquisition pursuit costs, as well as other non-cash revenue and expense items (including provisions and write-offs related to straight-line rental income, provision for loan losses, changes in fair value of contingent consideration, amortization of debt premiums/discounts and non-cash interest income adjustments). We believe that the use of FFO and AFFO (and the related per share amounts), combined with the required GAAP presentations, improves the understanding of our operating results among investors and makes comparisons of operating results among REITs more meaningful. We consider FFO and AFFO to be useful measures for reviewing comparative operating and financial performance because, by excluding the applicable items listed above, FFO and AFFO can help investors compare our operating performance between periods or as compared to other companies. While FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income attributable to common stockholders as defined by GAAP and should not be considered an alternative to those measures in evaluating our liquidity or operating performance. FFO and AFFO also do not consider the costs associated with capital expenditures related to our real estate assets nor do they purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define AFFO differently than we do.

The following table reconciles our calculations of FFO and AFFO for the three months ended March 31, 2017 and 2016 , to net income attributable to common stockholders, the most directly comparable GAAP financial measure, for the same periods (in thousands, except share and per share amounts):

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	Three Months Ended March 31,
	2017			2016
Net income (loss) attributable to common stockholders	$	16,262		$	(18,272	)
Depreciation and amortization of real estate assets	19,137			17,766
Net loss on sale of real estate	—			4,602
Impairment of real estate	—			29,811

FFO attributable to common stockholders	35,399			33,907

Expensed acquisition pursuit costs ⁽¹⁾	563			89
Stock-based compensation expense	2,588			1,818
Straight-line rental income adjustments	(4,607		)	(5,593		)
Amortization of deferred financing costs	1,277			1,221
Non-cash portion of loss on extinguishment of debt	—			556
Change in fair value of contingent consideration	(822		)	—
Provision for doubtful straight-line rental income, loan losses and other reserves	1,390			2,523
Other non-cash adjustments ⁽²⁾	399			304

AFFO attributable to common stockholders	$	36,187		$	34,825

FFO attributable to common stockholders per diluted common share	$	0.54		$	0.52

AFFO attributable to common stockholders per diluted common share	$	0.55		$	0.53

Weighted average number of common shares outstanding, diluted:
FFO attributable to common stockholders	65,920,486			65,414,703

AFFO attributable to common stockholders	66,325,908			65,825,187

⁽¹⁾ On October 1, 2016, we early-adopted ASU 2017-01, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as business acquisitions. All real estate acquisitions completed subsequent to October 1, 2016 were considered asset acquisitions and we have capitalized acquisition pursuit costs associated with these acquisitions, including those costs incurred prior to October 1, 2016. Acquisitions completed prior to October 1, 2016 were deemed business combinations and the related acquisition pursuit costs were expensed as incurred.

⁽²⁾ Other non-cash adjustments includes amortization of debt premiums/discounts, non-cash interest income adjustments and amortization expense related to our interest rate hedges.

Set forth below is additional information related to certain other items included in net income attributable to common stockholders above, which may be helpful in assessing our operating results. Please see the accompanying condensed consolidated statements of cash flows for details of our operating, investing, and financing cash activities.

Significant Items Included in FFO and AFFO Attributable to Common Stockholders:

•

During the three months ended March 31, 2017 , we recognized $2.1 million of other income. The $2.1 million consists of $1.3 million in lease termination payments related to a memorandum of understanding entered into with Genesis regarding five Genesis facilities (of which three were owned as of March 31, 2017 ) and $0.8 million related to decreasing the value of our contingent consideration liability related to the acquisition of a senior housing facility. This amount in its entirety is included in FFO for the three months ended March 31, 2017 , and $1.3 million is included in AFFO for the three months ended March 31, 2017 .

•

During the three months ended March 31, 2017 , we incurred $1.8 million in provision for doubtful accounts. Of the $1.8 million, $44,000 is due to an increase in straight-line rental income reserve, $0.1 million is due to an increase in reserves on cash rental revenue and $1.6 million is due to an increase in loan loss reserves. This entire amount is included in FFO for the three months ended March 31, 2017 and $0.4 million is included in AFFO for the three months ended March 31, 2017 .


•	During the three months ended March 31, 2017 , we incurred $0.5 million of expensed acquisition costs in connection with the Merger with CCP. This entire amount is included in FFO for the three months ended March 31, 2017 .


•	During the three months ended March 31, 2016 , we recognized $0.6 million of loss on extinguishment of debt related to write-offs of deferred financing costs in connection with amending the Credit Facility and Canadian dollar term loan. This entire amount is included in FFO for the three months ended March 31, 2016 .

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•	During the three months ended March 31, 2016 , we recognized $2.5 million in provision for doubtful accounts. Of the $2.5 million, $0.1 million is due to an increase in general reserves on straight-line rental income and $2.4 million is due to an increase in loan loss reserves. This entire amount is included in FFO for the three months ended March 31, 2016 .

Liquidity and Capital Resources

As of March 31, 2017 , we had approximately $495.8 million in liquidity, consisting of unrestricted cash and cash equivalents of $12.8 million (excluding joint venture cash and cash equivalents), and available borrowings under our Revolving Credit Facility of $483.0 million . The Credit Facility also contains an accordion feature that can increase the total available borrowings to $1.25 billion (from U.S. $745.0 million plus CAD $125.0 million), subject to terms and conditions.

We have filed a shelf registration statement on Form S-3 with the SEC that expires in January 2020, which will allow us to offer and sell shares of common stock, preferred stock, warrants, rights, units, and certain of our subsidiaries to offer and sell debt securities, through underwriters, dealers or agents or directly to purchasers, on a continuous or delayed basis, in amounts, at prices and on terms we determine at the time of the offering, subject to market conditions.

We believe that our available cash, operating cash flows and borrowings available to us under the Revolving Credit Facility provide sufficient funds for our operations, scheduled debt service payments with respect to our Senior Notes, mortgage indebtedness on our properties, and dividend requirements for the next twelve months. In addition, we do not believe that the restrictions under our Senior Notes Indentures significantly limit our ability to use our available liquidity for these purposes.

We intend to invest in additional healthcare properties as suitable opportunities arise and adequate sources of financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly-acquired properties, will depend on and will be financed, in whole or in part, by our existing cash, borrowings available to us under our Revolving Credit Facility, future borrowings or the proceeds from issuances of common stock, preferred stock, debt or other securities. In addition, we may seek financing from U.S. government agencies, including through Fannie Mae and HUD, in appropriate circumstances in connection with acquisitions.

Cash Flows from Operating Activities

Net cash provided by operating activities was $31.4 million for the three months ended March 31, 2017 . Operating cash inflows were derived primarily from the rental payments received under our lease agreements and interest payments from borrowers under our loan investments. Operating cash outflows consisted primarily of interest on borrowings and payment of general and administrative expenses, including expensed acquisition pursuit costs and corporate overhead.

Cash Flows from Investing Activities

During the three months ended March 31, 2017 , net cash used in investing activities was $1.0 million and consisted of $0.5 million used to provide additional funding for existing loans receivable, $0.1 million used to fund existing preferred equity investments and $0.5 million used for tenant improvements, partially offset by $0.1 million in repayments of loans receivable.

We expect to continue using available liquidity in connection with anticipated future real estate investments, loan originations and preferred equity investments.

Cash Flows from Financing Activities

During the three months ended March 31, 2017 , net cash used in financing activities was $43.3 million and consisted of $30.0 million of dividends paid to stockholders, $1.0 million of principal repayments of mortgage notes payable, $0.1 million of payments for deferred financing costs primarily associated with the Credit Facility and $3.2 million of payroll tax payments related to the issuance of common stock pursuant to equity compensation arrangements. In addition, during the three months ended March 31, 2017 , we repaid a net amount of $9.0 million on our Revolving Credit Facility.

Loan Agreements

2021 Notes. On January 23, 2014, the Operating Partnership and Sabra Capital Corporation, wholly owned subsidiaries of the Company (the “Issuers”), issued $350.0 million aggregate principal amount of 5.5% senior unsecured notes due 2021 (the “Existing 2021 Notes”), providing net proceeds of approximately $340.8 million after deducting underwriting discounts and other offering expenses. On October 10, 2014, the Issuers issued an additional $150.0 million aggregate principal amount of 5.5% senior unsecured notes due 2021 (together with the Existing 2021 Notes, the “2021 Notes”), providing net proceeds of

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approximately $145.6 million (not including pre-issuance accrued interest), after deducting underwriting discounts and other offering expenses and a yield-to-maturity of 5.593%.

2023 Notes. On May 23, 2013, the Issuers issued $200.0 million aggregate principal amount of 5.375% senior notes due 2023 (the “2023 Notes” and, together with the 2021 Notes, the “Senior Notes”), providing net proceeds of approximately $194.6 million after deducting underwriting discounts and other offering expenses.

See Note 6, “Debt,” in the Notes to Condensed Consolidated Financial Statements for additional information concerning the 2021 Notes and the 2023 Notes, including information regarding the indentures governing the Senior Notes (the “Senior Notes Indentures”). As of March 31, 2017 , we were in compliance with all applicable covenants under the Senior Notes Indentures.

Revolving Credit Facility and Term Loans . On January 14, 2016, the Borrowers entered into a third amended and restated Credit Facility.

The Credit Facility includes a Revolving Credit Facility and the Term Loans. The Revolving Credit Facility provides for a borrowing capacity of $500.0 million and, in addition, increases our U.S. dollar and Canadian dollar term loans to $245.0 million and CAD $125.0 million, respectively. Further, up to $125.0 million of the Revolving Credit Facility may be used for borrowings in certain foreign currencies. The Credit Facility also contains an accordion feature that can increase the total available borrowings to $1.25 billion, subject to terms and conditions.

The obligations of the Borrowers under the Credit Facility are guaranteed by us and certain of our subsidiaries.

See Note 6, “Debt,” in the Notes to Condensed Consolidated Financial Statements for additional information concerning the Credit Facility, including information regarding covenants contained in the Credit Facility. As of March 31, 2017 , we were in compliance with all applicable covenants under the Credit Facility.

Mortgage Indebtedness

Of our 182 properties held for investment, 20 are subject to mortgage indebtedness to third parties that, as of March 31, 2017 , totaled approximately $162.8 million . As of March 31, 2017 and December 31, 2016 , our mortgage notes payable consisted of the following (dollars in thousands):



Interest Rate Type	Principal Balance as of March 31, 2017 ⁽¹⁾		Principal Balance as of December 31, 2016 ⁽¹⁾		Weighted Average Effective Interest Rate at March 31, 2017 ⁽²⁾		Maturity Date
Fixed Rate	$	162,762	$	163,638	3.87	%	December 2021 - August 2051

⁽¹⁾ Principal balance does not include deferred financing costs of $ 2.9 million as of March 31, 2017 and December 31, 2016 .

⁽²⁾ Weighted average effective interest rate includes private mortgage insurance.

Capital Expenditures

There were $0.5 million of capital expenditures for the three months ended March 31, 2017 and 2016. The capital expenditures for the three months ended March 31, 2017 and 2016 include $1,000 and $0.1 million, respectively, of capital expenditures for corporate office needs. There are no present plans for the improvement or development of any unimproved or undeveloped property; however, from time to time we may agree to fund improvements our tenants make at our facilities. Accordingly, we anticipate that our aggregate capital expenditure requirements for the next 12 months will not exceed $8.0 million, and that such expenditures will principally be for improvements to our facilities and result in incremental rental income.

Dividends

We paid dividends of $30.0 million on our common and preferred stock during the three months ended March 31, 2017 . On May 8, 2017 , our board of directors declared a quarterly cash dividend of $0.43 per share of common stock. The dividend will be paid on May 31, 2017 to common stockholders of record as of May 18, 2017 . Also on May 8, 2017 , our board of directors declared a quarterly cash dividend of $0.4453125 per share of Series A Preferred Stock. The dividend will be paid on May 31, 2017 to preferred stockholders of record as of the close of business on May 18, 2017 .

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Concentration of Credit Risk

Concentrations of credit risks arise when a number of operators, tenants or obligors related to our investments are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to us, to be similarly affected by changes in economic conditions. We regularly monitor our portfolio to assess potential concentrations of risks.

Management believes our current portfolio is reasonably diversified across healthcare related real estate and geographical location and does not contain any other significant concentration of credit risks. Our portfolio of 182 real estate properties held for investment as of March 31, 2017 is diversified by location across the United States and Canada.

The following table provides information regarding significant tenant relationships as of March 31, 2017 (dollars in thousands):



		Three Months Ended March 31, 2017
	Number of Investments	Rental Revenue		% of Total Revenue

Genesis Healthcare, Inc.	78	$	19,955	31.9	%
Holiday AL Holdings, LP	21	9,813		15.7
NMS Healthcare	5	7,505		12.0

Skilled Nursing Facility Reimbursement Rates

A portion of our revenue is derived directly or indirectly from skilled nursing/transitional care facilities. Medicare reimburses skilled nursing facilities for Medicare Part A services under the Prospective Payment System (“PPS”), as implemented pursuant to the Balanced Budget Act of 1997 and modified pursuant to subsequent laws, most recently the Patient Protection and Affordable Care Act of 2010. PPS regulations predetermine a payment amount per patient, per day, based on a market basket index calculated for all covered costs. The amount to be paid is determined by classifying each patient into one of 66 Resource Utilization Group (“RUG”) categories that represent the level of services required to treat different conditions and levels of acuity.

The current system of 66 RUG categories, or Resource Utilization Group version IV (“RUG IV”), became effective as of October 1, 2010. RUG IV resulted from research performed by the Centers for Medicare & Medicaid Services (“CMS”) and was part of CMS's continuing effort to increase the correlation of the cost of services to the condition of individual patients.

On April 27, 2017, CMS issued a proposed rule updating Medicare payments to SNFs under the prospective payment system (PPS) for federal fiscal year 2018, which CMS estimates would increase payments to SNFs by an aggregate of 1.0% compared to federal fiscal year 2017. Additionally, in the proposed rule, CMS proposed to revise and rebase the market basket index for federal fiscal year 2018 and subsequent federal fiscal years by updating the base year from 2010 to 2014, and by adding a new cost category for Installation, Maintenance, and Repair Services. CMS also proposed additional polices, measures and data reporting requirements for the Skilled Nursing Facility Quality Reporting Program, as well as requirements for the Skilled Nursing Facility Value-Based Purchasing Program, including an exchange function to translate SNF performance scores calculated using the program’s scoring methodology into certain incentive payments.

On July 29, 2016, CMS released final fiscal year 2017 Medicare rates for skilled nursing facilities providing a net increase of 2.4% over fiscal year 2016 payments (comprised of a market basket increase of 2.7% less the productivity adjustment of 0.3%). The new payment rates became effective on October 1, 2016.

On November 16, 2015, CMS finalized the Comprehensive Care for Joint Replacement model, which began April 1, 2016, which will hold hospitals accountable for the quality of care they deliver to Medicare fee-for-service beneficiaries for hip and knee replacements and/or other major leg procedures from surgery through recovery. Through this payment model, hospitals in 67 geographic areas will receive additional payments if quality and spending performance are strong or, if not, potentially have to repay Medicare for a portion of the spending for care surrounding a lower extremity joint replacement (LEJR) procedure. As a result, Medicare revenues derived at skilled nursing facilities related to lower extremity joint replacement hospital discharges could be positively or negatively impacted in those geographic areas identified by CMS for mandatory participation in the bundled payment program.

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Obligations and Commitments

The following table summarizes our contractual obligations and commitments in future years, including our Senior Notes, our Revolving Credit Facility, our Term Loans and our mortgage indebtedness to third parties on certain of our properties. The following table is presented as of March 31, 2017 (in thousands):



			April 1 Through				Year Ending December 31,
	Total		December 31, 2017		2018		2019		2020		2021		After 2021
Mortgage indebtedness ⁽¹⁾	$	243,899	$	7,280	$	9,707	$	9,707	$	9,707	$	24,523	$	182,975
Revolving Credit Facility ⁽²⁾	22,536		1,494		1,983		1,983		17,076		—		—
Term Loans ⁽³⁾	377,702		7,729		10,259		10,259		10,287		339,168		—
Senior Notes ⁽⁴⁾	879,875		24,500		38,250		38,250		38,250		524,500		216,125
Operating lease	1,220		144		200		209		219		229		219
Total	$	1,525,232	$	41,147	$	60,399	$	60,408	$	75,539	$	888,420	$	399,319


⁽¹⁾	Mortgage indebtedness includes principal payments and interest payments through the maturity dates. Total interest on mortgage indebtedness, based on contractual rates, is $81.1 million.


⁽²⁾	Revolving Credit Facility includes payments related to the unused facility fee due to the lenders based on the amount of unused borrowings under the Revolving Credit Facility and also includes interest payments through the maturity date (assuming no exercise of its two six-month extension options).


⁽³⁾	Term loan includes interest payments through the maturity date.


⁽⁴⁾	Senior Notes includes interest payments through the maturity dates. Total interest on the Senior Notes is $179.9 million .

In addition to the above, as of March 31, 2017 , we have committed to provide up to $2.0 million of future funding related to one loan receivable investment. The loan receivable investment has a maturity date in March 2021.

Off-Balance Sheet Arrangements

None.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, primarily related to adverse changes in interest rates and the exchange rate for Canadian dollars. We use derivative instruments in the normal course of business to mitigate interest rate and foreign currency risk. We do not use derivative financial instruments for speculative or trading purposes. See Note 7, “Derivative and Hedging Instruments,” to the Condensed Consolidated Financial Statements for further discussion on our derivative instruments.

Interest rate risk. As of March 31, 2017 , our indebtedness included $700.0 million aggregate principal amount of Senior Notes outstanding, $162.8 million of mortgage indebtedness to third parties on certain of the properties that our subsidiaries own, $338.8 million in Term Loans and $17.0 million outstanding under the Revolving Credit Facility. As of March 31, 2017 , we had $355.8 million of outstanding variable rate indebtedness. In addition, as of March 31, 2017 , we had $483.0 million available for borrowing under our Revolving Credit Facility.

We expect to manage our exposure to interest rate risk by maintaining a mix of fixed and variable rates for our indebtedness. We also may manage, or hedge, interest rate risks related to our borrowings through interest rate swap agreements. As of March 31, 2017 , we had two interest rate swaps that fix the LIBOR portion of the interest rate for the LIBOR-based borrowings under the $245.0 million U.S. dollar term loan at 0.90% and two interest rate swaps that fix the CDOR portion of the interest rate for CAD $90.0 million and CAD $35.0 million of CDOR-based borrowings at 1.59% and 0.93%, respectively.

From time to time, we may borrow under the Revolving Credit Facility to finance future investments in properties, including any improvements or renovations of current or newly acquired properties, or for other purposes. Because borrowings under the Revolving Credit Facility bear interest on the outstanding principal amount at a rate equal to an applicable percentage plus, at our option, either (a) LIBOR or (b) a base rate determined as the greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) one-month LIBOR plus 1.0%, the interest rate we will be required to pay on any such borrowings will depend on then applicable rates and may vary. An increase in interest rates could make the financing of any investment by us more costly. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness.

Assuming a 100 basis point increase in the interest rate related to our variable rate debt and after giving effect to the impact of interest rate swap derivative instruments, interest expense would increase by $0.2 million for the twelve months following March 31, 2017 . As of March 31, 2017 , the index underlying our variable rate debt was below 100 basis points and if this index was reduced to zero during the twelve months following March 31, 2017 , interest expense on our variable rate debt would decrease by $0.2 million .

Foreign currency risk. We are exposed to changes in foreign exchange rates as a result of our investments in Canadian real estate. Our foreign currency exposure is partially mitigated through the use of Canadian dollar denominated debt totaling CAD $148.1 million and cross currency swap instruments. Based on our operating results for the three months ended March 31, 2017 , if the value of the Canadian dollar relative to the U.S. dollar were to increase or decrease by 10% compared to the average exchange rate during the three months ended March 31, 2017 , our cash flows would have decreased or increased, as applicable, by $0.1 million.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this report, management, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based upon, and as of the date of, the evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2017 to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None of the Company or any of its subsidiaries is a party to, and none of their respective property is the subject of, any material legal proceeding, although we are from time to time party to legal proceedings that arise in the ordinary course of our business.

ITEM 1A. RISK FACTORS

Other than the addition of the risk factors below, there have been no material changes in our assessment of our risk factors from those set forth in our 2016 Annual Report on Form 10-K.

The Merger may not be completed on the terms or timeline currently contemplated, or at all.

On May 7, 2017, we and the Operating Partnership entered into a Merger Agreement with CCP, CCPLP and Merger Sub pursuant to which, subject to the satisfaction or waiver of certain conditions, CCP will merge with and into Merger Sub, with Merger Sub continuing as the surviving corporation. The combined company will retain the Sabra name. Pursuant to the terms of the Merger Agreement, each share of CCP common stock issued and outstanding immediately prior to the Effective Time of the Merger will be converted into the right to receive 1.123 shares of Sabra common stock. The proposed Merger has been unanimously approved by our board of directors and the board of directors of CCP, and we expect to complete the transaction during the third calendar quarter of 2017, subject to satisfaction of closing conditions. These closing conditions include: (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of CCP common stock entitled to vote at a special meeting of the CCP stockholders held for that purpose, (ii) the approval of the issuance of Company common stock in connection with the Merger by a majority of the votes cast by the holders of Company common stock at a special meeting of the Company stockholders held for that purpose, (iii) the shares of Company common stock to be issued in connection with the Merger will have been approved for listing on the NASDAQ Global Select Market, subject to official notice of issuance, (iv) the effectiveness of the registration statement on Form S-4 to be filed by the Company for purposes of registering the issuance of shares of Company common stock issuable in connection with the Merger, (v) the Company and CCP each having received certain tax opinions and (vi) the absence of any order or injunction preventing the consummation of the Merger or any material law rendering the consummation of the Merger illegal. Neither we nor CCP can provide assurances that the Merger will be consummated on the terms or timeline currently contemplated, or at all.

The Exchange Ratio is fixed and will not be adjusted in the event of any change in either our or CCP’s stock prices.

The Exchange Ratio is fixed in the Merger Agreement and will not be adjusted for changes in the market price of either Sabra common stock or CCP common stock. Stock price changes may result from a variety of factors (many of which are beyond our control), including the following factors:


•	changes in the respective businesses, operations, assets, liabilities and prospects of Sabra and CCP;


•	changes in market assessments of the business, operations, financial position and prospects of either company or the combined company;


•	market assessments of the likelihood that the Merger will be completed;


•	interest rates, general market and economic conditions and other factors generally affecting the price of Sabra common stock or CCP common stock;


•	federal, state and local legislation, governmental regulation and legal developments in the businesses in which we and CCP operate; and


•	other factors beyond the control of Sabra, including those described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q and in our 2016 Annual Report on Form 10-K.

The price of Sabra common stock at the closing of the Merger may vary from the price on the date the Merger Agreement was executed and thereafter. As a result, the market value of the merger consideration we are paying as represented by the Exchange Ratio will also vary.

Our stockholders will be diluted by the Merger.

The Merger will dilute the ownership position of our stockholders. Upon completion of the Merger, our legacy stockholders will own approximately 41% of the issued and outstanding shares of Sabra common stock, and legacy CCP stockholders will own approximately 59% of the issued and outstanding shares of Sabra common stock. Consequently, our

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stockholders will have less influence over our management and policies after the Effective Time of the Merger than they currently exercise over our management and policies.

Failure to complete the Merger could adversely affect our stock price and our future business and financial results .

If the Merger is not completed, our ongoing businesses may be adversely affected and we will be subject to numerous risks associated with the failure to complete the Merger, including the following:


•	Sabra having to pay substantial costs relating to the proposed Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees and integration preparation costs that have already been incurred or will continue to be incurred until the closing of the Merger;


•	the management of Sabra focusing on the Merger instead of on pursuing other opportunities that could be beneficial to Sabra without realizing any of the benefits of having the Merger completed; and


•	reputational harm due to the adverse perception of any failure to successfully complete the Merger.

If the Merger is not completed, we cannot assure our stockholders that these risks will not materialize or will not materially affect the business, financial results and our stock price.

The pendency of the Merger could adversely affect our business and operations.

In connection with the pending Merger, some of our tenants or current or potential business partners may delay or defer decisions, which could adversely affect our revenues, earnings, funds from operations, cash flows and expenses, regardless of whether the Merger is completed. In addition, due to interim operating covenants in the Merger Agreement, we may be unable (without CCP’s prior written consent), during the pendency of the Merger, to pursue strategic investments, undertake certain significant financing transactions and otherwise pursue other actions, even if such actions would prove beneficial.

If the proposed Merger closes, we will face various additional risks.

If the proposed Merger closes, the combined company will face various additional risks, including, among others, the following:


•	the combined company expects to incur substantial expenses related to the Merger;


•	following the Merger, the combined company may be unable to integrate the businesses of our company and CCP successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated timeframe;


•	following the Merger, the combined company may be unable to implement its future plans;


•	following the Merger, the combined company may be unable to retain key employees; and


•	the future results of the combined company will suffer if the combined company does not effectively manage its expanded operations following the Merger.

Any of these risks could adversely affect the business and financial results of the combined company.

ITEM 6. EXHIBITS



Ex.		Description

2.1		Purchase and Sale Agreement and Joint Escrow Instructions, dated June 22, 2015, between Van Buren Street LLC, Randolph Road, LLC and St. Thomas More, LLC and Sabra Health Care Northeast, LLC (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on June 24, 2015).†

2.2		Purchase Agreement, dated June 26, 2015, between Sabra Hagerstown, LLC and Marsh Pike, LLC (incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K/A filed by Sabra Health Care REIT, Inc. on February 26, 2016).†

2.3		Agreement and Plan of Merger, dated as of May 7, 2017, by and among Sabra Health Care REIT, Inc., PR Sub, LLC, Sabra Health Care Limited Partnership, Care Capital Properties, Inc. and Care Capital Properties, LP. (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on May 8, 2017). †

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3.1		Articles of Amendment and Restatement of Sabra Health Care REIT, Inc., dated October 20, 2010, filed with the State Department of Assessments and Taxation of the State of Maryland on October 21, 2010 (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on October 26, 2010).

3.1.1		Articles Supplementary designating Sabra Health Care REIT, Inc.'s 7.125% Series A Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on March 21, 2013).

3.2		Amended and Restated Bylaws of Sabra Health Care REIT, Inc. (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on May 7, 2017).

4.1*		Seventh Supplemental Indenture, dated March 29, 2017, among Sabra Health Care Limited Partnership, Sabra Capital Corporation, Sabra Health Care REIT, Inc., the other guarantors named therein, and Wells Fargo Bank, National Association, as Trustee.

10.1*		Form of Amendment to Master Lease, dated April 1, 2017, by and among subsidiaries of Sabra Health Care REIT, Inc., subsidiaries of Genesis Healthcare, Inc. and Genesis Healthcare, Inc.

10.2*		Amended and Restated Memorandum of Understanding (Buy-Out Facilities), dated February 22, 2017.

10.3*		Amended and Restated Memorandum of Understanding (Sale Facilities), dated February 22, 2017.

10.4*		Amended and Restated Agreement Regarding Disposition of Assets and Lease Amendments, dated February 22, 2017.

10.5*		Memorandum of Understanding, dated as of May 1, 2017, by and between Sabra Health Care REIT, Inc. and Genesis Healthcare, Inc.

10.6*		Form of Amended and Restated Guaranty of Lease, dated May 4, 2017, by Genesis Healthcare, Inc. in favor of Landlord

10.7*		Form of Amendment to Lease, dated May 4, 2017, by and among Landlord, Tenant and Genesis Healthcare, Inc.

10.8		Commitment Letter, dated as of May 7, 2017, by and among Sabra Health Care REIT, Inc., UBSAG, Stamford Branch and UBS Securities, LLC. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Sabra Health Care REIT, Inc. on May 8, 2017).

12.1*		Statement Re: Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends.

31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.



*	Filed herewith.
**	Furnished herewith.

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†	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrants hereby agree to furnish supplementally copies of any of the omitted schedules and exhibits upon request by the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	SABRA HEALTH CARE REIT, INC.

Date: May 8, 2017	By:	/S/ RICHARD K. MATROS
		Richard K. Matros
		Chairman, President and
		Chief Executive Officer
		(Principal Executive Officer)

Date: May 8, 2017	By:	/S/ HAROLD W. ANDREWS, JR.
		Harold W. Andrews, Jr.
		Executive Vice President,
		Chief Financial Officer and Secretary
		(Principal Financial and Accounting Officer)

SEVENTH SUPPLEMENTAL INDENTURE (this “ Seventh Supplemental Indenture ”), dated as of March 29, 2017, among Sabra Health Care Limited Partnership, a Delaware limited partnership, and Sabra Capital Corporation, a Delaware corporation (together, the “ Issuers ”), Sabra Health Care REIT, Inc., a Maryland corporation (the “ Parent ” and a Guarantor, as defined in the Indenture referred to herein), Sabra CA Holdco, Inc., a British Columbia corporation, Sabra Colorado, LLC, a Nevada limited liability company and Sabra New Mexico II LLC, a Delaware limited liability company (each a “ Guaranteeing Subsidiary ” and collectively, the “ Guaranteeing Subsidiaries ”) and Wells Fargo Bank, National Association, a national banking association organized and existing under the laws of the United States of America, as Trustee (the “ Trustee ”). The Issuers, the Parent, and the Guaranteeing Subsidiaries each have their address for purposes of the Indenture at 18500 Von Karman Ave, Suite 550; Irvine, CA 92612,

WITNESSETH

WHEREAS, the Issuers, the Parent and the guarantors party thereto have heretofore executed and delivered to the Trustee an Indenture dated as of May 23, 2013 (as amended and supplemented, the “ Indenture ”), as supplemented by the First Supplemental Indenture, dated as of May 23, 2013 (the “ First Supplemental Indenture ”) providing for the issuance of 5.375% Senior Notes due 2023, the Second Supplemental Indenture, dated as of January 8, 2014, which added certain guarantors, the Third Supplemental Indenture dated as of January 23, 2014 (the “ Third Supplemental Indenture ”) providing for the issuance of the 5.5% Senior Notes due 2021 (collectively, with the 5.375% Senior Notes due 2023, the “ Notes ”), the Fourth Supplemental Indenture, dated as of April 30, 2014, which added certain guarantors, the Fifth Supplemental Indenture, dated as of September 29, 2014, which added certain guarantors, and the Sixth Supplemental Indenture, dated as of January 13, 2017, which added certain guarantors;

WHEREAS, Section 10.14 of the First Supplemental Indenture and the Third Supplemental Indenture, as applicable, provides that under certain circumstances the Parent shall not permit any future Guaranteeing Subsidiary of the Issuers to Guarantee any Indebtedness of the Issuers unless such Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which each Guaranteeing Subsidiary shall unconditionally guarantee all of the obligations of the Issuers under the Notes and the Indenture on the terms and conditions set forth herein (the “ Note Guaranty ”);

WHEREAS, pursuant to Section 8.01 of the First Supplemental Indenture and the Third Supplemental Indenture, as applicable, each Guaranteeing Subsidiary is required to endorse a notation of its Note Guaranty substantially in the form included in Exhibit B to the First Supplemental Indenture and the Third Supplemental Indenture, as applicable;

WHEREAS, pursuant to Section 9.1 and 9.6 of the First Supplemental Indenture and the Third Supplemental Indenture, as applicable, the Trustee is authorized and directed to execute and deliver this Seventh Supplemental Indenture;

113339221

WHEREAS, this Seventh Supplemental Indenture has not resulted in a material modification of the issuance of the Notes for FACTA purposes; and

WHEREAS, all the conditions and requirements necessary to make this Seventh Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled by the parties hereto and the execution and delivery thereof have been in all respects duly authorized by the parties hereto.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each of the Issuers, the Parent, the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. AGREEMENT TO GUARANTY. Each Guaranteeing Subsidiary hereby agrees, jointly and severally with the other Guarantors (as defined in the Indenture referred to herein), to provide an unconditional Guaranty, on and subject to the terms, conditions and limitations set forth in the Guaranty and in the Indenture, including, but not limited, to Article Eight of the First Supplemental Indenture and the Third Supplemental Indenture and to perform all of the obligations and agreements of a Guarantor under the Indenture as if named as a Guarantor thereunder.

3. NOTATION OF GUARANTY. Each Guaranteeing Subsidiary hereby agrees that a notation of such Note Guaranty substantially in the form included in Exhibit B to the First Supplemental Indenture and the Third Supplemental Indenture, as applicable, shall be endorsed by an Officer of each Guaranteeing Subsidiary in accordance with the requirements of Section 8.3 of the First Supplemental Indenture and the Third Supplemental Indenture, as applicable.

4. NEW YORK LAW TO GOVERN. THIS SEVENTH SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

5. COUNTERPARTS. The parties may sign any number of copies of this Seventh Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Signatures of the parties hereto transmitted by facsimile or PDF may be used in lieu of the originals and shall be deemed to be their original signatures for all purposes.

6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

7. THE TRUSTEE. The Trustee makes no representation as to and shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Seventh Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries, the Issuers and the Parent.

8. REPRESENTATIONS AND WARRANTIES. The Issuers, the Parent, each Guarantor and each Guaranteeing Subsidiary hereby represents and warrants to the Trustee and the Holders that all the conditions and requirements necessary to make this Seventh Supplemental Indenture a valid, binding and legal instrument, enforceable in accordance with its terms, have been performed and fulfilled by the parties hereto and the execution and delivery thereof have been in all respects duly authorized by the parties hereto.

[Signature pages follow]

IN WITNESS WHEREOF, the parties hereto have caused this Seventh Supplemental Indenture to be duly executed, all as of the date first above written.

SABRA CA HOLDCO, INC.
as a Guarantor

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.
Title: Chief Financial Officer and Secretary

SABRA COLORADO, LLC
as a Guarantor

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.
Title: Chief Financial Officer and Secretary

SABRA NEW MEXICO II, LLC
as a Guarantor

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.
Title: Chief Financial Officer and Secretary

[Signature Page to Seventh Supplemental Indenture]

SABRA HEALTH CARE LIMITED PARTNERSHIP
as Issuer

By: Sabra Health Care REIT, Inc. its general partner


By: /S/ HAROLD W. ANDREWS, JR.	Name: Harold W. Andrews, Jr. Title: Executive Vice President, Chief Financial Officer and Secretary

SABRA CAPITAL CORPORATION
as Issuer


By: /S/ HAROLD W. ANDREWS, JR.	Name: Harold W. Andrews, Jr. Title: Treasurer and Secretary

SABRA HEALTH CARE REIT, INC.
as Parent and a Guarantor

By: /S/    HAROLD W. ANDREWS, JR.
    Name: Harold W. Andrews, Jr.
    Title: Executive Vice President
Chief Financial Officer and Secretary

[Signature Page to Seventh Supplemental Indenture]

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee,


By:	/S/ MICHAEL Q. TU

Name: Michael Q. Tu

Title: Assistant Vice President

[Signature Page to Seventh Supplemental Indenture]

[ __________ ] AMENDMENT TO LEASE
([ _____________ ])

THIS [ ________ ]AMENDMENT TO LEASE (the “ Agreement ”) is made and entered into as of April 1, 2017 (the “ Effective Date ”) by and among [ ________, a ________ ] (“ Landlord ”); [ ________, a ________ ] (“ Tenant ”); and GENESIS HEALTHCARE, INC . (f/k/a SKILLED HEALTHCARE GROUP, INC .), a Delaware corporation (“ Guarantor ”), with reference to the following Recitals:

R E C I T A L S:

A. Landlord and Tenant are parties to that certain [ Lease dated as of ______ ] (as amended, the “ Lease ”), with respect to that certain skilled nursing facility identified therein. All initially capitalized terms used herein shall have the same meanings given to such terms in the Lease, unless otherwise defined herein.

B. Pursuant to that certain [Guaranty of Lease dated as of ______ ] (as amended, supplemented or otherwise modified from time to time, the “ Guaranty ”), Guarantor agreed to guaranty the obligations of Tenant under this Lease.

C. Tenant has requested that Landlord consent to the modification of certain terms of the Lease and Tenant and Landlord now desire to amend the Lease in accordance with the terms set forth herein.

A G R E E M E N T

NOW, THEREFORE, taking into account the foregoing Recitals, and in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Amendment to Lease . The definition of “Base Rent” set forth in Section 2.1 of the Lease is hereby amended and restated in its entirety as follows:

“ Base Rent :

(A) During the period commencing on April 1, 2017 and ending on [ __________, 2017 ], Base Rent means an annual amount equal to [ __________ Dollars ($________) ]; provided , however , that commencing with the [ _______ (___) ]) Lease Year and continuing each Lease Year thereafter during the Initial Term, the Base Rent shall increase to an annual amount equal to the sum of (i) the Base Rent for the immediately preceding Lease Year, and (ii) the Base Rent for the immediately preceding Lease Year multiplied by the Rent Escalator. For the purposes of determining the Base Rent payable for the [ _______ (___) ] Lease Year, the Base Rent for the

73640.2 - 1 -

immediately preceding Lease Year shall be deemed and construed to be [ $___________ ] .

(B) The Base Rent for the first year of each Renewal Term shall be an annual amount equal to the sum of (i) the Base Rent for the immediately preceding Lease Year, and (ii) the Base Rent for the immediately preceding Lease Year multiplied by the Rent Escalator. Commencing with the second (2 ^nd ) Lease Year of any Renewal Term and continuing each Lease Year thereafter during such Renewal Term, the Base Rent shall increase to an annual amount equal to the sum of (i) the Base Rent for the immediately preceding Lease Year, and (ii) the Base Rent for the immediately preceding Lease Year multiplied by the Rent Escalator.”

2. Affirmation of Obligations .

(a) Notwithstanding the modifications to the Lease contained herein, Tenant and Landlord each hereby acknowledges and reaffirms its obligations under the Lease (as modified hereby) and all other documents executed by such party in connection therewith.

(b) Notwithstanding the modifications to the Lease contained herein, Guarantor hereby acknowledges and reaffirms its obligations under the Guaranty and all documents executed by Guarantor in connection therewith, and further agrees that any reference made in the Guaranty to the Lease or any terms or conditions contained therein, shall mean such Lease or such terms or conditions as modified by this Agreement.

3. Further Instruments . Each party will, whenever and as often as it shall be reasonably requested so to do by another party, cause to be executed, acknowledged or delivered, any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement.

4. Incorporation of Recitals . The Recitals to this Agreement are incorporated hereby by reference.

5. Counterparts . This Agreement may be executed and delivered (including by facsimile or Portable Document Format (pdf) transmission) in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document. Any such facsimile documents and signatures shall have the same force and effect as manually-signed originals and shall be binding on the parties hereto.

6. Attorneys’ Fees . Tenant hereby agrees to reimburse Landlord, within fifteen (15) days of written demand therefor, for all documented reasonable attorneys’ fees and costs incurred by Landlord in connection with the preparation and negotiation of this Agreement. In the event of any dispute or litigation concerning the enforcement, validity or interpretation of this Agreement, or any part thereof, the losing party shall pay all costs, charges, fees and expenses (including reasonable attorneys’ fees) paid or incurred by the prevailing party, regardless of whether

73640.2 - 2 -

any action or proceeding is initiated relative to such dispute and regardless of whether any such litigation is prosecuted to judgment.

7. Effect of Amendment . Except as specifically amended pursuant to the terms of this Agreement, the terms and conditions of the Lease shall remain unmodified and in full force and effect. In the event of any inconsistencies between the terms of this Agreement and any terms of the Lease, the terms of this Agreement shall govern and prevail.

8. Entire Agreement . This Agreement contains the entire agreement between the parties relating to the subject matters contained herein. Any oral representations or statements concerning the subject matters herein shall be of no force or effect.

[SIGNATURES ON NEXT PAGE]

73640.2 - 3 -

IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

TENANT :

[ __________________ , ]

a [ ___________________ ]

By:

Name:

Title:

GUARANTOR :

GENESIS HEALTHCARE, INC.,
a Delaware corporation

By:

Name:

Title:

LANDLORD :

[ __________________ , ]

a [ ___________________ ]

By:

Name:

Title:

73640.SIG S- 1

SECOND AMENDED AND RESTATED

MEMORANDUM OF UNDERSTANDING

(BUY-OUT FACILITIES)

THIS SECOND AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING (BUY-OUT FACILITIES) (this “ MOU ”) is entered into as of February 22, 2017 by and between SABRA HEALTH CARE REIT, INC. , a Maryland corporation (“ Sabra ”), and GENESIS HEALTHCARE INC. , a Delaware corporation (“ Genesis ”).

A. Subsidiaries of Sabra, as landlord (collectively, “ Landlord ”) and subsidiaries of Genesis, as tenant, (collectively, “ Tenant ”) are parties to certain Master Leases (as amended from time to time, the “ Master Leases ”) with respect to inter alia , those certain healthcare facilities identified on Schedule 1 attached hereto (the “ Buy-Out Facilities ”).

B. Sabra and Genesis are entering into this MOU in order to memorialize their understanding of the material terms and conditions under which Tenant would buy out and terminate its lease obligations with respect to the Buy-Out Facilities. As each of Buy-Out Facilities are removed from its applicable Master Leases from time to time, Landlord and Tenant will enter into amendments to the Master Leases and other definitive documents (collectively, the “ Transaction Documents ”) in order to effectuate the termination of the Buy-Out Facilities under the terms set forth herein.

Subject to the foregoing, and the other provisions of this MOU, Sabra and Genesis hereby agree that it is their understanding that:

1. Buy Out Payment; Base Rent Adjustment . In order to terminate its lease obligations with respect to the Buy-Out Facilities under the terms set forth herein and in the applicable Transaction Documents, Genesis shall make, or shall cause Tenant to make, the following payments (the “ Buy Out Payments ”) to Sabra: (a) on or before April 1, 2016, the sum of Five Million Dollars ($5,000,000), and (b) on or before July 1, 2016, the sum of Five Million Dollars ($5,000,000). Upon Sabra’s receipt of each of the first and second Buy Out Payments, the annual Base Rent payable under the applicable Master Leases for the Buy-Out Facilities has been reduced by One Hundred Twenty-Five Thousand Dollars ($125,000) (the “ Interim Base Rent Reductions ”). Each of the Interim Base Rent Reductions was initially allocated to the following four (4) Master Leases in these amounts: Ohio Master Lease ($2,998); Other Centers Master Lease ($65,462); GE 5 Master Lease ($53,969); and Kentucky Master Lease ($2,571). Upon the satisfaction of the Additional Rent Credit Contingencies (as defined below), the annual Base Rent payable under the applicable Master Leases for the Buy-Out Facilities shall be reduced by an additional Six Hundred Five Thousand Dollars ($605,000) (collectively with the Interim Base Rent Reductions, the “ Total Base Rent Reduction ”). Notwithstanding the foregoing, upon the satisfaction of the Additional Rent Credit Contingencies, the Total Base Rent Reduction shall be applied on a prorated basis and retroactively under the Master Leases based upon the date upon which such Buy Out Payments were actually received by Sabra (i.e., 50% as of the date the first Buy Out Payment was received by Sabra and the remaining 50% as of the date the second Buy Out Payment was received by

69411.7 1

Sabra). The final allocation of such Total Base Rent Reduction among the Master Leases shall be allocated to the following three (3) Master Leases in these amounts: GE 5 Master Lease ($261,210); Other Centers Master Lease ($338,399); and Connecticut Master Lease ($5,391). As used herein, “ Additional Rent Credit Contingencies ” shall mean (i) the consummation of the sale of all of the Buy-Out Facilities, (ii) the consummation of the sale of all of the Sale Facilities (as defined in that certain Amended and Restated Memorandum of Understanding (Sale Facilities) dated as of July 29, 2016, as subsequently amended (the “ Sale Facility MOU ”)), and (iii) the consummation of the sale of all of the Subject Facilities (as defined in that certain Amended and Restated Agreement Regarding Disposition of Assets and Lease Amendments dated of even date herewith (the “ Disposition Agreement ”)) other than Eagle Crest (Carmichael).

2. Intended Sale of Buy-Out Facilities . Sabra will continue to use its commercially reasonable efforts to sell each of the Buy-Out Facilities. Subject to the applicable Base Rent reductions provided for herein, Tenant shall continue to operate each of the Buy-Out Facilities until the earlier of (a) August 31, 2017 (the “ Outside Date ”), or (b) the date upon which such Buy-Out Facility is sold and conveyed to a new operator (a “ New Operator ”). Landlord shall use reasonable efforts not to permit the marketing process to unreasonably interfere with Tenant’s operation of the Buy-Out Facilities prior to the closing of the sale. Landlord shall provide Tenant with (i) prompt written notice of its entry into an agreement regarding any of the Buy-Out Facilities, and (ii) a status update of its marketing efforts on a quarterly basis or as reasonably requested by Tenant, through the date which is sixty (60) days prior to the Outside Date. Genesis agrees to cause Tenant to use its commercially reasonable efforts to facilitate the sale of the Buy-Out Facilities, including, without limitation, by (A) entering into, and faithfully complying with, one or more operations transfer agreements (each, an “ OTA ”) in form and substance reasonably acceptable to Tenant with any New Operator, which shall, inter alia , (i) provide for the proration of operational revenues and expenses, (ii) include such representations, warranties and indemnities as may be negotiated by Tenant and New Operator, (iii) provide for the conveyance to the New Operator of Tenant’s Personal Property (as defined in the Master Leases); provided, however, Tenant may remove certain patient and employee records, and other information proprietary to Tenant, including information technology equipment that contains proprietary software; (iv) grant the New Operator reasonable access to the premises and Tenant’s books and records relating to the operations thereof; and (v) upon the reasonable request of the New Operator, the obligations of Tenant under such operations transfer agreement shall be guaranteed by an entity reasonably acceptable to the New Operator; and (B) reasonably cooperating with the New Operator in connection with its efforts to obtain the licenses, permits and other authorizations needed to operate the Buy-Out Facilities for their current use from and after the acquisition thereof, including, without limitation, by filing, submitting or otherwise distributing such applications and notices as the New Operator may reasonably request. Upon the closing of any such sale transaction, the Master Lease shall terminate as to the applicable Buy-Out Facility; provided, however, that the obligations of Tenant which by their terms survive the termination of such Master Lease shall survive the termination of the Master Lease as to such Buy-Out Facility, as applicable, pursuant to this section.

69411.7 2

If Sabra is not able to sell all of Buy-Out Facilities on or before the Outside Date, then Tenant may elect to voluntarily close the remaining unsold Buy-Out Facilities, which closure may commence immediately after the Outside Date (each such facility for which Tenant has elected to voluntarily close, a “ Closed Facility ”). Notwithstanding the foregoing, (i) in no event shall any notice of closing be provided to any occupant or regulatory agency prior to the Outside Date and (ii) Tenant may not deliver an election to close the Forest View facility until October 31, 2017 if, as of the Outside Date, (a) there is a bona fide offer by a third party to purchase the Forest View facility, (b) the offer is reasonably acceptable to Tenant and Sabra, (c) Sabra is diligently pursuing a sale to such third party and (d) the closing of such sale could reasonably be expected to occur within 60 days. After making any such election, Tenant shall at its own expense proceed to close each Closed Facility with reasonable diligence and in accordance with all applicable legal requirements. In connection with the closure of any facility, Tenant may remove Tenant’s Personal Property, patient and employee records, and other information proprietary to Tenant. Notwithstanding anything to the contrary set forth herein or in the Master Lease, in no event shall Tenant be entitled to re-open and occupy any Buy-Out Facility following the date of its closure.

3. Notification by Tenant; Ownership Rights . Upon the completion of the closure of any of the Buy-Out Facilities, Tenant shall promptly provide Landlord with written notification thereof. The parties hereto acknowledge that Landlord shall at all times retain title to the Buy-Out Facilities and Landlord’s Personal Property (as defined in the Master Leases) relating thereto, including, without limitation, all tangible personal property owned by Landlord (including any replacements thereof) and any applicable certificate of need or bed rights applicable thereto. Except as may be consented to by Landlord, or except as may otherwise be required pursuant to the closure process, Tenant shall not de-license any of the Buy-Out Facilities or terminate, transfer or assign any certificate of need or bed rights applicable thereto without the prior written consent of Landlord.

4. Miscellaneous.

(a) This MOU (together with the Sale Facility MOU and Disposition Agreement) constitutes the entire agreement and understanding between the parties hereto as to the matters set forth herein and amends and restates, supersedes and revokes all prior agreements and understandings, oral and written, between the parties hereto or otherwise with respect to the subject matter hereof, including, without limitation, any prior memorandum relating to the proposed disposition of any of the Buy-Out Facilities and the Sale Facilities. No change, amendment, termination or attempted waiver of any of the provisions hereof shall be binding upon any party unless set forth in an instrument in writing signed by the party to be bound.

(b) Genesis hereby agrees to reimburse Sabra, within fifteen (15) days of written demand therefor, for all documented reasonable attorneys’ fees and costs incurred by Sabra in connection with the preparation and negotiation of this MOU and the consummation of the transactions contemplated hereunder. In the event of any dispute or litigation concerning the enforcement, validity or interpretation of this MOU,

69411.7 3

or any part thereof, the losing party shall pay all costs, charges, fees and expenses (including reasonable attorneys’ fees) paid or incurred by the prevailing party, regardless of whether any action or proceeding is initiated relative to such dispute and regardless of whether any such litigation is prosecuted to judgment.

(c) Except as may be required by law or judicial process (including the requirements of any regulatory body or stock exchange), each party shall keep this MOU and its terms confidential and shall not disclose the same to any third party (except attorneys, accountants, or consultants hired by the parties hereto) without the express written consent of the other party. Notwithstanding the foregoing, the parties hereto shall be entitled to discuss the proposed transactions contemplated hereunder during their earnings calls, in discussions with analysts and investors and in connection with investor presentations.

(d) This MOU shall inure solely to the benefit of the parties hereto and their respective successors and assigns. No third party shall have the right to derive or claim any benefit hereunder and shall have no right to enforce or rely upon any provision of this MOU.

(e) This MOU may be executed in any number of counterparts, which may be executed in either original or electronically transmitted form (e.g., faxed or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

(f) This MOU will be governed by and construed in accordance with the substantive laws of the State of California, but exclusive of its conflicts of law provisions.

[Signature pages to follow.]

69411.7 4

IN WITNESS WHEREOF , this MOU has been executed and delivered as of the date first above written.

GENESIS :

GENESIS HEALTHCARE, INC. ,
a Delaware corporation

By: /S/ MICHAEL BERG

Name: Michael Berg

Title: Assistant Secretary

S-1

69411.SIG

SABRA :

SABRA HEALTH CARE REIT, INC. ,
a Maryland corporation

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.

Title: Chief Financial Officer

S-2

69411.SIG

SCHEDULE 1

SCHEDULE OF BUY-OUT FACILITIES

“ Renaissance Terrace ” – Renaissance Terrance Care & Rehab, 257 Patton Lane, Harriman, Tennessee

“ Forest View ” – Forest View Care and Rehabilitation Center, 323 Forest Avenue, Dayton, Ohio

“ Sable ” – Sable Care and Rehabilitation Center, 656 Dillon Way, Aurora, Colorado

“ Paducah Center ” – Paducah Center, 501 North 3 ^rd Street, Paducah, Kentucky****

“ Pawtuxet Village ” – Pawtuxet Village Care and Rehabilitation Center, 270 Post Road, Warwick, Rhode Island****

**** Paducah Center and Pawtuxet Village were previously sold by Sabra in connection with a Memorandum of Understanding between the parties hereto dated as of May 4, 2015. As set forth under the terms of that certain Amended and Restated Memorandum of Understanding dated as of February 19, 2016, the parties hereto acknowledged and agreed that no Base Rent reduction shall be made in connection with the sale of the Paducah Center notwithstanding the terms set forth in that certain Eighth Amendment to Master Lease (Kentucky Master Lease) dated as of August 12, 2015 by and among Kentucky Holdings I, LLC, as landlord and the Tenant parties thereto.

Schedule 1-1

69411.7

FIRST AMENDMENT TO AMENDED AND RESTATED

MEMORANDUM OF UNDERSTANDING

(SALE FACILITIES)

THIS FIRST AMENDMENT TO AMENDED AND RESTATED MEMORANDUM OF UNDERSTANDING (SALE FACILITIES) (this “ Amendment ”) is entered into as of February 22, 2017 by and between SABRA HEALTH CARE REIT, INC. , a Maryland corporation (“ Sabra ”), and GENESIS HEALTHCARE INC. , a Delaware corporation (“ Genesis ”).

A. Sabra and Genesis are parties to that certain Amended and Restated Memorandum of Understanding (Sale Facilities) dated as of July 29, 2016 (the “ Sale Facilities MOU ”).

B. In connection with the execution and delivery of certain other agreements between Sabra and Genesis of even date herewith, the parties hereto desire to amend the Sale Facilities MOU under the specific terms and conditions set forth herein.

1. Amendment to MOU . The “ Outside Date ”, as defined in Section 1 of the Sale Facilities MOU, is hereby changed from March 31, 2017 to mean August 31, 2017.

2. Affirmation of Obligations . Notwithstanding the modification to the Sale Facilities MOU contained herein, Sabra and Genesis each hereby acknowledges and reaffirms its obligations under the Sale Facilities MOU (as modified hereby) and all other documents executed by such party in connection therewith.

4. Incorporation of Recitals . The Recitals to this Amendment are incorporated hereby by reference.

5. Counterparts . This Amendment may be executed and delivered (including by facsimile or Portable Document Format (pdf) transmission) in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document.

72738.1 1

Any such facsimile documents and signatures shall have the same force and effect as manually-signed originals and shall be binding on the parties hereto.

6. Attorneys’ Fees . Genesis hereby agrees to reimburse Sabra, within fifteen (15) days of written demand therefor, for all documented reasonable attorneys’ fees and costs incurred by Sabra in connection with the preparation and negotiation of this Amendment. In the event of any dispute or litigation concerning the enforcement, validity or interpretation of this Amendment, or any part thereof, the losing party shall pay all costs, charges, fees and expenses (including reasonable attorneys’ fees) paid or incurred by the prevailing party, regardless of whether any action or proceeding is initiated relative to such dispute and regardless of whether any such litigation is prosecuted to judgment.

7. Effect of Amendment . Except as specifically amended pursuant to the terms of this Amendment, the terms and conditions of the Sale Facilities MOU shall remain unmodified and in full force and effect. In the event of any inconsistencies between the terms of this Amendment and any terms of the Sale Facilities MOU, the terms of this Amendment shall govern and prevail.

8. Entire Agreement . This Amendment contains the entire agreement between the parties relating to the subject matters contained herein. Any oral representations or statements concerning the subject matters herein shall be of no force or effect.

[Signature pages to follow.]

72738.1 2

IN WITNESS WHEREOF , this Amendment has been executed and delivered as of the date first above written.

GENESIS :

GENESIS HEALTHCARE, INC. ,
a Delaware corporation

By: /S/ MICHAEL BERG

Name: Michael Berg

Title: Assistant Secretary

S-1

72738.1

SABRA :

SABRA HEALTH CARE REIT, INC. ,
a Maryland corporation

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.

Title: Chief Financial Officer

S-2

72738.1

AMENDED AND RESTATED AGREEMENT REGARDING

DISPOSITION OF ASSETS AND LEASE AMENDMENTS

THIS AMENDED AND RESTATED AGREEMENT REGARDING DISPOSITION OF ASSETS AND LEASE AMENDMENTS (this “ Agreement ”) is entered into as of February 22, 2017, by and between SABRA HEALTH CARE REIT, INC. , a Maryland corporation (“ Sabra ”), and GENESIS HEALTHCARE INC. , a Delaware corporation (“ Genesis ”), with reference to the following Recitals:

RECITALS

B. Subject to the terms and conditions set forth herein, the parties mutually desire to cause the Subject Facilities to be sold to unaffiliated third parties and to provide for the early termination of the applicable Lease with respect to each Subject Facility concurrently with the consummation of each such sale. In addition, with respect to the Subject Facilities located in Indiana, Ohio and Kentucky (other than Barkley Center and Countryside) (collectively, the “ Replacement Lease Facilities ”) and as provided herein, Genesis agrees to, subject to the terms and conditions set forth herein, cause the applicable Tenant entities to enter into substitute leases and/or master leases with third party purchasers concurrently with the consummation of the sale of such facilities.

C. As a condition to Sabra’s willingness to execute and deliver this Agreement, the parties have also included the provisions of Sections 4 and 6 below with respect to the Replacement Lease Facilities, Replacement Leases, Leases, Transferred Facilities and guaranties of leases relating thereto.

NOW, THEREFORE , in consideration of the recitals set forth above (which by this reference are incorporated herein) and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Agreement to Market for Sale . Sabra or its affiliates have entered into brokerage agreements with Blueprint Healthcare Real Estate Advisors (“ Blueprint ”) for the sale of the Subject Facilities. Landlord hereby agrees to use commercially reasonable efforts to cooperate with the sale of the Subject Facilities; provided , however , that Tenant hereby acknowledges and agrees that Landlord shall have no obligation to sell any Subject Facility unless the net sales proceeds to be delivered to Landlord upon the closing of such sale are acceptable to Landlord in its reasonable discretion and, with respect to the Subject Facilities other than the Replacement Lease Facilities, Tenant in its reasonable discretion. The parties acknowledge that each sale of a Subject Facility or group of Subject Facilities under a PSA (as defined below) is intended to be an independent transaction and not contingent upon the closing of the sale of another Subject Facility outside of the subject PSA.

72456.5 1

2. Tenant’s and Landlord’s Agreement to Cooperate in Sale . Tenant hereby agrees to use its commercially reasonable efforts to facilitate the sale of the Subject Facilities, including, without limitation and to the extent applicable, by (a) entering into, and faithfully complying with, commercially reasonable purchase and sale agreements (each a “ PSA ”) and operations transfer agreements (each an “ OTA ”) with any proposed purchaser thereof (or its designee, and in such capacity, the “ New Operator ”), which are reasonably acceptable to Tenant and shall, inter alia, (i) provide for the proration of operational revenues and expenses, (ii) include commercially reasonable and customary representations and warranties from Tenant as to physical plant and operational matters and reasonable and customary post-closing indemnities for operational liabilities, including improper billings, from a net-worth entity reasonably acceptable to the New Operator (iii) provide for the conveyance to the New Operator of Tenant’s interest in the personal property at the Subject Facilities as of the closing thereunder (but specifically excluding any IT equipment and any personal property owned by third parties or affiliates of Genesis other than Tenant) for value agreed by Tenant; and (iv) grant the New Operator reasonable access to the Premises and Tenant’s books and records relating to the operations thereof (but specifically excluding the policies and procedure manuals and other proprietary information of Tenant); (b) reasonably cooperating (at New Operator’s sole cost and expense) with the New Operator in connection with its efforts to obtain the licenses, permits and other authorizations needed to operate the applicable Subject Facilities for their current use from and after the sale thereof, including, without limitation, by filing, submitting or otherwise distributing such applications and notices as the New Operator may reasonably request; (c) in Tenant’s capacity as the party in possession of the Subject Facilities, delivering such customary affidavits as the title company handling the sale of the Subject Facilities may reasonably require in order to issue the title policy required under the applicable PSA; and (d) continuing to operate the Subject Facilities in material compliance with all legal and licensing requirements as set forth in the Leases. Tenant also agrees to promptly reimburse Landlord for its reasonable out of pocket legal fees and costs incurred in connection the execution and delivery of this Agreement and the sale of the Subject Facilities. Subject to the provisions of Section 1 above, Landlord hereby agrees to use its commercially reasonable efforts to cooperate with, and assist where necessary, Tenant with its facilitation of the sale of the Subject Facilities, including, without limitation, by (a) joining in the execution and delivery of each PSA for purposes of agreeing to convey title to the Subject Facilities and related landlord personal property to the prospective purchasers of the Subject Facilities (“ Purchasers ”) at closing, (b) cooperating with the due diligence investigations of any such Purchasers, and (c) providing Purchasers and their representatives, subject to the terms of commercially reasonable confidentiality agreements, access to all books, records, files, reports, and information that are (I) in Landlord’s control or possession, (II) relate to the applicable Subject Facilities, and (III) would typically be disclosed in connection with the sale of a commercial healthcare facility as contemplated hereunder.

3. Agreement to Amend the Leases; Base Rent Reduction . Landlord and Tenant hereby agree that on and subject to the terms and conditions set forth herein, the applicable Lease shall be amended to release therefrom any and all rights, duties and obligations, including, without limitation, rights of occupancy and use and duties and obligations for certain rent and other payment obligations, solely with respect to the applicable Subject Facility on and as of 11:59 p.m. on the date immediately prior to the date on which the closing of the sale of such Subject Facility occurs (as applicable to each Subject Facility, the “ Termination Date ”). Effective as of the applicable

72456.5 2

Termination Date with respect to each Subject Facility (other than the Replacement Lease Facilities), the annual Base Rent payable under the Lease shall be reduced by the product of (a) the net sales proceeds payable to Landlord in connection with the sale of such Subject Facility (after deducting closing and transaction costs incurred, but without regard to operating prorations (which shall be to the benefit or cost of Tenant)), and (b) Seven and one-half percent (7.5%) (the “ Rent Credit Amount ”). Rent Credit Amounts attributable to the sale of the Deer Lodge facility shall be allocated as follows: the first $400,379 shall be applied to reduce the annual base rent payable under the HUD 6 Lease and any Rent Credit Amount exceeding such amount shall be applied on a 20/80 basis to reduce the annual base rent payable under the Connecticut Master Lease and Other Centers Master Lease. Rent Credit Amounts attributable to the sale of the Missouri River facility shall be allocated as follows: the first $1,271,244 shall be applied to reduce the annual base rent payable under the HUD 6 Lease and any Rent Credit Amount exceeding such amount shall be applied on a 20/80 basis to reduce the annual base rent payable under the Connecticut Master Lease and Other Centers Master Lease. Rent Credit Amounts attributable to the sales of (i) Eagle Crest (Carmichael), Barkley Center (Kentucky) and Countryside shall be applied in their entirety to the existing Leases applicable to such facilities, and (ii) any other Subject Facilities (excluding the Replacement Lease Facilities) shall be applied in their entirety on a 20/80 basis to reduce the annual base rent payable under the Connecticut Master Lease and Other Centers Master Lease. Within fifteen (15) days following the execution and delivery of this Agreement, Landlord and Tenant shall enter into amendments to each of the applicable Leases (the “ Lease Amendments ”) as are necessary to effectuate the changes to the expiration dates of the Initial Terms and Base Rent amounts set forth in the first five (5) columns of the lease amendment summary attached hereto as Schedule 2 (“ Lease Amendment Summary ”). Schedule 3 attached hereto sets forth an estimated allocation of the Base Rent payable under the Leases on a per facility basis (the “ Facility Base Rent ”) that will be effective upon the execution and delivery of the Lease Amendments. Schedule 3 is being attached for illustrative purposes and for the specific purposes set forth herein, but is not intended by the parties to modify Tenant’s aggregate rental payment obligations as set forth in the Leases, as modified by the Lease Amendments. Tenant acknowledges that it is anticipated that the annual Base Rent payable by Tenant under the terms of the applicable Leases immediately prior to the Termination Date that is attributable to any Subject Facility (in each case, a “ Subject Facility Base Rent Amount ”) that is sold (other than Deer Lodge and Missouri River) will be greater than the applicable Rent Credit Amount associated with such Subject Facility (in each case, the “ Subject Facility Rent Credit Amount ”) and that Landlord is not willing to release Tenant from its obligation to pay the amount equal to the difference between the Subject Facility Base Rent Amount and the Subject Facility Rent Credit Amount (such difference, the “ Subject Facility Excess Rent ”). Accordingly, at such time as the sale of a Subject Facility occurs, all Subject Facility Excess Rent with respect thereto shall be reallocated on a 20/80 basis to increase the annual Base Rent payable under the Connecticut Master Lease and Other Centers Master Lease. The Base Rent payable under the Connecticut Master Lease and Other Centers Master Lease shall also be subject to such reductions at the time periods and in such amounts as are specified in the column entitled “Additional Provisions” set forth in the Lease Amendment Summary (the “ Base Rent Reductions ”). The parties agree to cooperate with one another and execute such lease amendments as are necessary from time to time to evidence the reallocation of the Subject Facility Excess Rent and Base Rent Reductions described above.

72456.5 3

4. Replacement Lease Facilities . Landlord intends to cause its ownership interest in each of the Replacement Lease Facilities to be sold to third parties in arms-length transactions. In connection therewith, Genesis agrees to cause the applicable Tenant entities to enter into substitute leases and/or master leases (each a “ Replacement Lease ”) with such third party purchasers concurrently with the consummation of the sale of such facilities, which Replacement Lease shall be substantially in the form of, and not materially less favorable to Genesis than, the existing Lease or in such other form as is mutually acceptable to Tenant and such third party purchaser. It is intended by the parties that the Base Rent payable under each Replacement Lease will be in an amount that will provide for EBITDAR to rent coverage equal to approximately 1.4 times. Effective as of the applicable Termination Date with respect to each Replacement Lease Facilities (excluding Decatur Township), the annual Base Rent payable under the Kentucky Lease or Ohio Lease, as applicable, shall be reduced by the annual amount of the Base Rent payable for the first full twelve (12) calendar months under the applicable Replacement Lease (the “ Replacement Rent Credit Amount ”). The Replacement Rent Credit Amount attributable to the sale of Decatur Township shall be applied on a 20/80 basis to reduce the annual base rent payable under the Connecticut Master Lease and Other Centers Master Lease. In the event that the Facility Base Rent attributable to a Replacement Lease Facility is greater than the Replacement Rent Credit Amount, at such time as the sale of a Replacement Lease Facility occurs all Subject Facility Excess Rent with respect thereto shall be reallocated on a 20/80 basis to increase the annual Base Rent payable under the Connecticut Master Lease and Other Centers Master Lease. In the event that the Replacement Rent Credit Amount is greater than the Facility Base Rent attributable to such Replacement Lease Facility, at such time as the sale of a Replacement Lease Facility occurs such excess amount shall be applied on a 20/80 basis to reduce the annual base rent payable under the Connecticut Master Lease and Other Centers Master Lease. In connection with the sale of any Replacement Lease Facility and the execution and delivery of a Replacement Lease, Genesis hereby agrees to execute and deliver a new guaranty of lease with respect to the obligations due under the Replacement Lease, which guaranty shall be substantially in the form of, and not materially less favorable to Genesis than, the existing lease guaranties or in such other form as is mutually acceptable to Genesis and such third party purchaser.

5. HUD Debt . The parties hereto acknowledge that certain of the Subject Facilities are subject to HUD debt (the “ HUD Facilities ”) and that the repayment or assumption of such debt will be necessary to effectuate the sale of such HUD Facilities. Nevertheless, the parties desire to market such HUD Facilities for sale under mutually acceptable terms with the understanding that (a) such HUD Facilities are pledged under a Lease that includes properties other than the HUD Facilities and it will be necessary to amend the HUD loan documents and such Lease in order to consummate a sale, and (b) the additional costs and expenses incurred in connection with the sale of the HUD Facilities (including, without limitation, any loan assumption and/or prepayment fee) shall be borne by Genesis.

6. Remaining Leases; Cooperation regarding Transferred Facilities . The parties hereto acknowledge that, in addition to the sale of the Subject Facilities contemplated hereunder, Sabra is considering the sale or joint venture of the ownership interest in other facilities subject to the Leases, as amended in accordance with the terms hereinabove. In connection with any such sale or joint venture, it may be necessary to (a) create a separate lease or master lease governing Tenant’s lease obligations with respect to such sold or joint ventured property, and/or (b) reallocate

72456.5 4

the Base Rent payable under the Leases and/or the Facility Base Rent to more appropriately reflect the economic performance of the assets thereunder. Accordingly, Landlord shall have the right from time to time during the applicable lease term, by notice to Tenant, to require that Tenant execute an amendment to the applicable Lease pursuant to which one or more facilities (individually, a “ Transferred Facility ” or collectively, “ Transferred Facilities ”) are separated and removed from the applicable Lease, and, in such event, simultaneously with the execution of such amendment, Landlord (or the subsequent owner) and Tenant (or its affiliate) shall execute a substitute lease with respect to such Transferred Facilities substantially in the form of, and not materially less favorable to Genesis than, the existing Lease (each a “ Substitute Lease ”). The economic terms of any such amendment to such Lease, the related Substitute Lease and any other Lease impacted thereby shall be subject to good faith negotiations and mutually acceptable to Landlord and Tenant; provided , however , in no event shall such economic terms increase Tenant’s overall payment obligations from the obligations due under the applicable Leases prior to such transaction. In connection with any such transaction, Genesis hereby agrees to execute and deliver (i) a new guaranty of lease with respect to the obligations due under the Substitute Lease, and (ii) an amended and restated guaranty of lease with respect to the obligations due under any Leases amended in connection therewith, which new and/or amended and restated guaranty (each a “ Substitute Guaranty ”), as applicable, shall be substantially in the form of, and not materially less favorable to Genesis than, the existing lease guaranties. Any Substitute Lease and Substitute Guaranty relating thereto shall be freely transferable by Landlord to any successor to Landlord’s ownership interest in the real and personal property subject thereto.

7. Term of this Agreement; Default . Unless extended in writing by the parties hereto, this Agreement, and all rights and obligations hereunder, shall automatically terminate with respect to any remaining Subject Facilities (other than the Replacement Lease Facilities) if a contract for the sale of such Subject Facilities has not been executed and consummated on or before March 31, 2018. Notwithstanding the foregoing, the termination of this Agreement with respect to such Subject Facilities shall not be deemed or construed to release Tenant and Genesis from their respective obligations (a) under Sections 4 and 6 hereof, or (b) under Section 2 hereof in connection with the sale or transfer by Landlord of its ownership interest in the Replacement Lease Facilities or in any Transferred Facilities. For the avoidance of doubt, if a material default occurs hereunder and such default is not cured within sixty (60) days following written notice thereof, the same shall constitute an Event of Default under the subject Leases and the non-defaulting party’s rights and remedies under such Leases in connection with such default shall survive the expiration of this Agreement.

8. Sale of Additional Facilities . Landlord acknowledges that Tenant may elect to market, or cause Blueprint to market, the Subject Facilities for sale along with certain other healthcare facilities which Genesis and/or its direct or indirect affiliates currently lease from third party landlords (such landlords the “ Third Party Landlords ” and each such sale, a “ Combined Sale ”). Landlord acknowledges that any consummation of a Combined Sale shall be subject in all respects to the mutual consent of Landlord and the applicable Third Party Landlords.

72456.5 5

9. Miscellaneous .

(a) This Agreement shall constitute the entire agreement between the parties with respect to the subject matter hereof and amends and restates, supersedes and revokes all prior agreements and understandings, oral and written, between the parties hereto or otherwise with respect to the subject matter hereof, including, without limitation, that certain Agreement Regarding Disposition of Assets and Lease Amendments dated as of July 29, 2016. No variation or modification of this Agreement shall be valid and enforceable, except by an agreement in writing, executed and approved in the same manner as this Agreement.

(b) If any party commences an action against another other to interpret or enforce any of the terms of this Agreement or because of the breach by another party of any of the terms hereof, the losing party shall pay to the prevailing party reasonable attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action, whether or not the action is prosecuted to a final judgment.

(c) This Agreement shall inure solely to the benefit of the parties hereto and their respective successors and assigns. No third party shall have the right to derive or claim any benefit hereunder and shall have no right to enforce or rely upon any provision of this Agreement.

(d) This Agreement shall be governed by and construed and enforced in accordance with the applicable laws of the state of California, without regard to the conflict of laws rules thereof; provided that that the law of the applicable state or commonwealth shall govern procedures for enforcing, in the respective state or commonwealth, provisional and other remedies directly related to each Subject Facility.

(e) Each party will, whenever and as often as it shall be reasonably requested so to do by another party, cause to be executed, acknowledged or delivered, any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement.

(f) This Agreement may be executed and delivered (including by facsimile or Portable Document Format (pdf) transmission) in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document. Any such facsimile documents and signatures shall have the same force and effect as manually-signed originals and shall be binding on the parties hereto.

72456.5 6

IN WITNESS WHEREOF , this Agreement has been executed and delivered as of the date first set forth above.

GENESIS :

GENESIS HEALTHCARE, INC. ,
a Delaware corporation

By: /S/ MICHAEL BERG

Name: Michael Berg

Title: Assistant Secretary

[SIGNATURES CONTINUE ON NEXT PAGE]

72456.SIG S-1

SABRA :

SABRA HEALTH CARE REIT, INC. ,
a Maryland corporation

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W Andrews, Jr.

Title: Chief Financial Officer

72456.SIG S-2

SCHEDULE 1

SCHEDULE OF SUBJECT FACILITIES



Facility Name	Facility Address	Type of Facility	Licensed Beds
Bradford Square Care and Rehabilitation Center	1040 U.S. 127 South Frankfort, KY 40601	SNF	100
Klondike Care and Rehabilitation Center	3802 Klondike Lane Louisville, KY 40218	SNF	62
Regency Care and Rehabilitation Center	1550 Raydale Drive Louisville, KY 40219	SNF	110
Kensington Manor Care and Rehabilitation Center	225 St. John Road Elizabethtown, KY 42701	SNF	82
Countryside Care and Rehabilitation Center	47 Margo Avenue Bardwell, KY 42023	SNF	61
Hopkins Care and Rehabilitation Center	460 South College Street Woodburn, KY 42170	SNF	50
Heartland Villa Care and Rehabilitation Center	8005 U.S. Highway 60 West Lewisport, KY 42351	SNF	69
Edmonson Care and Rehabilitation Center	813 South Main Street Brownsville, KY 42104	SNF	94
Colonial Manor Care and Rehabilitation Center	2365 Nashville Road Bowling Green, KY 42101	SNF	48
Barkley Center	4747 Alben Barkley Drive Paducah, KY 42001	SNF	86
Magnolia Village Care and Rehabilitation Center	1381 Campbell Lane Bowling Green, KY 42101	SNF	60
Hillside Villa Care and Rehabilitation Center	1500 Pride Avenue Madisonville, KY 42341	SNF	71
Heritage Place Assisted Living Center	3362 Buckland Square Owensboro, KY 42301	SNF	68
Bridge Point Care and Rehabilitation Center	7300 Woodspoint Drive Florence, KY 41045	SNF	151

72456.5 Schedule 1-1



Facility Name	Facility Address	Type of Facility	Licensed Beds
Sylvania Care and Rehabilitation Center	5757 Whiteford Road Sylvania, OH 43560	SNF	150
New Lexington Care and Rehabilitation Center	920 South Main Street New Lexington, OH 43764	SNF	100
Point Place Care and Rehabilitation Center	6101 North Summit Toledo, OH 43611	SNF	98
Perrysburg Care and Rehabilitation Center	28546 Starbright Boulevard Perrysburg, OH 43551	SNF	93
Bryan Care and Rehabilitation Center	1104 Wesley Avenue Bryan, OH 43506	SNF	159
Twin Rivers Care and Rehabilitation Center	395 Harding Avenue Defiance, OH 43512	SNF	93
New Lebanon Care and Rehabilitation Center	101 Mills Place New Lebanon, OH 45345	SNF	120
Butte Care and Rehabilitation Center	2400 Continental Drive Butte, MT 59701	SNF	100
Whitefish Care and Rehabilitation Center	1305 E. Seventh Street Whitefish, MT 59937	SNF	100
Deer Lodge Care and Rehabilitation Center	1100 Texas Avenue Deer Lodge, MT 59722	SNF (HUD Facility)	60
Missouri River Care and Rehabilitation Center	1130 Seventeenth Ave. S. Great Falls, MT 59405	SNF (HUD Facility)	278
Decatur Township Care and Rehabilitation Center	4851 Tincher Road Indianapolis, IN 46221	SNF	88
Fountain City Care and Rehabilitation Center	5131 Warm Springs Road Columbus, GA 31909	SNF	210
Etowah Landing Care and Rehabilitation Center	809 South Broad Street Rome, GA 30161	SNF	100
Eagle Crest (Carmichael Care)	8336 Fair Oaks Blvd. Carmichael, CA 95608	SNF	126

72456.5 Schedule 1-2

SCHEDULE 2

LEASE AMENDMENT SUMMARY

[ATTACHED]

72456.5 Schedule 2-1

SCHEDULE 3

ALLOCATED BASE RENT AMOUNTS

[ATTACHED]

72456.5 Schedule 3-1

MEMORANDUM OF UNDERSTANDING

THIS MEMORANDUM OF UNDERSTANING (this “ MOU ”) is entered into as of May 1, 2017, by and between SABRA HEALTH CARE REIT, INC. , a Maryland corporation (“ Sabra ”), and GENESIS HEALTHCARE INC. , a Delaware corporation (“ Genesis ”), with reference to the following Recitals:

RECITALS

A. Subsidiaries of Sabra, as landlord (collectively, “ Landlord ”) and subsidiaries of Genesis, as tenant, (collectively, “ Tenant ”) are parties to certain Leases and Master Leases (as amended from time to time, collectively, the “ Leases ”) with respect to certain healthcare facilities (each a “ Facility ” and, collectively, the “ Facilities ”). The obligations of Tenants under the Leases have been guaranteed by Genesis, as guarantor (“ Guarantor ”), pursuant to the terms of each amended and restated guaranty of lease (each a “ Guaranty ” and, collectively, the “ Guaranties ”) executed by Guarantor in favor of Landlord.

B. Genesis has requested that Landlord enter into amendments to the Leases and/or Guaranties with respect to Guarantor’s obligations to maintain certain minimum fixed charge coverage requirements (the “ Amendments ”).

C. As a condition to Landlord’s willingness to execute and deliver the Amendments, the parties have agreed to execute and deliver this MOU with respect to the obligations more specifically set forth herein.

1. Conditions to Effectiveness of Amendments . As conditions to the effectiveness of the Amendments, Genesis shall:

(a) Cause Genesis Administrative Services LLC (“ GAS LLC ”) to execute and deliver a letter of intent with GMF I, LLC with respect to the commitment by Tenant to continue to lease twenty (20) skilled nursing facilities located in Kentucky, Ohio and Indiana (the “ Midwest Facilities ”) following the sale by Landlord of such Midwest Facilities to GMF I, LLC or its affiliates;

(b) Execute, together with its affiliate, 656 Dillon Way Operations LLC (“ Seller ”), that certain Asset Purchase Agreement with Aurora Real Property VPC, LLC, as buyer, with respect to the sale of the skilled nursing facility, its improvements, furniture, fixtures, and equipment known as Aspen Center, located at 656 Dillon Way, Aspen, Colorado; and

(c) Reimburse Sabra for the amount of $197,591.45 of closing costs and expenses incurred in connection with the sale of Renaissance Terrace located at 257 Patton Lane, Harriman, Tennessee.

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1971842.01-NYCSR07A - MSW

2. Sale or Transfer of Additional Facilities . Genesis hereby acknowledges that Sabra is considering the sale or joint venture of the ownership interest in other Facilities subject to the Leases (the “ Additional Dispositions ”). In connection with any such Additional Disposition, it may be necessary to (a) create a separate lease or master lease governing Tenant’s lease obligations with respect to such sold or joint ventured property provided that (x) any severance shall not adversely affect Tenant on an aggregate basis, and (y) the terms of such severed leases are substantially the same to the Leases including, but not limited to, the definition of Event of Default in the Lease, except that (A) the Base Rent will be reallocated in accordance with subsection (b) below, and (B) each such severed lease will only be cross-defaulted with the Leases and the other severed leases to the extent the underlying event giving rise to an Event of Default under the applicable severed lease would have constituted an Event of Default under the Leases had the Leases not been severed, and/or (b) reallocate the Base Rent payable under the Leases in such manner as Sabra shall determine in order to more appropriately reflect the economic performance of the assets thereunder so long as such reallocation is not detrimental to Tenant in the aggregate. Genesis acknowledges that certain covenants (including the minimum aggregate maintenance amount, bed closures and regulatory defaults) will be assessed on a stand-alone basis for any Transferred Facilities sold to a party unrelated to Landlord. Accordingly, Landlord shall have the right from time to time during the applicable lease term, by notice to Tenant, to require that Tenant execute an amendment to the applicable Lease pursuant to which one or more facilities (individually, a “ Transferred Facility ” or collectively, “ Transferred Facilities ”) are separated and removed from the applicable Lease, and, in such event, simultaneously with the execution of such amendment, Landlord (or the subsequent owner) and Tenant (or its affiliate) shall execute a substitute lease with respect to such Transferred Facilities substantially in the form of, and not materially less favorable to Genesis than, the existing Lease (each a “ Substitute Lease ”). Although the rent payable with respect to any such Transferred Facilities (including related annual escalators) may increase or decrease from the amount payable by Tenant with respect to such Facilities under the existing Leases, the collective economic terms (including related annual escalators) of any such amendment to a Lease, the related Substitute Lease and any other Lease impacted thereby shall not increase Tenant’s overall payment obligations from the obligations due under the applicable Leases prior to such transaction, except to the extent provided below with respect to deferred maintenance obligations relating to the Transferred Facilities. Accordingly, any difference between the new rent established for the Transferred Facilities and the rent allocable thereto under the existing Leases will either remain in the current Lease to be paid (including related annual escalators) as a continuing obligation under such Lease, or at Sabra’s option may be reallocated to either the Connecticut Master Lease or Other Centers Master Lease (the “ Allocation’s Leases ”) where such reallocated amounts will be paid under such Lease (including related annual escalators) until such time as that rent obligation would have originally expired on the expiration of the term of the Lease from which such rents were reallocated. Furthermore, but subject to the foregoing, Genesis hereby acknowledges and agrees that it may be necessary to extend the term of the impacted Allocation’s Lease if rent is reallocated from later expiring Leases in order to achieve the aggregate economic neutrality contemplated by the parties hereunder. In connection with any Additional Disposition, Genesis hereby agrees to execute and deliver (i) a new guaranty of lease with respect to the obligations due under the Substitute Lease, and (ii) an amended and restated guaranty of lease with respect to the obligations due under any Leases amended in connection therewith, which new and/or amended and restated guaranty (each a “ Substitute Guaranty ”), as applicable, shall be substantially in the form of, and not

73608.4 2

1971842.01-NYCSR07A - MSW

materially less favorable to Genesis than, the existing Guaranties. Any Substitute Lease and Substitute Guaranty relating thereto shall be freely transferable by Landlord to any successor to Landlord’s ownership interest in the real and personal property subject thereto.

3. Tenant’s Cooperation with Additional Dispositions . Tenant hereby agrees to use its commercially reasonable efforts to facilitate the sale of additional Facilities, including, without limitation and to the extent applicable, by (a) entering into, and faithfully complying with, commercially reasonable operations transfer agreements (each an “ OTA ”) with any proposed purchaser thereof (or its designee, and in such capacity, the “ New Operator ”), which are reasonably acceptable to Tenant and shall, inter alia, (i) provide for the proration of operational revenues and expenses, (ii) include commercially reasonable and customary representations and warranties from Tenant as to physical plant and operational matters and reasonable and customary post-closing indemnities for operational liabilities, including improper billings, from a net-worth entity reasonably acceptable to the New Operator (iii) provide for the conveyance to the New Operator of Tenant’s interest in the personal property at the Facilities as of the closing thereunder (but specifically excluding any IT equipment and any personal property owned by third parties or affiliates of Genesis other than Tenant) for value agreed by Tenant in its reasonable discretion; and (iv) grant the New Operator reasonable access to the Premises and Tenant’s books and records relating to the operations thereof (but specifically excluding the policies and procedure manuals and other proprietary information of Tenant); (b) reasonably cooperating (at New Operator’s sole cost and expense) with the New Operator in connection with its efforts to obtain the licenses, permits and other authorizations needed to operate the applicable Facilities for their current use from and after the sale thereof, including, without limitation, by filing, submitting or otherwise distributing such applications and notices as the New Operator may reasonably request; (c) in Tenant’s capacity as the party in possession of the Facilities, delivering such customary affidavits as the title company handling the sale of the Facilities may reasonably require in order to issue the title policy required under the applicable purchase and sale agreement (“ PSA ”); and (d) continuing to operate the Facilities in material compliance with all legal and licensing requirements as set forth in the Leases. In addition, if in connection with due diligence of the properties by any New Operator it is reasonably determined pursuant to a third-party property condition report that there are deferred repair and or maintenance obligations with respect to the applicable Facilities that should reasonably have been completed by Tenant under the terms of the Leases, and where New Operator reasonably requests be completed, Tenant shall (i) immediately complete such deferred repair and/or maintenance obligations or (ii) permit Landlord to cause such corrective action to be taken on its behalf. In either event, Tenant or Genesis shall reimburse Sabra for any costs it incurs in connection therewith within 24 months after the occurrence thereof, with such amounts accruing compound interest in the amount of 8% per annum until paid. In the event that Tenant immediately completes such deferred repair and/or maintenance obligations at its sole expense, any such costs incurred by Tenant that exceed more than $1,000 per bed for the applicable Facility will be credited toward the following years’ minimum aggregate capex spend requirement for the leased portfolio.

4. Default . For the avoidance of doubt, if a material default occurs hereunder and such default is not cured within sixty (60) days following written notice thereof, the same shall constitute an Event of Default under the subject Leases and the non-defaulting party’s rights and remedies under such Leases in connection with such default shall survive the expiration of this MOU.

73608.4 3

1971842.01-NYCSR07A - MSW

5. Miscellaneous .

(a) Within fifteen (15) days following Landlord’s written request therefor, Tenant agrees to reimburse Landlord for its reasonable out of pocket legal fees and costs incurred in connection the execution and delivery of this MOU and the Amendments.

(b) This MOU shall constitute the entire agreement between the parties with respect to the subject matter hereof. No variation or modification of this MOU shall be valid and enforceable, except by an agreement in writing, executed and approved in the same manner as this MOU.

(c) If any party commences an action against another other to interpret or enforce any of the terms of this MOU or because of the breach by another party of any of the terms hereof, the losing party shall pay to the prevailing party reasonable attorneys’ fees, costs and expenses incurred in connection with the prosecution or defense of such action, whether or not the action is prosecuted to a final judgment.

(e) This MOU shall be governed by and construed and enforced in accordance with the applicable laws of the state of California, without regard to the conflict of laws rules thereof; provided that that the law of the applicable state or commonwealth shall govern procedures for enforcing, in the respective state or commonwealth, provisional and other remedies directly related to each Facility.

(f) Each party will, whenever and as often as it shall be reasonably requested so to do by another party, cause to be executed, acknowledged or delivered, any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this MOU.

(g) This MOU may be executed and delivered (including by facsimile or Portable Document Format (pdf) transmission) in counterparts, all of which executed counterparts shall together constitute a single document. Signature pages may be detached from the counterparts and attached to a single copy of this document to physically form one document. Any such facsimile documents and signatures shall have the same force and effect as manually-signed originals and shall be binding on the parties hereto.

73608.4 4

1971842.01-NYCSR07A - MSW

IN WITNESS WHEREOF , this MOU has been executed and delivered as of the date first set forth above.

GENESIS :

GENESIS HEALTHCARE, INC. ,
a Delaware corporation

By: /S/ MICHAEL S. SHERMAN

Name: Michael S. Sherman

Title: Senior Vice President

[SIGNATURES CONTINUE ON NEXT PAGE]

73608.SIG S-1

SABRA :

SABRA HEALTH CARE REIT, INC. ,
a Maryland corporation

By: /S/ HAROLD W. ANDREWS, JR.

Name: Harold W. Andrews, Jr.

Title: Chief Financial Officer

73608.SIG S-2

[ __________ ] AMENDED AND RESTATED GUARANTY OF LEASE
([ _____________ ])

This [ ________ ] AMENDED AND RESTATED GUARANTY OF LEASE (this “ Guaranty ”), is made and entered into as of May 4, 2017 (the “ Effective Date ”), by GENESIS HEALTHCARE, INC ., a Delaware corporation (f/k/a Skilled Healthcare Group, Inc.) (“ Guarantor ”), in favor of [ ________, a ________ ] (“ Landlord ”). Landlord hereby executes this Guaranty solely for the purpose of acknowledging and agreeing to accept this amended and restated Guaranty in substitution and replacement of the Existing Guaranty (as defined below).

RECITALS

A. WHEREAS, reference is hereby made to [ Lease dated as of ______ ] (as amended, modified, revised or restated, the “ Lease ”) pursuant to which Landlord leases that certain facility (the “ Facility ”) to [ ________, a ________ ] (“ Tenant ”), and (ii) that certain [ ________ ] Amended and Restated Guaranty of Lease dated as of July 29, 2016 (the “ Existing Guaranty ”), executed by Guarantor in favor of Landlord. All initially-capitalized terms used and not otherwise defined herein shall have the same meanings given such terms in the Lease.

B. WHEREAS, Guarantor has requested that Landlord consent to the modification of certain terms of the Existing Guaranty. Guarantor and Landlord now desire to amend and restate the Existing Guaranty in its entirety in accordance with the terms set forth herein.

AGREEMENTS

NOW , THEREFORE , in consideration of the foregoing recitals, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Guarantor agrees as follows:

1. Guaranty . In consideration of the benefit derived or to be derived by it therefrom, as to the Lease, effective as of the Effective Date with respect to Obligations (as hereinafter defined) arising from and after the Commencement Date, Guarantor hereby jointly and severally, unconditionally, and irrevocably guarantees (i) the payment when due of all rent and all other sums payable by Tenant under the Lease, and (ii) the faithful and prompt performance when due of each and every one of the terms, conditions and covenants to be kept and performed by Tenant under the Lease, and any and all amendments, modifications, extensions and renewals of the Lease, including without limitation all indemnification obligations, insurance obligations, and all obligations to operate, rebuild, restore or replace any Facility or improvements now or hereafter located at the Facility (collectively, the “ Obligations ”). In the event of the failure of Tenant to pay any such rent or other sums, or to render any other performance required of Tenant under the Lease, when due or within any applicable cure period, Guarantor shall forthwith perform or cause to be performed all provisions of the Lease to be performed by Tenant thereunder, and pay all reasonable costs of collection or enforcement and other damages that may result from the non-performance thereof to the full extent provided under the Lease. As to the Obligations, Guarantor's liability under this Guaranty is without limit.

2. Survival of Obligations . The obligations of Guarantor under this Guaranty shall survive and continue in full force and effect notwithstanding:

(a) any amendment, modification, or extension of the Lease;

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(b) any compromise, release, consent, extension, indulgence or other action or inaction in respect of any terms of the Lease;

(c) any substitution or release, in whole or in part, of any security for this Guaranty which Landlord may hold at any time;

(d) any exercise or non-exercise by Landlord of any right, power or remedy under or in respect of the Lease or any security held by Landlord with respect thereto, or any waiver of any such right, power or remedy;

(e) any bankruptcy, insolvency, reorganization, arrangement, adjustment, composition, liquidation, or the like of Tenant or any other guarantor;

(f) any limitation of Tenant's liability under the Lease or any limitation of Tenant's liability thereunder which may now or hereafter be imposed by any statute, regulation or rule of law, or any illegality, irregularity, invalidity or unenforceability, in whole or in part, of the Lease or any term thereof;

(g) any sale, lease, or transfer of all or any part of any interest in the Facility or any or all of the assets of Tenant to any other person, firm or entity other than to Landlord;

(h) any act or omission by Landlord with respect to any of the security instruments or any failure to file, record or otherwise perfect any of the same;

(i) any extensions of time for performance under the Lease, whether prior to or after the expiration of the Term;

(j) the release of Tenant from performance or observation of any of the agreements, covenants, terms or conditions contained in the Lease by operation of law or otherwise;

(k) the fact that Tenant may or may not be personally liable, in whole or in part, under the terms of the Lease to pay any money judgment;

(l) the failure to give any Guarantor any notice of acceptance, default or otherwise;

(m) any other guaranty now or hereafter executed by any Guarantor or anyone else in connection with the Lease;

(n) any rights, powers or privileges Landlord may now or hereafter have against any other person, entity or collateral; or

(o) any other circumstances, whether or not Guarantor had notice or knowledge thereof.

3. Primary Liability . The liability of Guarantor with respect to the Lease shall be primary, direct and immediate, and Landlord may proceed against any Guarantor: (a) prior to or in lieu of proceeding against Tenant, its assets, any security deposit, or any other guarantor; and (b) prior to or in lieu of pursuing any other rights or remedies available to Landlord. All rights and remedies afforded to Landlord by reason of this Guaranty or by law are separate, independent and cumulative, and the exercise

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of any rights or remedies shall not in any way limit, restrict or prejudice the exercise of any other rights or remedies.

In the event of any default under the Lease, a separate action or actions may be brought and prosecuted against Guarantor whether or not Tenant is joined therein or a separate action or actions are brought against Tenant. Landlord may maintain successive actions for other defaults. Landlord’s rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions until and unless all indebtedness and Obligations the payment and performance of which are hereby guaranteed have been paid and fully performed.

4. Obligations Not Affected . Subject to the terms of the Lease, Landlord may, without notice to any Guarantor: (a) amend, alter, compromise, accelerate, extend or change the time or manner for the payment or the performance of any Obligation hereby guaranteed; (b) extend, amend or terminate the Lease; or (c) release Tenant by consent to any assignment (or otherwise) as to all or any portion of the Obligations hereby guaranteed. Any exercise or non-exercise by Landlord of any right hereby given Landlord, dealing by Landlord with Guarantor or any other guarantor, Tenant or any other person, or change, impairment, release or suspension of any right or remedy of Landlord against any person including the Tenant and any other guarantor will not affect any of the Obligations of Guarantor hereunder or give Guarantor any recourse or offset against Landlord.

5. Waiver . With respect to the Lease, Guarantor hereby waives and relinquishes all rights and remedies accorded by applicable law to sureties and/or guarantors or any other accommodation parties, under any statutory provisions, common law or any other provision of law, custom or practice, and agrees not to assert or take advantage of any such rights or remedies including, but not limited to:

(a) any right to require Landlord to proceed against Tenant or any other person or to proceed against or exhaust any security held by Landlord at any time or to pursue any other remedy in Landlord's power before proceeding against any Guarantor or to require that Landlord cause a marshaling of Tenant's assets or the assets, if any, given as collateral for this Guaranty or to proceed against Tenant and/or any collateral, including collateral, if any, given to secure Guarantor's obligation under this Guaranty, held by Landlord at any time or in any particular order;

(b) any defense that may arise by reason of the incapacity or lack of authority of any other person or persons;

(c) notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of Tenant, Landlord, any creditor of Tenant or Guarantor or on the part of any other person whomsoever under this or any other instrument in connection with any obligation or evidence of indebtedness held by Landlord or in connection with any obligation hereby guaranteed;

(d) any defense based upon an election of remedies by Landlord which destroys or otherwise impairs the subrogation rights of Guarantor or the right of Guarantor to proceed against Tenant for reimbursement, or both;

(e) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;

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(f) any duty on the part of Landlord to disclose to Guarantor any facts Landlord may now or hereafter know about Tenant, regardless of whether Landlord has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume or has reason to believe that such facts are unknown to Guarantor or has a reasonable opportunity to communicate such facts to Guarantor, it being understood and agreed that Guarantor is fully responsible for being and keeping informed of the financial condition of Tenant and of all circumstances bearing on the risk of non-payment or non-performance of any Obligations or indebtedness hereby guaranteed;

(g) any defense arising because of Landlord's election, in any proceeding instituted under the federal Bankruptcy Code, of the application of Section 1111(b)(2) of the federal Bankruptcy Code;

(h) any defense based on any borrowing or grant of a security interest under Section 364 of the federal Bankruptcy Code; and

(i) all rights and remedies accorded by applicable law to guarantors, including without limitation, any extension of time conferred by any law now or hereafter in effect and any requirement or notice of acceptance of this Guaranty or any other notice to which the undersigned may now or hereafter be entitled to the extent such waiver of notice is permitted by applicable law.

6. Warranties . With respect to the Lease, Guarantor warrants that: (a) this Guaranty is executed at the Tenant’s request; and (b) Guarantor has established adequate means of obtaining from each Tenant on a continuing basis financial and other information pertaining to Tenant’s financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events or circumstances which might in any way affect Guarantor's risks hereunder, and Guarantor further agrees that the Landlord shall have no obligation to disclose to Guarantor information or material acquired in the course of the Landlord's relationships with Tenant.

7. No-Subrogation . Until all Obligations of Tenant under the Lease have been satisfied and discharged in full for six (6) months, Guarantor shall have no right of subrogation and waives any right to enforce any remedy which Landlord now has or may hereafter have against Tenant and any benefit of, and any right to participate in, any security now or hereafter held by Landlord with respect to the Lease.

8. Subordination . If for any reason whatsoever Tenant now or hereafter becomes indebted to Guarantor or any Affiliate of any Guarantor, such indebtedness and all interest thereon shall at all times be subordinate to Tenant's obligation to Landlord to pay as and when due in accordance with the terms of the Lease the guaranteed Obligations. During any time in which an Event of Default has occurred and is continuing under the Lease and not been cured within any cure period provided for therein (and provided that Guarantor has received written notice thereof), Guarantor agrees to make no claim for such indebtedness that does not recite that such claim is expressly subordinate to Landlord's rights and remedies under the Lease.

9. No Delay . Any payments required to be made by Guarantor hereunder shall become due within ten (10) days of written demand therefor following the occurrence and during the continuance of an Event of Default under the Lease.

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10. Application of Payments . With respect to the Lease, and with or without notice to Guarantor, Landlord, in its sole discretion and at any time and from time to time and in such manner and upon such terms as Landlord deems appropriate, may (a) apply any or all payments or recoveries from Tenant or from any other guarantor under any other instrument or realized from any security, in such manner and order of priority as Landlord may determine, to any indebtedness or other obligation of Tenant with respect to the Lease and whether or not such indebtedness or other obligation is guaranteed hereby or is otherwise secured or is due at the time of such application, and (b) refund to Tenant any payment received by Landlord under the Lease.

11. Guaranty Default .

(a) As used herein, the term “ Guaranty Default ” shall mean one or more of the following events (subject to applicable cure periods):

(i) the failure of Guarantor to pay the amounts required to be paid hereunder within ten (10) days of written demand therefor following the occurrence and during the continuance of an Event of Default under the Lease; and

(ii) the failure of Guarantor to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in subsection (i) above, for a period of thirty (30) days after written notice of such failure has been given to Guarantor by Landlord, unless Landlord agrees in writing to an extension of such time prior to its expiration.

(b) Upon the occurrence of a Guaranty Default, Landlord shall have the right to bring such actions at law or in equity, including appropriate injunctive relief, as it deems appropriate to compel compliance, payment or deposit, and among other remedies to recover its reasonable attorneys' fees in any proceeding, including any appeal therefrom and any post judgment proceedings.

12. Guarantor Covenants .

(a) Within ninety (90) days after the end of Guarantor’s fiscal years, the entities then comprising Guarantor shall deliver to Landlord a copy of their (consolidated) Financial Statements, prepared in accordance with GAAP, consistently applied, and certified by an officer of Guarantor and reported on by a “Big Four” certified public accounting firm or other certified public accounting firm approved by Landlord, which approval will not be unreasonably withheld. Together with Guarantor's Financial Statements furnished in accordance with the preceding sentence, Guarantor shall deliver (a) an Officer's Certificate of Guarantor stating that Guarantor is not in default in the performance or observance of any of the terms of this Guaranty, or if Guarantor is in default, specifying all such defaults, the nature thereof, and the steps being taken to remedy the same, and (b) a report with respect to the financial statements from Guarantor's accountants, which report shall be unqualified as to going concern and scope of audit of Guarantor and its subsidiaries and shall provide in substance that (i) such consolidated financial statements present fairly the consolidated financial position of Guarantor and its subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP, and (ii) that the examination by Guarantor's accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards.

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(b) The entities that comprise Guarantor shall collectively maintain, without duplication, a Net Worth (as defined below) as follows:

(i) as of March 31, 2015 and June 30, 2015, no less than the greater of (A) One Hundred Million Dollars ($100,000,000) and (B) 75% of the combined Net Worth of Guarantor as of February 2, 2015 (the “ Closing Date TNW ”). In no event shall the Closing Date TNW be less than One Hundred Million Dollars ($100,000,000);

(ii) as of the last day of each fiscal quarter thereafter, commencing September 30, 2015 and ending on the last day of the last fiscal quarter of 2015 but including December 31, 2015, no less than the Net Worth required as of the last day of the prior fiscal quarter plus the TNW Increment (as defined below); and

(iii) from and after January 1, 2016, no minimum Net Worth shall be required to be maintained.

“ Net Worth ” means an amount equal to the total consolidated net book value of the tangible assets of Guarantor (excluding goodwill and other intangible assets) minus the total consolidated liabilities of such Guarantor. For purposes of this calculation, (a) the net book value of tangible assets will (i) exclude the unamortized balance of capitalized assets associated with capital lease or similar financing obligations and (ii) be adjusted to add back (A) $217,300,000 of deferred tax asset valuation allowance and (B) any unamortized goodwill and identifiable intangible assets associated with the acquisition pursuant to that certain purchase agreement dated June 15, 2015, by certain Affiliates of Company, of certain assets formerly operated by Revera Assisted Living, Inc. and its Affiliates and (b) the total liabilities will exclude (i) the unamortized balance of capital lease or similar financing obligation liabilities and (ii) the net book value of any deferred tax liabilities associated with intangible assets.

“ TNW Increment ” means Eighteen Million Two Hundred Thousand Dollars ($18,200,000)

(c) Coverage Ratio . Guarantor, collectively, shall maintain a Coverage Ratio (as defined below), based upon operating results for the most recent twelve (12) months, tested at the end of each fiscal quarter:

(i) for the period commencing on June 30, 2016 and ending December 31, 2016, of not less than 1.15 to 1.00;

(ii) for the period commencing January 1, 2017 and ending December 31, 2017, of not less than 1.10 to 1.00;

(iii) for the period commencing January 1, 2018 and ending December 31, 2019, of not less than 1.12 to 1.00;

(iv) for the period commencing on January 1, 2020 and ending on December 31, 2020, of not less than 1.14 to 1.00;

(v) for the period commencing on January 1, 2021 and ending on December 31, 2021, of not less than 1.15 to 1.00; and

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(vi) for the remainder of the Term, of not less than 1.18 to 1.00.

“ Coverage Cure Multiplier ” means an amount determined by dividing (a) the aggregate number of beds licensed at the Facility which are the subject of (i) the Lease and (ii) the Affiliate Leases (as defined below), as of the date of determination, by (b) the aggregate number of beds licensed at the Facility leased by Guarantor or any direct or indirect subsidiary thereof pursuant to the Welltower Master Lease (as defined below), as of the date of determination. “ Affiliate Leases ” means each other lease between Landlord or any Affiliate thereof, on the one hand, and Guarantor or any direct or indirect subsidiary thereof, on the other.

“ Coverage Ratio ” means the ratio of (a) Net Operating Income (as defined below) for each applicable period; to (b) all real estate lease payments made or otherwise payable on a cash basis, regardless of accounting treatment, and interest payments made on a cash basis or otherwise payable by Guarantor for the applicable period. Notwithstanding the foregoing, income and expenses related to any facility owned or operated by Guarantor or any direct or indirect subsidiary thereof, shall be excluded from the calculation of the “Coverage Ratio” with respect to the first twelve month period after a certificate of occupancy is issued for such facility.

“ Net Operating Income ” means the pre-tax net income of Guarantor, collectively, plus (a) the amount of the provision for depreciation and amortization; plus (b) to the extent included in pre-tax income of Guarantor, collectively, the amount of the provision for interest and real estate lease payments, plus (c) the amount of any non-cash impairment charges, the amount of any loss from unusual or extraordinary items in excess of $100,000, the costs of any restructuring, and, to the extent approved by Landlord, acting reasonably, any other non-recurring loss, but excluding any impairments or expenses related to bad debts; minus (d) the amount of any cash or non-cash unusual or extraordinary gains and revenues that are in excess of $100,000, and, to the extent approved by Landlord, acting reasonably, any other non-recurring gains. Revenues and expenses of variable interest entities that are consolidated with Guarantor pursuant to GAAP will be excluded from the calculation of Net Operating Income. For the five quarters that follow February 2, 2015, Guarantor will add to Net Operating Income up to $25,000,000 of unrealized cost reductions or revenue enhancements (the “ Unrealized Synergy Add Back ”). In each measurement period, the Unrealized Synergy Add Back will be reduced by the amount of actual synergies realized, computed by Guarantor in good faith. Any cash held as security by Landlord, and the amount of any letters of credit held by Landlord pursuant to the terms of this Guaranty, shall, for the purposes of Sections 12(c) and 13 of this Guaranty (without duplication), be deemed to be “Net Operating Income” with respect to each period in which such cash or letters of credit are held by Landlord.

“ Welltower Master Lease ” means that certain 20th Amended and Restated Master Lease Agreement between FC-GEN Real Estate, LLC and Genesis Operations LLC, dated as of January 31, 2017, as amended by that certain First Amendment to 20th Amended and Restated Master Lease Agreement, dated as of the date hereof (as further amended, restated or supplemented from time to time).

13. Coverage Ratio Cure Right . Guarantor’s failure to meet the requirements of the Coverage Ratio under this Guaranty or any other guaranty provided in favor of Landlord or an Affiliate

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thereof with respect to any Affiliate Lease (each, an “ Affiliate Guaranty ”), shall not constitute a Guaranty Default (as defined in this Guaranty and each Affiliate Guaranty) or an Event of Default (as defined in the Lease and each Affiliate Lease) provided that (a) the actual Coverage Ratio is greater than or equal to 1.10 to 1.00, and (b) Guarantor, collectively, delivers a letter of credit (in form and substance, and issued by an issuer, reasonably satisfactory to Landlord) to Landlord (or an Affiliate thereof) equal to the Default Shortfall Amount (defined below) within 10 days following delivery of the Officer’s Certificates and Financial Statements for the applicable fiscal quarter. By delivering a single letter of credit to Landlord (or an Affiliate thereof) equal to the Default Shortfall Amount, Guarantor shall be deemed to have cured Guarantor’s failure to meet the requirements of the Coverage Ratio under this Guaranty and each Affiliate Guaranty. The “ Default Shortfall Amount ” for any fiscal quarter means an amount determined by multiplying (x) the Coverage Cure Multiplier, by an amount equal to (y)(i) the Net Operating Income required to achieve a Coverage Ratio of not less than the amount required pursuant to the Coverage Ratio (being 1.10 to 1.00, 1.12 to 1.00, 1.14 to 1.00, 1.15 to 1.00, or 1.18 to 1.00, as applicable) , less (ii) the actual Net Operating Income for the applicable period. Landlord will return the letter of credit delivered under this Section 13 within 30 days after receipt by Landlord of Officer’s Certificates and Financial Statements evidencing a Coverage Ratio of the amount required in clause pursuant to the Coverage Ratio (being 1.10 to 1.00, 1.12 to 1.00, 1.14 to 1.00, 1.15 to 1.00, or 1.18 to 1.00, as applicable) , for four consecutive fiscal quarters.

14. Notices . Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be sent by registered or certified mail, postage prepaid and return receipt requested, by hand delivery or express courier service, by email or by an overnight express service to the following address:



To Guarantor :	101 East State Street Kennett Square, Pennsylvania 19348 Telephone: 610-444-6350 Attention: Chief Executive Officer

With a copy to: (that shall not constitute notice)	101 East State Street Kennett Square, Pennsylvania 19348 Attention: Law Department

With a copy to: (that shall not constitute notice)	Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Attn: Neil L. Rock Phone: +1 212 735 3787

To Landlord :	c/o Sabra Health Care REIT, Inc. 18500 Von Karman Avenue, Suite 550 Irvine, CA 92612 Attention: Chief Executive Officer

With a copy to: (that shall not constitute notice)	Sherry Meyerhoff Hanson & Crance LLP 610 Newport Center Drive, Suite 1200 Newport Beach, CA 92660-6445 Attention: Kevin L. Sherry, Esq.

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or to such other address as either party may hereafter designate. Notice shall be deemed to have been given on the date of delivery if such delivery is made on a Business Day, or if not, on the first Business Day after delivery. If delivery is refused, Notice shall be deemed to have been given on the date delivery was first attempted. Notice sent by email shall be deemed given (i) if sent by email before 5:00 p.m. (Eastern time) on a Business Day, when transmitted; (ii) if sent by email on a day other than a Business Day or after 5:00 p.m. (Eastern time) on a Business Day, on the following Business Day.

15. Miscellaneous .

(a) No term, condition or provision of this Guaranty may be waived except by an express written instrument to that effect signed by Landlord. No waiver of any term, condition or provision of this Guaranty will be deemed a waiver of any other term, condition or provision, irrespective of similarity, or constitute a continuing waiver of the same term, condition or provision, unless otherwise expressly provided.

(b) If any one or more of the terms, conditions or provisions contained in this Guaranty is found in a final award or judgment rendered by any court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining terms, conditions and provisions of this Guaranty shall not in any way be affected or impaired thereby, and this Guaranty shall be interpreted and construed as if the invalid, illegal, or unenforceable term, condition or provision had never been contained in this Guaranty.

(c) THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, EXCEPT THAT THE LAWS OF THE STATE WHERE THE FACILITY IS LOCATED SHALL GOVERN THIS AGREEMENT TO THE EXTENT NECESSARY (I) TO OBTAIN THE BENEFIT OF THE RIGHTS AND REMEDIES SET FORTH HEREIN WITH RESPECT TO THE FACILITY AND (II) FOR PROCEDURAL REQUIREMENTS WHICH MUST BE GOVERNED BY THE LAWS OF SUCH STATE. GUARANTOR CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF CALIFORNIA AND AGREES THAT ALL DISPUTES CONCERNING THIS GUARANTY SHALL BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA. GUARANTOR FURTHER CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS OF EACH STATE WITH RESPECT TO ANY ACTION COMMENCED BY LANDLORD SEEKING TO RETAKE POSSESSION OF ANY OR ALL OF THE LEASED PROPERTY IN WHICH GUARANTOR IS REQUIRED TO BE NAMED AS A NECESSARY PARTY. GUARANTOR AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATE OF CALIFORNIA AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF CALIFORNIA OR, TO THE EXTENT APPLICABLE IN ACCORDANCE WITH THE TERMS HEREOF, LOCATED IN THE STATE WHERE THE FACILITY IS LOCATED.

(d) EACH OF THE GUARANTOR, BY ITS EXECUTION OF THIS GUARANTY, AND THE LANDLORD, BY THEIR ACCEPTANCE OF THIS GUARANTY, HEREBY WAIVE TRIAL BY JURY AND THE RIGHT THERETO IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING ON, UNDER, OUT OF, BY REASON OF OR RELATING IN ANY WAY TO THIS GUARANTY OR THE INTERPRETATION, BREACH OR ENFORCEMENT THEREOF.

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(e) In the event of any suit, action, arbitration or other proceeding to interpret this Guaranty, or to determine or enforce any right or obligation created hereby, the prevailing party in the action shall recover such party's reasonable costs and expenses incurred in connection therewith, including, but not limited to, reasonable attorneys' fees and costs of appeal, post judgment enforcement proceedings (if any) and bankruptcy proceedings (if any). Any court, arbitrator or panel of arbitrators shall, in entering any judgment or making any award in any such suit, action, arbitration or other proceeding, in addition to any and all other relief awarded to such prevailing party, include in such judgment or award such party's reasonable costs and expenses as provided in this paragraph.

(f) Guarantor (i) represents that it has been represented and advised by counsel in connection with the execution of this Guaranty; (ii) acknowledges receipt of a copy of the Lease; and (iii) further represents that Guarantor has been advised by counsel with respect thereto. This Guaranty shall be construed and interpreted in accordance with the plain meaning of its language, and not for or against Guarantor or Landlord, and as a whole, giving effect to all of the terms, conditions and provisions hereof.

(g) Except as provided in any other written agreement now or at any time hereafter in force between the Landlord and Guarantor, this Guaranty shall constitute the entire agreement of Guarantor with Landlord with respect to the subject matter hereof, and no representation, understanding, promise or condition concerning the subject matter hereof will be binding upon Landlord or Guarantor unless expressed herein.

(h) All stipulations, obligations, liabilities and undertakings under this Guaranty shall be binding upon Guarantor and its respective successors and assigns and shall inure to the benefit of Landlord and to the benefit of Landlord's successors and assigns.

Whenever the singular shall be used hereunder, it shall be deemed to include the plural (and vice-versa) and reference to one gender shall be construed to include all other genders, including neuter, whenever the context of this Guaranty so requires. Section captions or headings used in the Guaranty are for convenience and reference only, and shall not affect the construction thereof.

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EXECUTED as of the date first set forth above.

GUARANTOR:

GENESIS HEALTHCARE, INC .,
a Delaware corporation

By:

Name: Michael S. Sherman

Title: Senior Vice President

LANDLORD:

[ __________________ , ]

a [ ___________________ ]

By:

Name:

Title:

S - 1

[ __________ ] AMENDMENT TO LEASE
([ _____________ ])

THIS [ ________ ]AMENDMENT TO LEASE (the “ Agreement ”) is made and entered into as of May 4, 2017 (the “ Effective Date ”) by and among [ ________, a ________ ] (“Landlord”); [ ________, a ________ ] (“Tenant”); and GENESIS HEALTHCARE, INC . (f/k/a SKILLED HEALTHCARE GROUP, INC .), a Delaware corporation (“ Guarantor ”), with reference to the following Recitals:

R E C I T A L S:

B. Pursuant to that certain [ ______ ] Amended and Restated Guaranty of Lease dated as of the date hereof (as amended, supplemented or otherwise modified from time to time, the “ Guaranty ”), Guarantor agreed to guaranty the obligations of Tenant under this Lease.

C. Tenant has requested that Landlord consent to the modification of certain terms of the Lease and Tenant and Landlord now desire to amend the Lease in accordance with the terms set forth herein.

A G R E E M E N T

1. Amendment to Lease .

(a) The following defined term set forth in Section 2.1 of the Lease, is hereby deleted in its entirety and substituted with the following:

“ Liquidity Thresholds : Liquidity as follows:

(i) for the period commencing on June 30, 2016 and ending December 31, 2017, of no less than $100,000,000.00;

(ii) for the period commencing January 1, 2018 and ending December 31, 2018, of no less than $120,000,000.00;

(iii) for the period commencing January 1, 2019 and ending March 31, 2021, of no less than $130,000,000.00;

(iv) for the remainder of the Term, of no less than $140,000,000.00.”

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2. Affirmation of Obligations .

4. Incorporation of Recitals . The Recitals to this Agreement are incorporated hereby by reference.

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF , the parties have executed this Agreement as of the date first above written.

TENANT :

[ __________________ , ]

a [ ___________________ ]

By:

Name:

Title:

GUARANTOR :

GENESIS HEALTHCARE, INC.,
a Delaware corporation

By:

Name:

Title:

LANDLORD :

[ __________________ , ]

a [ ___________________ ]

By:

Name:

Title:

S-1

Exhibit 12.1

SABRA HEALTH CARE REIT, INC. AND SUBSIDIARIES

COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES

AND PREFERRED STOCK DIVIDENDS

(dollars in thousands)



		Three Months Ended March 31,
		2017			2016

Earnings
	Pre-tax net income (loss)	$	18,791		$	(15,743	)
	Add:
	Fixed charges	15,804			16,932
	Noncontrolling interest	32			32
Earnings, as adjusted		$	34,627		$	1,221

Fixed charges
	Interest expensed and capitalized	$	14,483		$	15,670
	Amortized premiums, discounts and capitalized expenses related to indebtedness	1,305			1,248
	Estimate of interest within rental expense	16			14
Fixed charges, as adjusted		15,804			16,932
Preferred stock dividends		2,561			2,561
Combined fixed charges and preferred stock dividends		$	18,365		$	19,493

Ratio of earnings to fixed charges ⁽¹⁾		2.19		x	0.07		x

Ratio of earnings to combined fixed charges and preferred stock dividends ⁽¹⁾		1.89		x	0.06		x

⁽¹⁾ The ratio coverages during the three months ended March 31, 2016 were less than 1:1. In order to achieve a fixed charges and combined fixed charges and preferred stock dividend coverage of 1:1, the registrant would have needed to generate additional earnings of $15.7 million and $18.3 million, respectively, during the three months ended March 31, 2016.

Exhibit 31.1

Certification of Chief Executive Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard K. Matros, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Sabra Health Care REIT, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2017

/S/ RICHARD K. MATROS

Richard K. Matros

Chairman, President and

Chief Executive Officer

Exhibit 31.2

Certification of Chief Financial Officer pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Harold W. Andrews, Jr., certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Sabra Health Care REIT, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 8, 2017

/S/ HAROLD W. ANDREWS, JR.

Harold W. Andrews, Jr.

Executive Vice President,

Chief Financial Officer and Secretary

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sabra Health Care REIT, Inc. (the “Registrant”) for the three months ended March 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard K. Matros, as Chairman, President and Chief Executive Officer of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: May 8, 2017

/S/ RICHARD K. MATROS

Richard K. Matros

Chairman, President and

Chief Executive Officer

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as Adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Sabra Health Care REIT, Inc. (the “Registrant”) for the three months ended March 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Harold W. Andrews, Jr., the Executive Vice President, Chief Financial Officer and Secretary of the Registrant, hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: May 8, 2017

/S/ HAROLD W. ANDREWS, JR.

Harold W. Andrews, Jr.

Executive Vice President,

Chief Financial Officer and Secretary